UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-36798
PANGAEA LOGISTICS SOLUTIONS, LTD.
(Exact Name of Registrant as Specified in Its Charter)
Bermuda
(State or Other Jurisdiction of Incorporation or
Organization)
c/o Phoenix Bulk Carriers (US) LLC
109 Long Wharf, Newport, RI 02840
(Address of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
98-1205464
(I.R.S. Employer Identification Number)
(401) 846-7790
(Registrant’s Telephone Number, Including Area Code)
Title of each class
Common Shares, $0.0001 par value
Trading Symbol(s)
PANL
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirement 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 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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 definition of “accelerated filer” and “large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated Filer
Non-accelerated Filer
☐
☐
Accelerated Filer
Smaller reporting company
Emerging growth company
☒
☒
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 aggregate market value of the registrant's Common Stock held by non-affiliates at June 30, 2023 was approximately $244.9 million based on the Nasdaq closing price for such shares on that
date. The registrant has no non-voting common equity.
As of March 12, 2024, 46,721,228 shares of Common Shares, $0.0001 par value per share were outstanding.
2
PART I
PART II
PART III
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
TABLE OF CONTENTS
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3
5
5
34
57
58
58
58
60
60
60
63
75
75
75
75
76
77
78
78
81
85
86
87
F-1
In this Annual Report on Form 10-K (this “Form 10-K”), references to “the Company,” “we,” “us” and “our” refer to Pangaea Logistics Solutions Ltd
and its subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this Annual Report on Form 10-K pertaining to our operations, cash flows and financial position, including, in particular, the
likelihood of our success in developing and expanding our business, include forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such
as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “forecasts,” “may,” “should” and similar expressions are forward-looking
statements.
All statements in this Form 10-K that are not statements of either historical or current facts are forward-looking statements. Forward-looking statements
include, but are not limited to, such matters as:
•
•
•
•
•
•
•
•
our future operating or financial results;
our ability to charter-in vessels and to enter into COAs ("Contract of Affreightment"), voyage charters, time charters and forward freight
agreements, and the performance of our counterparties in such contracts;
our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other
general corporate activities;
our expectations of the availability of vessels to purchase, the time it may take to construct new vessels, and vessels’ useful lives;
competition in the drybulk shipping industry;
our business strategy and expected capital spending or operating expenses, including drydocking and insurance costs and the ability to expand our
presence in logistics trades and custom supply chain management;
global and regional economic and political conditions and sanctions, including war and piracy; and
statements about shipping market trends, including charter rates and factors affecting supply and demand.
Many of these statements are based on our assumptions about factors that are beyond our ability to control or predict and are subject to risks and
uncertainties that are described more fully under the “Risk Factors” section of this Form 10-K. Any of these factors or a combination of these factors could
materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. Factors that might cause future results to differ
include, but are not limited to, the following:
•
•
•
•
•
•
•
changes in governmental rules and regulations or actions taken by regulatory authorities;
cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;
changes in economic and competitive conditions affecting our business, including market fluctuations in charter rates and charterers’ abilities to
perform under existing time charters;
potential liability from future litigation and potential costs due to environmental damage and vessel collisions;
the impact of sanctions on movement of commodities and demand for supply of drybulk vessels;
the length and number of off-hire periods; and
other factors discussed under the “Risk Factors” section of this Form 10-K.
You should not place undue reliance on forward-looking statements contained in this Annual Report on Form 10-K because they are statements about events
that are not certain to occur as described or at all. All forward-looking statements in this Form 10-K are qualified in their entirety by the cautionary
statements contained in this Form 10-K. These forward-looking statements
4
are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking
statements.
Except to the extent required by applicable law or regulation, we undertake no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.
PART I.
ITEM 1. BUSINESS
Introduction
Pangaea Logistics Solutions Ltd. and its subsidiaries (collectively, “Pangaea” or the “Company”) provides seaborne drybulk logistics and transportation
services as well as terminal and stevedoring services. Pangaea utilizes its logistics expertise to service a broad base of industrial customers who require the
transportation of a wide variety of drybulk cargoes, including grains, coal, iron ore, pig iron, hot briquetted iron, bauxite, alumina, cement clinker, dolomite
and limestone. The Company addresses the logistics needs of its customers by undertaking a comprehensive set of services and activities, including cargo
loading, cargo discharge, port and terminal operations, vessel chartering, voyage planning, and vessel technical management.
Business overview and Recent Developments
The Company provides ocean transportation services to clients utilizing an ocean-going fleet of motor vessels ("m/v") in the Handymax, Supramax,
Ultramax and Panamax and Post-Panamax segments. At any time, this fleet may be comprised of a total of 45-60 vessels that are owned or chartered-in on a
short-term basis. During 2023, the Company operated 26 vessels which were wholly-owned or partially-owned through joint ventures. The Company uses
this fleet to transport approximately 22 million tons of cargo annually to nearly 225 ports around the world, averaging approximately 46 vessels in service
daily in 2023 and 49 during 2022.
The Company’s port, projects, and logistics services include cargo loading, cargo discharge, and port and terminal services to vessel and cargo owners. Our
logistics capabilities provide a wide array of services which allow our customers to extend their own services, to more efficiently transport their cargo, and
to extend relationships with their own suppliers and customers. For some customers, the Company acts as their ocean logistics department, providing
scheduling, terminal operations, port services, and marketing functions. The Company has worked with other customers on design, construction, and
operation of loading and discharge facilities.
In addition, the Company focuses on fixing cargo and cargo contracts for transportation on backhaul routes. Backhaul routes position vessels for cargo
discharge in typical loading areas. Backhaul routes allow us to reduce ballast days and instead earn revenues at times and on routes that are typically
traveled without paying cargo.
The Company is a leader in the high ice class sector, supported by its operation of the world's largest fleet of dry bulk vessels over 60,000 dwt with Ice-
Class 1A designation. High ice class trading includes service in ice-restricted areas in the Northern Hemisphere during both the winter (Baltic Sea and Gulf
of St. Lawrence) and summer (Arctic Ocean). Trading during the ice seasons have historically provided superior profit margins, rewarding the Company for
its investment in the specialized ships and the expertise it has developed working in these harsh environments.
The Company derives substantially all of its revenue from contracts of affreightment, “COAs”, voyage charters, and time charters. The Company transports
a wide range of fundamental global commodities including grains, coal, iron ore, pig iron, hot briquetted iron, bauxite, alumina, cement clinker, dolomite,
limestone, and other minor bulk cargo.
The Company’s COAs typically extend for a period of one to five years, although some extend for longer periods. A voyage charter is a contract for the
carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. COAs and voyage charters
provide voyage revenue to the Company. A time charter is a contract under which the Company is paid to provide a vessel on a per day basis for a specified
period of time. Time charters provide charter revenues to the Company.
Active risk management is an important part of our business model. The Company believes its active risk management allows it to reduce the sensitivity of
its revenues to market fluctuations and helps it to secure its long-term profitability and lower relative volatility of earnings. We manage market risk by
chartering in vessels for periods of less than nine months on average and
5
through a portfolio approach based upon owned vessels, chartered-in vessels, COAs, voyage charters, and time charters. The Company tries to identify
routes and ports for efficient bunkering to minimize its fuel expense. The Company also seeks to hedge a portion of its exposure to changes in the price of
marine fuels, or bunkers, through fuel swaps; and to fluctuating future freight rates through forward freight agreements. The Company has also entered into
interest rate agreements to fix a portion of our interest rate exposure.
The Company employs the technical management services of Seamar Management S.A. which is 51% owned by the Company, and Bernard Schulte
Shipmanagment, a third party, for its ice class 1A fleet.
Business Strategy
The Company’s principal business objectives are to profitably grow its business and increase shareholder value. The Company expects to achieve these
objectives through the following strategies:
•
•
•
•
Focus on increasing strategic COAs. COA is an agreement providing for the transportation between specified points for a specific quantity of cargo
over a specific time period but without designating specific vessels or voyage schedules, thereby allowing flexibility in scheduling since no vessel
designation is required. COAs can either have a fixed rate or a market-related rate. The Company intends to increase our COA business, in
particular, COAs for cargo discharge in traditional loading areas (backhaul), by leveraging its relationships with existing customers and attracting
new customers. The Company believes that its dedication to solving its customer’s logistics problems, and its reputation and experience in carrying
a wide range of cargoes and transiting less common routes and ports, increases its likelihood of securing strategic COAs. COA’s provide a consistent
cargo base and revenue for our transportation services, around which we attempt to structure other logistics offerings.
Expand capacity and flexibility by renewing its owned fleet and invest in ice class niche. The Company is continually looking to acquire additional
high-quality vessels suited for its business strategy, the needs of its customers and growth opportunities the Company identifies. The Company
believes that its experience as a reliable and serious counterparty in the purchase and sale market for second-hand vessels positions it as a candidate
for acquisition of high quality vessels. The Company currently controls (owns or has an ownership interest in) a fleet of 24 bulk carriers as of
March 14, 2024. The current fleet includes six Ice-Class 1A Panamax, four Post Panamax Ice Class 1A, three Panamax, two Ultramax Ice Class 1C,
two Ultramax and seven Supramax drybulk vessels.
Increase backhaul focus, expand and defend its presence in the niche ice trades and increase fleet efficiency. The Company continues to focus on
backhaul cargoes, including backhaul cargoes associated with COAs, to reduce ballast days and increase expected earnings for well-positioned
vessels. In addition, the Company intends to continue to charter in vessels for periods of less than nine months, on average, to permit it to match its
variable costs to demand. The Company believes that increased vessel utilization and positioning efficiency will enhance its profitability. The
Company demonstrated its commitment to remain the leader in high ice class large bulk carriers by taking delivery of its four newbuilding Post
Panamax Ice Class vessels in 2021.
Focus on customized and complete logistics solutions within targeted dry bulk trades. The Company intends to leverage its experience in
designing custom loading and discharging systems in critical ports and optimizing vessel operations in ports to provide complete logistics solutions
to its clients. The Company continues to look for opportunities to transport cargo for clients from, or to, rarely used or underdeveloped port facilities
to expand its operations. The Company believes this operational expertise and complete logistics solutions will enhance the services offered,
strengthen our client relationships and generate increased operating margins for the Company.
Competitive Strengths
The Company believes that it possesses a number of competitive strengths in its industry, including:
•
Expertise in certain niche markets and routes. The Company has developed expertise and a major presence in selected niche markets and less
commoditized routes, especially the Baltic Sea in winter, the Northern Sea Route between Europe and Asia in summer, and the trade route between
Jamaica and the United States, as well as selected ports, particularly in Newfoundland and Baffin Island. The Company believes that there is less
competition to carry “minor,” as compared to traditional “major,” bulk cargoes, and, similarly, that there is less competition on less commoditized
routes. The Company believes that its experience in carrying a wide range of cargoes and transiting less common routes and ports increases its
likelihood of securing higher rates and margins than those available for more commoditized cargoes and routes. The Company believes it operates
assets well suited to certain of these routes, including its Ice-
6
•
•
•
•
•
•
Class 1A Panamax, Post Panamax Ice Class 1A and Ice-Class 1C Ultramax vessels. The ice-class fleet has historically produced margins that are
superior to the average market rate.
Enhanced vessel utilization and profitability through strategic backhaul and triangulation methods. The Company enhances vessel utilization and
profitability through selecting COAs and other contracts to carry cargo on what would normally be backhaul or ballast legs. In contrast to the typical
practice of incurring charter hire and bunker costs to position an empty vessel in a port or area where cargo is normally loaded, the Company instead
actively works with its customers to secure cargoes for discharge in traditional loading areas (backhaul). This practice allows the Company to
position vessels for loading at lower costs than it would bear if it positioned such vessels by traveling unladen or if the Company chartered in vessels
in a loading area. The Company believes that this focus on backhaul cargoes permits them to benefit from ballast bonuses that are paid to position
vessels for fronthaul cargoes or, alternatively, to earn a premium for delivering ships that are in position for fronthaul cargoes.
Strong relationships with major industrial customers. The Company has developed strong commercial relationships with a number of major
industrial customers. These customer relationships are based upon the Company’s reputation and specific history of service to these customers. The
Company believes that these relationships help it generate recurring business with such customers which, in some cases, are formalized through
contracts for repeat business (COAs). The Company also believes that these relationships can help create new opportunities. Although many of
these relationships have extended over a period of years, there is no assurance that such relationships or business will continue in the future. The
Company believes that its familiarity with local regulations and market conditions at its routinely serviced ports, particularly in Newfoundland,
Baffin Island and Jamaica, provides it with a strong competitive advantage and allows it to attract new customers and secure recurring business.
Logistics approach to commodity business. The Company seeks employment for its vessels in a way that utilizes its expertise in enhancing
productivity of clients' supply chains. The Company focuses on movements of cargo beyond loading and discharge berths and looks for
opportunities to add value in clients' supply chains. The Company believes its additional efforts in providing complete logistics provides a
competitive advantage and allows it to maintain strong client relationships and generate increased operating margins for the Company.
Experienced management team. The day-to-day operations of a logistics and transportation services company requires close coordination among
customers, land-based transportation providers and port authorities around the world. Its efficient operation depends on the experience and expertise
of management at all levels, from vessel acquisition and financing strategy to oversight of vessel technical operations and cargo loading and
discharge. The Company has a management team of senior executive officers and key employees with extensive experience and relationships in the
commercial, technical, and financial areas of the drybulk shipping industry.
Strong Alignment and Transparency. The Company observes that many publicly traded shipping companies rely on service providers affiliated
with senior management or dominant shareholders for fundamental activities. Beyond the operational benefits to its customers of integrated
commercial and technical management, the Company believes that its shareholders are benefited by its strategy of performing many of those
activities in-house. Related to these efforts to maximize alignment of interest, the Company believes that the associated transparency of ownership
and authority will be attractive to current and prospective shareholders.
Risk-management discipline. The Company believes its risk management strategy allows it to reduce the sensitivity of its earnings to market
changes and lower the risk of losses. The Company manages its risks primarily through short-term charter-in agreements of less than nine months,
on average, through the use of forward freight agreements ("FFAs") and fuel hedges, and through modest leverage. The Company believes that
shorter-term charters permit it to adjust its variable costs to match demand more rapidly than if it chartered in those vessels for longer periods. The
Company may choose to manage the risks of higher rates for certain future voyages by purchasing and selling FFAs to limit the impact of changes in
chartering rates. Similarly, the Company may choose to manage the risks of increasing fuel costs through bunker hedging transactions in order to
limit the impact of changes in fuel prices on voyage results.
Management
The Company’s management team consists of senior executive officers and key employees with decades of experience in the commercial, technical,
management and financial areas of the logistics and shipping industries. The Company’s Chief Executive Officer, Mark Filanowski, has over 30 years of
experience in the shipping industry. Other members of its management team, Mads Boye Petersen and Gianni Del Signore, also have extensive experience
in the shipping industry. The Company believes its management team and key employees are well respected in the drybulk sector of the shipping industry
7
and, over the years, has developed strong commercial relationships with industrial customers and lenders. The Company believes that the experience,
reputation and background of its management team will continue to be key factors in its success.
The Company provides logistics services and commercially manages its fleet primarily from offices in Newport, Rhode Island, Copenhagen, Denmark and
Singapore. Logistics services and commercial management include identifying cargo for transportation, voyage planning, managing relationships,
identifying vessels to charter in, and operating such vessels.
The Company’s Ice-Class 1A Panamax vessels are technically managed by a third-party manager. The technical management of the remainder of the
Company’s owned fleet is performed in-house by our 51% owned joint venture, Seamar Management, S.A.. The Company’s technical management
personnel have experience in the complexities of oceangoing vessel operations, including the supervision of maintenance, repairs, improvements,
drydocking and crewing. The technical management for the Company’s chartered-in vessels is performed by each respective third party ship owner.
Operations and Assets
The Company is a service business and our customers use the services we provide because they believe the Company adds and creates value for them. To
add value, the Company offers a wide range of logistics services beyond the traditional loading, carriage and discharge of cargoes. The Company works
with certain customers to review their contractual delivery terms and conditions, permitting those customers to reduce costs and certain risks. Another
example of value-added services is the formation of a new port in Newfoundland, Canada to load aggregate cargo for export and a temporary port used in
Greenland to load the northernmost dry bulk cargo ever carried. As a result of efforts such as these, in some cases the Company is the de facto logistics
department for certain clients.
The Company’s core offering is the safe, reliable, and timely loading, carriage, and discharge of cargoes for customers. This offering requires identifying
customers, agreeing on the terms of service, selecting a vessel to undertake the voyage, working with port personnel to load and discharge cargo, and
documenting the transfers of title upon loading or discharge of the cargo. As a result, the Company spends significant time and resources to identify and
retain customers and source potential cargoes in its areas of operation. To further expand its customer base and potential cargoes, the Company has
developed expertise in servicing ports and routes subject to severe ice conditions, including the Baltic Sea and the Northern Sea Route.
8
As of March 14, 2024, the Company operates its fleet of 24 owned or partially owned vessels, which are described in the table below:
Vessel Name
m/v Bulk Endurance
m/v Bulk Destiny
m/v Nordic Oasis
m/v Nordic Olympic
m/v Nordic Odin
m/v Nordic Oshima
m/v Nordic Orion
m/v Nordic Odyssey
m/v Bulk Valor
m/v Bulk Friendship
m/v Bulk Sachuest
m/v Bulk Spirit
m/v Bulk Independence
m/v Bulk Pride
m/v Bulk Freedom
m/v Bulk Prudence
m/v Bulk Courageous
m/v Bulk Promise
m/v Bulk Concord
m/v Bulk Xaymaca
m/v Nordic Nuluujaak
m/v Nordic Qinngua
m/v Nordic Sanngijuq
m/v Nordic Siku
(1)
Type
DWT
Year Built
Yard
Ultramax (Ice Class 1C)
Ultramax (Ice Class 1C)
Panamax (Ice Class 1A)
Panamax (Ice Class 1A)
Panamax (Ice Class 1A)
Panamax (Ice Class 1A)
Panamax (Ice Class 1A)
Panamax (Ice Class 1A)
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Supramax
Ultramax
Ultramax
Panamax
Panamax
Panamax
Post Panamax (Ice Class 1A)
Post Panamax (Ice Class 1A)
Post Panamax (Ice Class 1A)
Post Panamax (Ice Class 1A)
59,450
59,450
76,180
76,180
76,180
76,180
75,603
75,603
58,105
58,738
55,618
52,950
56,548
58,749
52,454
61,330
61,393
78,228
76,600
76,561
95,000
95,000
95,000
95,000
2017
2017
2016
2015
2015
2014
2011
2010
2013
2011
2010
2009
2008
2008
2005
2014
2013
2013
2009
2006
2021
2021
2021
2021
Oshima Shipbuilding
Oshima Shipbuilding
Oshima Shipbuilding
Oshima Shipbuilding
Oshima Shipbuilding
Oshima Shipbuilding
Oshima Shipbuilding
Oshima Shipbuilding
Tsuneishi Heavy Industries (Cebu)
Nantong Cosco Kawasaki HI
Hyundai Vinashin
Oshima Shipbuilding
Yokohama
Tsuneishi Group (Zhoushan) Shipbuilding Inc.
Tsuneishi Shipbuilding Co. Ltd.
Imabari Shipbuilding
Imabari Shipbuilding Company Limited (Imabari)
Shin Kurushima Toyohashi Shipbuilding Company Limited
Shin Kasado Dockyard Co. Ltd
Imabari SB Marugame
Guangzhou Shipyard International Company Limited
Guangzhou Shipyard International Company Limited
Guangzhou Shipyard International Company Limited
Guangzhou Shipyard International Company Limited
(1)
Formerly known as m/v Bulk PODS
The Company owns its vessels through separate wholly-owned subsidiaries and through joint venture entities with other owners, which the Company
consolidates as variable interest entities in its consolidated financial statements.
On September 28, 2020, the Company acquired an additional one-third equity interest in its partially-owned consolidated subsidiary Nordic Bulk Holding
Company Ltd. (“NBHC”) from one of NBHC’s shareholders. The Company owns two-thirds of NBHC after the acquisition. NBHC is a corporation that
was duly organized under the laws of Bermuda in October 2012. The m/v Nordic Orion (“Orion”), the m/v Nordic Odyssey (“Odyssey”), the m/v Nordic
Oshima (“Oshima”), the m/v Nordic Olympic (“Olympic”), the m/v Nordic Odin (“Odin”) and the m/v Nordic Oasis (“Oasis”) are owned by wholly-owned
subsidiaries of NBHC. All of these vessels are time chartered to Pangaea Denmark, a wholly-owned subsidiary of the Company, at fixed rates and also have
a profit share arrangement. Pangaea Denmark commercially operates these vessels in spot and COA trades.
In September 2019, the Company entered into an LLC agreement for the formation of NBP, that, at inception is owned 75% by the Company and 25% by an
independent third party. NBP was established for the purpose of constructing and owning four new-build ice class post-Panamax vessels. The Company
took delivery of Nordic Nuluujaak, Nordic Qinngua, Nordic Sanngijuq and Nordic Siku during the second quarter through fourth quarters of 2021. The
independent third party made additional contribution which increased their ownership interest in NBP to 50% at December 31, 2022. No change of control
transactions occurred according to the NBP LLC agreement.
The Company operates a variety of chartered-in drybulk carriers in addition to its owned vessels. These chartered-in vessels, including Panamax, Supramax,
Ultramax, Handymax, and Handysize vessels, play a significant role in the Company's operations. The Company employed an average of 46 vessels at any
one time during 2023 and 49 in 2022. In 2023, the Company owned interests in 26 vessels and chartered in another 185 for one or more voyages. In 2022,
the Company owned interests in 26 vessels and chartered in another 183 for one or more voyages. The Company generally charters in third-party vessels for
periods of less than nine months and, in most cases, less than six months. Chartered-in contracts are negotiated through third-party brokers, who are paid
commission on a percentage of charter cost. The Company believes that shorter-term charters afford it flexibility to match its variable costs to its customers’
service requirements and to respond quickly to market
9
volatility. The Company also believes that this combination of owned and chartered-in vessels helps it to more efficiently match its customer demand than
the Company could with only owned vessels or an entirely chartered-in fleet.
Corporate Structure
The Company is a holding company incorporated under the laws of Bermuda as an exempted company on April 29, 2014. The Company’s principal
executives operate from the offices of its wholly-owned subsidiary Phoenix Bulk Carriers (US) LLC, which is located at 109 Long Wharf, Newport, Rhode
Island 02840.The phone number at that address is (401) 846-7790. The Company also has offices in Copenhagen, Denmark, Athens, Greece and Singapore.
The Company’s corporate website address is http://www.pangaeals.com.
10
As of March 14, 2024, the Company’s significant subsidiaries are as follows:
Company Name
Americas Bulk Transport (BVI) Limited
Phoenix Bulk Management Bermuda Limited
Pangaea Logistics Solutions (BVI) Limited (“Pangaea BVI”)
Bulk Ocean Shipping Company (Bermuda) Ltd.
Phoenix Bulk Carriers (US) LLC
Allseas Logistics Bermuda Ltd.
Bulk Trident Ltd. (“Bulk Trident”)
Pangaea Logistics Solutions Denmark A/S. ("Pangaea Denmark") (formerly known
as Nordic Bulk Carriers A/S)
Nordic Bulk Ventures (Cyprus) Limited ("NBV")
109 Long Wharf LLC (“Long Wharf”)
Bulk Nordic Oshima (MI) Corp. (“Bulk Oshima”)
Bulk Nordic Odin (MI) Corp. (“Bulk Odin”)
Bulk Nordic Olympic (MI) Corp. (“Bulk Olympic”)
Bulk Nordic Oasis (MI) Corp.. (“Bulk Oasis”)
Bulk Nordic Odyssey Corp. (MI)
Bulk Nordic Orion Corp. (MI)
Nordic Bulk Holding Company Ltd. (“NBHC”)
Bulk Courageous Corp. ("Bulk Courageous")
Bulk Phoenix Ltd. ("Bulk Newport")
Bulk Valor Corp. ("Bulk Valor")
Bulk Promise Corp. ("Bulk Promise")
Bulk Nordic Five Ltd. (“Five”)
Bulk Nordic Six Ltd. (“Six”)
Bulk Nordic Seven LLC (“Seven”)
Bulk Nordic Eight LLC (“Eight”)
Bulk Nordic Nine LLC (“Nine”)
Bulk Nordic Ten LLC (“Ten”)
Nordic Bulk Partners LLC (“NBP”)
Nordic Bulk Ventures Holding Company Ltd. (“BVH”)
Bulk Freedom Corp. ("Bulk Freedom")
Bulk Pride Corp. ("Bulk Pride")
Bulk Independence Corp. ("Bulk Independence")
Bulk Friendship Corp. ("Bulk Friendship")
Phoenix Bulk 25 Corp. ("Phoenix Bulk 25")
Bulk Sachuest Corp. ("Bulk Sachuest")
Bulk Prudence Corp. ("Bulk Prudence")
Venture Logistics NL Inc. ("VLNL")
Flintstone Ventures Limited ("FVL")
Seamar Management S.A.
Bulk PODS Ltd. ("Bulk PODS")
Bulk Spirit Ltd. ("Bulk Spirit")
Pangaea Logistics Solutions Singapore Pte. Ltd.
Narragansett Bulk Carriers (US) Corp.
Patriot Stevedoring & Logistics, LLC
Bay Stevedoring LLC
Pangaea Logistics Solutions (US) LLC ("PANL US")
Pangaea Baltimore LLC
Pangaea Port Everglades LLC
Country of Organization
British Virgin Islands
Bermuda
British Virgin Islands
Bermuda
Delaware
Bermuda
Bermuda
Denmark
Cyprus
Delaware
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Bermuda
Marshall Islands
Bermuda
Marshall Islands
Marshall Islands
Bermuda
Bermuda
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Bermuda
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Canada
Newfoundland and Labrador
Greece
Marshall Islands
Marshall Islands
Singapore
Rhode Island
Massachusetts
Delaware
Delaware
Delaware
Delaware
Proportion of Ownership
Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
67%
67%
67%
67%
67%
67%
67%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
51%
100%
100%
100%
100%
50%
100%
100%
100%
100%
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(H)
(I)
(J)
(J)
(J)
(J)
(K)
(K)
(L)
(G)
(G)
(G)
(G)
(G)
(G)
(G)
(G)
(G)
(G)
(M)
(A)
(G)
(G)
(G)
(G)
(G)
(G)
(G)
(N)
(O)
(P)
(G)
(G)
(H)
(H)
(Q)
(R)
(S)
(R)
(R)
(A) The primary purpose of this corporation is to manage and operate ocean going vessels.
(B) The primary purpose of this entity is to perform certain administrative management functions that have been assigned by PBC.
11
(C) The primary purpose of this corporation is to provide logistics services to customers by chartering, managing and operating ships. Formerly known as Phoenix Bulk
Carriers (BVI) Limited.
(D) The primary purpose of this corporation is to manage the fuel procurement for all vessels.
(E) The primary purpose of this corporation is to act as the U.S. administrative agent for the Company.
(F) The primary purpose of this corporation is to act as the treasury agent for the Company.
(G) The primary purpose of these entities is owning bulk carriers.
(H) The primary purpose of these entities is to provide logistics services to customers by chartering, managing and operating ships. NBV is the holding company of Pangaea
Denmark. Formerly known as Nordic Bulk Carriers A/S.
(I) Long Wharf is a limited liability company duly organized under the laws of Delaware for the purpose of holding real estate located in Newport, Rhode Island.
(J) The primary purpose of these entities is owning bulk carriers. These companies are wholly-owned by NBHC, which is two-third owned by the Company.
(K) The primary purpose of this entity is to transfer ownership of the m/v Nordic Odyssey and m/v Nordic Orion.
(L) The primary purpose of this entity is to own or lease bulk carriers through wholly-owned subsidiaries. The Company’s interest in Bulk Odyssey, Bulk Orion, Bulk
Oshima, Bulk Olympic, Bulk Odin and Bulk Oasis is through its interest in NBHC.
(M) The primary purpose of this entity is to own or lease bulk carriers through wholly-owned subsidiaries.
(N) The primary purpose of VLNL is to own and operate the deck barge Miss Nora G. Pearl.
(O) The primary purpose of FVL is the carriage of specialized cargo.
(P) This entity is the technical manager of 14 vessels owned and operated by the Company.
(Q) The primary purpose of the company is to manage and operate the Brayton Point Commerce Center Marine Terminal.
(R) The primary purpose of the company is to manage and operate port terminals.
(S) The primary purpose of the company is to manage U.S.-based business activities.
Crewing and Employees
Each of our vessels is crewed with 20-25 independently contracted officers and crew members and, on certain vessels, directly contracted officers. Our
technical managers are responsible for locating, contracting and retaining qualified officers for its vessels. The crewing agencies handle each crew
member’s training, travel and payroll, and ensure that all the crew members on its vessels have the qualifications and licenses required to comply with
international regulations and shipping conventions. The Company typically has more crew members on board than are required by the country of the
vessel’s flag in order to allow for the performance of routine maintenance duties.
The Company employs approximately 151 shore-based personnel and has approximately 500 independently contracted seagoing personnel on its owned
vessels. The shore-based personnel are employed in the United States, Athens, Copenhagen and Singapore.
Competition
The Company operates in markets that are highly competitive and based primarily on supply and demand for ocean transport of drybulk commodities. The
Company competes for COAs on the basis of service, price, route history, size, age and condition of the vessel and for charters on the basis of service, price,
vessel availability, size, age and condition of the vessel, as well as on its reputation as an owner and operator. The Company principally competes with
owners and operators of Panamax, Supramax, Ultramax and Handymax bulk carriers. The Company attempts to differentiate itself from other owners and
operators by extending its services to support more of its customers' supply chains and concentrates on established niche markets.
Seasonality
Demand for vessel capacity has historically exhibited seasonal variations and, as a result, fluctuations in charter rates. This seasonality may result in quarter-
to-quarter volatility in the Company's operating results. The dry bulk carrier market is typically stronger in the fall months in anticipation of increased
consumption of coal and other raw materials in the northern hemisphere during the winter months. Seasonal fluctuation are also observed in harvest times in
the Northern and Southern Atlantic trades. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of
certain commodities. The Company may earn higher margins on ice-class business in winter and during severe ice trading.
Permits and Authorizations
The Company is required by various governmental and quasi-governmental agencies to obtain certain permits and certificates with respect to its vessels.
The kinds of permits and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates,
the nationality of the vessel’s crew and the age of the vessel. The Company has been able to obtain all permits and certificates currently required to permit
its vessels to operate. Additional laws and
12
regulations, environmental or otherwise, may be adopted which could limit its ability to do business or increase the cost of doing business.
Environmental and Other Regulations
Government regulation and laws significantly affect the ownership and operation of the Company's vessels. The Company is subject to international
conventions and treaties, national, state and local laws and regulations in force in the countries in which its vessels may operate or are registered. These
regulations relate to safety, health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and
non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and
other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject the Company’s vessels to both scheduled and unscheduled inspections. These entities include the local
port authorities (such as the U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administrations (countries of registry),
charterers and terminal operators. Certain of these entities require them to obtain permits, certificates or approvals for the operation of its vessels. Failure to
maintain necessary permits, certificates or approvals could require it to incur substantial costs or temporarily suspend the operation of one or more of its
vessels.
Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. The Company is required to
maintain operating standards for all of its vessels that emphasize operational safety, quality maintenance, continuous training of its officers and crews and
compliance with United States and international regulations. The Company believes that the operation of its vessels is in substantial compliance with
applicable environmental laws and regulations and that its vessels have all material permits, certificates or other approvals necessary for the conduct of its
operations as of the date of this Form 10-K. However, because such laws and regulations are frequently changed and may impose increasingly strict
requirements, the Company cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value
or useful lives of its vessels. In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse
environmental impact could result in additional legislation or regulation that could negatively affect the Company’s profitability.
As a global logistics provider, headquartered in the United States, we recognize the impacts of our actions and are focused on establishing safe, responsible,
and sustainable policies and practices that will enhance our business for the long term. Transparency is an important step toward sustainability in our
industry and we were pleased to present our third concise Environmental, Social and Governance (ESG) report based on the Marine Transportation
framework developed by the Sustainability Accounting Standards Board (SASB) during 2023. More specifically over the past several years we have taken
steps to integrate ESG into operations, including:
1.
Renewed our owned fleet with modern second hand and newbuilding vessels with lower overall fuel consumption than
older vessels in order to reduce our fleet’s greenhouse gas emissions. The Company took delivery of four Post Panamax vessels in 2021, which has
significantly improved the fleet's emissions profile. The improvement is measured by fuel consumption per deadweight ton.
2.
We utilize performance monitoring and weather routing services on both our owned and our chartered fleet. Using
sophisticated forecasting algorithms and machine learning, we optimize the speed of our vessels by considering
commercial and environmental concerns while reducing the amount of fuel consumed when the ships encounter adverse
weather and/or currents;
3.
We have established Ship Energy Efficiency Management Plans (SEEMP) to improve the efficiency of our vessels.
Through the SEEMP, we ensure that all our ships are operated efficiently by:
a.
b.
c.
Optimizing the speed of the vessels;
Making course changes to avoid higher fuel consumption caused by rough weather;
Hull cleaning in dry dock to improve speed and reduce fuel consumption;
4.
5.
For our chartered-in fleet we seek to employ the most fuel efficient designs available;
Ballast water treatment systems are currently installed on all vessels;
Use of environmental consultants to assess and improve terminal operations. As the Company expands its operations to ports and terminals, it
6.
becomes more exposed to environmental requirements and regulations ashore.
13
International Maritime Organization
The United Nations’ International Maritime Organization, or the IMO, has adopted the International Convention for the Prevention of Marine Pollution
from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as “MARPOL,” the
International Convention for the Safety of Life at Sea of 1974 ("SOLAS Convention"), and the International Convention on Load Lines of 1966 (the "LL
Convention"). MARPOL entered into force on October 2, 1983 and establishes environmental standards related to oil leakage or spilling, air emissions,
garbage management, sewage, and handling and disposal of noxious liquids, including harmful substances in packaged form. It has been adopted by over
150 nations, including many of the jurisdictions in which the Company's vessels operate. MARPOL sets forth pollution-prevention requirements applicable
to drybulk carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil
leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid or packaged form, respectively; and Annexes IV and V relate
to sewage and garbage management, respectively. Annex VI, separately adopted by the IMO in September of 1997, relates to air emissions. New
emissions standards, titled IMO-2020, took effect on January 1, 2020.
In 2013, the IMO's Marine Environmental Protection Committee, or the "MEPC," adopted a resolution amending MARPOL Annex I Condition Assessment
Scheme, or "CAS." These amendments became effective on October 1, 2014 and require compliance with the 2011 International Code on the Enhanced
Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, or "ESP Code," which provides for enhanced inspection programs. The
Company may need to make certain financial expenditures to comply with these amendments in the future, which could be significant.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on nitrogen
oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after January 1, 2000. It also prohibits
“deliberate emissions” of “ozone depleting substances,” defined to include certain halons and chlorofluorocarbons. Deliberate emissions are not limited to
times when the ship is at sea; they can for example include discharges occurring in the course of the ship’s repair and maintenance. Emissions of “volatile
organic compounds” from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as
polychlorinated biphenyls (PCBs)) are also prohibited. Annex VI also includes a global cap on the sulfur content of fuel oil (see below).
of
(reduced
sulfur
its 70th
The IMO’s Marine Environment Protection Committee, or MEPC, adopted amendments to Annex VI on October 10, 2008, which amendments were entered
into force on July 1, 2010. The Amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of
the
ships.
amount
sulfur oxide emissions
On October 27, 2016, at
fuel oil,
limit
alternative
and
International Air Pollution Prevention
sulfur content. Additionally, at
MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were adopted and will take effect March 1, 2020, with
the exception of vessels fitted with exhaust gas cleaning equipment ("scrubbers") which can carry fuel of higher sulfur content. These regulations subject
ocean-going vessels to stringent emissions controls, and may cause us to incur substantial costs, including those related to the purchase, installation and
operation of scrubbers and the purchase of compliant fuel oil.
to obtain bunker delivery notes
specify
from 3.50%) starting
certain
cleaning
(“IAPP”) Certificates
implement a global 0.5% m/m
limitation can be met by using
from January 1, 2020. This
are now
flag
low-sulfur compliant
the MEPC agreed
required
that
systems. Ships
exhaust gas
fuels, or
contained
any
to
onboard
session,
states
from
used
their
fuel
oil
in
Sulfur content standards are even stricter within certain “Emission Control Areas,” or (“ECAs”). As of January 1, 2015, ships operating within an ECA
were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently,
the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean
area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Certain ports in which our
vessels call, including China and Singapore, are currently or may become subject to local regulations that impose stricter emission controls. In December
2021, the member states of the Convention for the Protection of the Mediterranean Sea Against Pollution (the “Barcelona Convention”) agreed to support
the designation of a new ECA in the Mediterranean. On December 15, 2022, MEPC 79 adopted the designation of a new ECA in the Mediterranean, with an
effective date of May 1, 2025. In July 2023, MEPC 80 announced three new ECA proposals, including the Canadian Arctic waters and the North-East
14
Atlantic Ocean. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or
port operations by vessels are adopted by the U.S. Environmental Protection Agency (“EPA”) or the states where we operate, compliance with these
regulations could entail significant capital expenditures or otherwise increase the costs of our operations. Refer to “Capital Expenditures” in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations and “We are subject to regulation and liability under
environmental and operational safety laws that could require significant expenditures or subject us to increased liability” in Item 1A. Risk Factors for
further details of our plan for compliance and potential costs.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of
installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III
Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North
American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or
after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the
MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent (and
in some senses stricter) emissions standards in 2010 and we are compliant with the Tier I and Tier II requirements for NOx emissions under the EPA
standards and Annex VI. We do not currently own any vessels subject to the Tier III requirements, although we may acquire such vessels in the future. As a
result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000
gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection having commenced on
January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas
emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and
implement Ship Energy Efficiency Management Plans (“SEEMP”), and new ships must be designed in compliance with minimum energy efficiency levels
per capacity mile as defined by the Energy Efficiency Design Index (“EEDI”). Under these measures, by 2025, all new ships built will be 30% more energy
efficient than those built in 2014. MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEDI’s “phase 3”
requirements from January 1, 2025 to April 1, 2022 for several ship types, including gas carriers, general cargo ships, and LNG carriers.
Additionally, MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. These
amendments introduce requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of
reducing the carbon intensity of international shipping. The requirements include (1) a technical requirement to reduce carbon intensity based on a new
Energy Efficiency Existing Ship Index (“EEXI”), and (2) operational carbon intensity reduction requirements, based on a new operational carbon intensity
indicator (“CII”). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship
types and categories. With respect to the CII, the draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual
operational CII achieved against a determined required annual operational CII. Additionally, MEPC 75 proposed draft amendments requiring that, on or
before January 1, 2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP
would need to include certain mandatory content. MEPC 75 also approved draft amendments to MARPOL Annex I to prohibit the use and carriage for use
as fuel of heavy fuel oil (“HFO”) by ships in Arctic waters on and after July 1, 2024. The draft amendments introduced at MEPC 75 were adopted at the
MEPC 76 session in June 2021 and entered into force in November 2022, with the requirements for EEXI and CII certification coming into effect from
January 1, 2023. MEPC 77 adopted a non-binding resolution which urges Member States and ship operators to voluntarily use distillate or other cleaner
alternative fuels or methods of propulsion that are safe for ships and could contribute to the reduction of Black Carbon emissions from ships when operating
in or near the Arctic. MEPC 79 adopted amendments to MARPOL Annex VI, Appendix IX to include the attained and required CII values, the CII rating
and attained EEXI for existing ships in the required information to be submitted to the IMO Ship Fuel Oil Consumption Database. MEPC 79 revised the
EEDI calculation guidelines to include a CO2 conversion factor for ethane, a reference to the updated ITCC guidelines, and a clarification that in case of a
ship with multiple load line certificates, the maximum certified summer draft should be used when determining the deadweight. The amendments will enter
into force on May 1, 2024. In July 2023, MEPC 80 approved the plan for reviewing CII regulations and guidelines, which must be completed at the latest by
January 1, 2026. There will be no immediate changes to the CII framework, including correction factors and voyage adjustments, before the review is
completed.
15
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the
installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition. The
Company plans to continue to invest in its existing fleet to improve fuel efficiency and comply with these revised standards through its comprehensive IMO
2023 plan.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for
Maritime Claims (the “LLMC”) sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that
our vessels are in substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention
(the “ISM Code”), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of
a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety
management system that we and our technical management team have developed for compliance with the ISM Code. The failure of a vessel owner or
bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected
vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a
vessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its
manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. GSSM has valid documents of compliance for our
offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety
management certificate are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength,
integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012,
with July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction
standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length
and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional
requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers (“GBS Standards”).
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the
International Maritime Dangerous Goods Code (“IMDG Code”). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for
radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification
requirements for dangerous goods, and (3) new mandatory training requirements. Amendments that took effect on January 1, 2020, also reflect the latest
material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new
abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas.
Additional amendments, which came into force on June 1, 2022, include (1) addition of a definition of dosage rate, (2) additions to the list of high
consequence dangerous goods, (3) new provisions for medical/clinical waste, (4) addition of various ISO standards for gas cylinders, (5) a new handling
code, and (6) changes to stowage and segregation provisions.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). As of February
2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and
STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys
to confirm compliance.
The IMO's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water
(the “Polar Code”). The Polar Code, which entered into force on January 1, 2017, covers design, construction, equipment, operational, training, search and
rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures
regarding safety and pollution
16
prevention as well as recommendatory provisions. The Polar Code applies to new ships constructed after January 1, 2017, and after January 1, 2018, ships
constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime
industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. By IMO resolution, administrations are
encouraged to ensure that cyber-risk management systems are incorporated by ship-owners and managers by their first annual Document of Compliance
audit after January 1, 2021. In February 2021, the U.S. Coast Guard published guidance on addressing cyber risks in a vessel’s safety management system.
This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital
expenditures. The impact of future regulations is hard to predict at this time.
In June 2022, SOLAS also set out new amendments that took effect on January 1, 2024, which include new requirements for: (1) the design for safe
mooring operations, (2) the Global Maritime Distress and Safety System (“GMDSS”), (3) watertight integrity, (4) watertight doors on cargo ships, (5) fault-
isolation of fire detection systems, (6) life-saving appliances, and (7) safety of ships using LNG as fuel. These new requirements may impact the cost of our
operations.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to
such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the
“BWM Convention”) in 2004. The BWM Convention entered into force on September 8, 2017. The BWM Convention requires ships to manage their
ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and
sediments. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be
replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water
management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the
entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date
“existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention
(IOPP) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management
systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments were
introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross
tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2
standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates.
Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships,
compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water
management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or
physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72’s
amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessment of
ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these
amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial. Additionally, in
November 2020, MEPC 75 adopted amendments to the BWM Convention which would require a commissioning test of the ballast water management
system for the initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have an installed BWM
system certified under the BWM Convention. These amendments entered into force on June 1, 2022. In December 2022, MEPC 79 agreed that it should be
permitted to use ballast tanks for temporary storage of treated sewage and grey water. MEPC 79 also established that ships are expected to return to D-2
compliance after experiencing challenging uptake water and bypassing a BWM system should only be used as a last resort. In July 2023, MEPC 80
approved a plan for a comprehensive review of the BWM Convention over the next three years and the corresponding development of a package of
amendments to the Convention. MEPC 80 also adopted further amendments relating to Appendix II of the BWM Convention concerning the form of the
Ballast Water Record Book, which are expected to enter into force in February 2025. A protocol for ballast water compliance monitoring devices and
unified interpretation of the form of the BWM Convention certificate were also adopted.
17
Once mid-ocean exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for
ocean carriers and may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels
from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its
waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting
requirements. The system specification requirements for trading in the U.S. have been formalized and we have been installing ballast water treatment
systems on our vessels as their special survey deadlines come due. These ballast water treatment systems range in cost from $0.5 million to $0.7 million
each, primarily dependent on the size of the vessel. Refer to “Capital Expenditures” section for further information.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and
1992, and amended in 2000 (the “CLC”). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol
to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of
persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency
unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit
liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the
shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000
tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have
protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards”
to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance
coverage is in force.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”) to impose strict liability
on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states
caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution
damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated
in accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is
determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States
where the CLC or the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the
basis of fault or on a strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling Convention.” The
Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of
mollusks and other sea life to the hulls of vessels. The exteriors of vessels constructed prior to January 1, 2003 that have not been in drydock must, as of
September 17, 2008, either not contain the prohibited compounds or have coatings applied to the vessel exterior that act as a barrier to the leaching of the
prohibited compounds. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is
put into service or before an International Anti-fouling System Certificate, or the “IAFS Certificate,” is issued for the first time; and subsequent surveys
when the anti-fouling systems are altered or replaced. Vessels of 24 meters in length or more but less than 400 gross tonnage engaged in international
voyages will have to carry a Declaration on Anti-fouling Systems signed by the owner or authorized agent.
In November 2020, MEPC 75 approved draft amendments to the Anti-fouling Convention to prohibit anti-fouling systems containing cybutryne, which
would apply to ships from January 1, 2023, or, for ships already bearing such an anti-fouling system, at the next scheduled renewal of the system after that
date, but no later than 60 months following the last application to the ship of such a system. In addition, the IAFS Certificate has been updated to address
compliance options for anti-fouling systems to address cybutryne. Ships which are affected by this ban on cybutryne must receive an updated IAFS
Certificate no later than two years after the entry into force of these amendments. Ships which are not affected (i.e. with anti-fouling systems which do not
contain cybutryne) must receive an updated IAFS Certificate at the next Anti-fouling application to the vessel. These amendments were formally adopted at
MEPC 76 in June 2021, and entered into force on January 1, 2023.
We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-fouling Convention.
18
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases
in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union
authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European
Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates
will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any,
may be passed by the IMO and what effect, if any, such regulations might have on our operations.
International Code for Ships Operating in Polar Waters
The IMO in November 2014 adopted the International Code for Ships Operating in Polar Waters (the “Polar Code”), and related amendments to the
International Convention for the Safety of Life at Sea (“SOLAS”) to make it mandatory.
The Polar Code is mandatory under both SOLAS and MARPOL because it contains both safety and environment related provisions. The MEPC adopted the
Polar Code and associated MARPOL amendments in May 2015.
The U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation and Liability Act
The Oil Pollution Act of 1990, ("OPA"), established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil
spills. OPA affects all “owners and operators” whose vessels trade with the United States, its territories and possessions or whose vessels operate in United
States waters, which includes the United States’ territorial sea and its 200 nautical mile exclusive economic zone around the United States. The United
States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of
hazardous substances other than oil, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person
owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact the Company’s operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or
omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened
discharges of oil from their vessels. OPA defines these other damages broadly to include:
•
•
•
•
•
•
injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
injury to, or economic losses resulting from, the destruction of real and personal property;
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
loss of subsistence use of natural resources that are injured, destroyed or lost;
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety
or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective December 31, 2015, the U.S. Coast Guard
adjusted the limits of OPA liability for non-tank vessels (e.g. drybulk) to the greater of $1,200 per gross ton or $997,100 (subject to periodic adjustment for
inflation). Effective March 23, 2023, the new adjusted limits of OPA liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels,
to the greater of $1,300 per gross ton or $1,076,000 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was
proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee
or a person acting pursuant to a contractual relationship), or a responsible party’s gross negligence or willful misconduct. The limitation on liability
similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsibility party knows or has reason to know of the
incident; (ii) reasonably cooperate and assist as requested in
19
connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c),
(e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages
for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health
effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act
of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the
greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of
response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of
the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the
responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel
is subject to OPA.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility
sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their
financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee.
Incidents such as the 2010 Deepwater Horizon oil spill in the Gulf of Mexico may result in additional regulatory initiatives or statutes, including the raising
of liability caps under OPA (which were raised on December 31, 2015). Compliance with any new requirements of OPA may substantially impact the
Company’s cost of operations or require it to incur additional expenses to comply with any new regulatory initiatives or statutes. Additional legislation or
regulations applicable to the operation of its vessels that may be implemented in the future could adversely affect its business.
The Company currently maintains pollution liability coverage insurance in the amount of $1.0 billion per incident for each of the Company’s vessels. If the
damages from a catastrophic spill were to exceed the Company’s insurance coverage it could have an adverse effect on its business and results of operation.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries,
provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability
for oil spills. In some cases, states which have enacted such legislation have not yet issued implementing regulations defining vessel owners’ responsibilities
under these laws. The Company intends to comply with all applicable state regulations in the ports where its vessels call. The Company believes that it is in
substantial compliance with all applicable existing state requirements. In addition, the Company intends to comply with all future applicable state
regulations in the ports where its vessels call.
Other United States Environmental Initiatives
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a
duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial
liability for the costs of removal, remediation and damages, and complements the remedies available under OPA and CERCLA. Furthermore, many U.S.
states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages
resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our
vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial
costs, and/or otherwise restrict our vessels from entering U.S. Waters. The EPA will regulate these ballast water discharges and other discharges incidental
to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into law
on December 4, 2018 and replaces the 2013 Vessel General Permit (“VGP”) program (which authorizes discharges incidental to operations of commercial
vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for
exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management
regulations adopted under the U.S. National Invasive Species Act (“NISA”), such as mid-ocean ballast exchange programs and installation of approved
USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the
regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to develop
20
performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance, and
enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations
regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational
vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or
retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. On October 26, 2020, the EPA
published a Notice of Proposed Rulemaking for Vessel Incidental Discharge National Standards of Performance under
VIDA. Within two years after the EPA publishes its final Vessel Incidental Discharge National Standards of Performance, the U.S. Coast Guard must
develop corresponding implementation, compliance and enforcement regulations regarding ballast water. Compliance with the EPA, U.S. Coast Guard and
state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal
procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including
minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of
the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of
vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for
pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the
Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from
maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions
annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as
determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on
substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulations also provided the European Union with
greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty
payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for
their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI
relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic,
the North Sea and the English Channel (the so-called “SOx-Emission Control Area”). As of January 2020, EU member states must also ensure that ships in
all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
On September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime sector in the European Union’s carbon
market, the EU Emissions Trading System (“EU ETS”) as part of its “Fit-for-55” legislation to reduce net greenhouse gas emissions by at least 55% by 2030
as compared to 1990 levels. On July 14, 2021, the European Parliament formally proposed its plan, which would involve gradually including the maritime
sector from 2023 and phasing the sector in over a three-year period. This will require shipowners to buy permits to cover these emissions. The Environment
Council adopted a general approach on the proposal in June 2022. On December 18, 2022, the Environmental Council and European Parliament agreed to
include maritime shipping emissions within the scope of the EU ETS on a gradual introduction of obligations for shipping companies to surrender
allowances equivalent to a portion of their carbon emissions: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026. Most large vessels
will be included in the scope of the EU ETS from the start. Big offshore vessels of 5,000 gross tonnage and above will be included in the 'MRV' on the
monitoring, reporting and verification of CO2 emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels
and off-shore vessels between 400-5,000 gross tonnage will be included in the MRV regulation from 2025 and their inclusion in EU ETS will be reviewed
in 2026. Furthermore, starting from January 1, 2026, the ETS regulations will expand to include emissions of two additional greenhouse gases: nitrous oxide
and methane. Compliance with the Maritime EU ETS will result in additional compliance and administration costs to properly incorporate the provisions of
the Directive into our business routines. Additional EU regulations which are part of the EU’s "Fit-for-55," could also affect our financial position in terms
of compliance and administration costs when they take effect.
Additionally, on July 25, 2023, the European Council of the European Union adopted the Maritime Fuel Regulation under the FuelEU Initiative of its “Fit-
for-55” package which sets limitations on the acceptable yearly greenhouse gas intensity of the energy used by covered vessels. Among other things, the
Maritime Fuel Regulation requires that greenhouse gas emissions
21
from covered vessels are reduced by 2% starting January 1, 2025, with additional reductions contemplated every five years (up to 80% from January 1,
2050).
Greenhouse Gas Regulation
Our industry currently is heavily dependent on the consumption of fossil fuels, which has been linked by certain experts to greenhouse gas emissions and
the warming of the global climate system. We are committed to working to reduce our carbon footprint, including by transitioning to low-carbon fuels while
continuing to deliver for our customers. Our governance, strategy, risk management and performance monitoring efforts with respect to managing this
challenge continue to evolve.
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol of the United Nations Framework
Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national
programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to
the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S.
and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations
Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse
gas emissions from ships. The U.S. initially entered into the agreement, but on June 1, 2017, former U.S. President Trump announced that the United States
intended to withdraw from the Paris Agreement, and the withdrawal became effective on November 4, 2020. On January 20, 2021, U.S. President Biden
signed an executive order to rejoin the Paris Agreement, which the U.S. officially rejoined on February 19, 2021.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse
gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce
greenhouse gas emissions from ships. The initial strategy identifies “levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the
carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work,
as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3)
reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The
initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall
ambition. These regulations could cause us to incur additional substantial expenses. At MEPC 77, the Member States agreed to initiate the revision of the
Initial IMO Strategy on Reduction of GHG emissions from ships, recognizing the need to strengthen the ambition during the revision process. In July 2023,
MEPC 80 adopted a revised strategy, which includes an enhanced common ambition to reach net-zero greenhouse gas emissions from international shipping
around or close to 2050, a commitment to ensure an uptake of alternative zero and near-zero greenhouse gas fuels by 2030, as well as i). reducing the total
annual greenhouse gas emissions from international shipping by at least 20%, striving for 30%, by 2030, compared to 2008; and ii). reducing the total
annual greenhouse gas emissions from international shipping by at least 70%, striving for 80%, by 2040, compared to 2008. At MEPC 80, the IMO also
announced its intention to develop and approve mid-term greenhouse gas reduction measures by Spring 2025, with entry into force of those measures in
2027. These measures include (1) a goal-based marine fuel standard regulating the phased reduction of the marine fuel's GHG intensity, and (2) a global
carbon pricing mechanism.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also
committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large ships over 5,000
gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information. Under the European Climate
Law, the EU committed to reduce its net greenhouse gas emissions by at least 55% by 2030 through its “Fit-for-55” legislation package. As part of this
initiative, regulations relating to the inclusion of greenhouse gas emissions from the maritime sector in the European Union’s carbon market, EU ETS, are
also forthcoming.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas
emissions from certain mobile sources, and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017,
former U.S. President Trump signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions, and in August
2019, the Administration announced plans to weaken regulations for methane emissions. Further, on August 13, 2020, the EPA released rules rolling back
standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S. President Biden recently directed the
EPA to publish a proposed rule suspending, revising, or rescinding certain of these rules. On November 2, 2021, the EPA issued a proposed rule under the
CAA designed to reduce methane emissions from oil and gas sources. The proposed rule would reduce 41 million tons of methane emissions between 2023
and 2035 and cut methane emissions in the oil
22
and gas sector by approximately 74 percent compared to emissions from this sector in 2005. EPA issued a supplemental proposed rule in November 2022 to
include additional methane reduction measures. On December 2, 2023, the Biden Administration announced the final rule that includes updated and
strengthened standards for methane and other air pollutants from new, modified, and reconstructed sources, as well as Emissions Guidelines to assist states
in developing plans to limit methane emissions from existing sources. These new regulations could potentially affect our operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty
adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make
significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may
be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
International Labor Organization
The International Labour Organization (the “ILO”) is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 (“MLC 2006”).
A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are
500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between ports, in
another country. We believe that all of our vessels are in substantial compliance with and are certified to meet MLC 2006.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the
U.S. Maritime Transportation Security Act of 2002 (“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the
implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and
facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the
International Ship and Port Facility Security Code (“the ISPS Code”). The ISPS Code is designed to enhance the security of ports and ships against
terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved
by the vessel’s flag state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC. The
various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic identification systems to
provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information
on a ship’s identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but
only alert the authorities on shore; the development of vessel security plans; ship identification number to be permanently marked on a vessel’s hull; a
continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on
which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s)
and their registered address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures,
provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS
Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by
MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of
Somalia, including the Gulf of Aden and Arabian Sea area, as well as off the coast of Western Africa. Substantial loss of revenue and other costs may be
incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are
incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5
industry standard.
23
Inspection by Classification Societies
Every oceangoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is “in class,” signifying that the
vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting
on behalf of the authorities concerned.
The classification society also undertakes, as requested, other surveys that may be required by the vessel's flag state. These surveys are subject to
agreements made with the vessel owner and/or to the regulations of the country concerned.
For maintenance of the class certification, annual, intermediate and special surveys of hull and machinery, including the electrical plant, and any special
equipment, are required to be performed as follows:
•
•
•
Annual Surveys: For seagoing ships, annual surveys are conducted within three months, before or after each anniversary of the class period indicated
in the certificate.
Intermediate Surveys: Extended surveys are referred to as intermediate surveys and are typically conducted two and one-half years after
commissioning, and two and one-half years after each class renewal. Intermediate surveys are to be carried out at or between the occasion of the
second or third annual survey.
Class Renewal Surveys: Class renewal surveys, also known as special surveys, are carried out at the intervals indicated by the character of
classification for the hull. At the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel
structures. If the steel thickness is found to be less than class requirements, the classification society would prescribe steel renewals which require
drydocking of the vessel. The classification society may grant a one-year grace period for completion of the special survey. Substantial costs may be
incurred for steel renewal in order to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or
five years, depending on whether a grace period was granted, a shipowner has the option of arranging with the classification society for the vessel’s
hull or machinery to be on a continuous survey cycle, in which case every part of the vessel would be surveyed on a continuous five-year cycle. This
process is referred to as continuous class renewal.
All areas subject to survey, as defined by the classification society, are required to be surveyed at least once per class period unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Most vessels undergo regulatory inspection of the underwater parts every 30 to 36 months. If any defects are found, the classification surveyor will issue a
recommendation which must be rectified by the ship owner within prescribed time limits.
The Company expects to perform two special surveys in 2024 at an aggregate total cost of approximately $2.0 million. The Company expects to perform
four intermediate surveys in 2024 at an aggregate total cost of approximately $0.3 million. The Company estimates that offhire related to the surveys and
related repair work is ten to twenty days per vessel, depending on the size and condition of the vessel.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society which is a member
of the International Association of Classification Societies. All of the Company’s vessels are certified by Det Norske Veritas, Nippon Kaiji Kiokai or Bureau
Veritas. All new and second-hand vessels that the Company purchases must be certified prior to delivery under its standard purchase contracts, referred to as
the memorandum of agreement or ship building contracts. Certification of second-hand vessels must be verified by a Class Maintenance Certificate issued
within 72 hours prior to delivery. If the vessel is not certified on the date of closing, the Company has the option to cancel the agreement on the basis of
Seller’s default, and not take delivery of the vessel.
Risk of Loss and Insurance
General
The operation of any dry bulk vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage, and business interruption due
to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is an inherent possibility of marine disaster, including oil spills
(e.g. fuel oil) and other environmental incidents, and the liabilities
24
arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability for certain oil pollution accidents upon
owners, operators and demise charterers of vessels trading in the United States exclusive economic zone, has made liability insurance more expensive for
ship owners and operators trading in the U.S. market.
The Company maintains hull and machinery insurance, war risks insurance, protection and indemnity cover and freight, demurrage and defense cover for its
owned fleet at amounts it believes address the normal risks of its operations. The Company may not be able to maintain this level of coverage throughout a
vessel’s useful life. Furthermore, while the Company believes that its current insurance coverage is adequate, not all risks can be insured, and there can be
no guarantee that any specific claim will be paid, or that the Company will always be able to obtain adequate insurance coverage at reasonable rates.
Hull & Machinery and War Risks Insurance
The Company maintains marine hull and machinery and war risks insurances, which cover the risk of actual or constructive total loss, for all of its vessels.
Vessels are insured for their fair market value, at a minimum, with a deductible of $100,000 per vessel per incident.
Protection and Indemnity Insurance
Protection and indemnity insurance is a form of mutual indemnity insurance provided by mutual protection and indemnity associations, or P&I
Associations, which insure the Company’s third party liabilities in connection with its shipping activities. This includes third-party liability and other related
expenses resulting from the injury, illness or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions
with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including
wreck removal. Subject to the “capping” discussed below, the Company’s coverage, except for pollution, is unlimited.
The Company’s current protection and indemnity insurance coverage for pollution is $1.0 billion per vessel per incident. The thirteen P&I Associations that
comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each
association’s liabilities. As a member of a P&I Association, which is a member of the International Group, the Company is subject to calls payable to the
associations based on the group’s claim records as well as the claim records of all other members of the individual associations and members of the pool of
P&I Associations comprising the International Group.
Exchange Controls
The Company is an exempted company organized under the Bermuda Companies Act. The Bermuda Companies Act differs in some material respects from
laws generally applicable to United States companies and their stockholders. However, a general permission issued by the Bermuda Monetary Authority,
("BMA"), results in the Company’s common shares being freely transferable among persons who are residents and non-residents of Bermuda. Each
shareholder, whether a resident or non-resident of Bermuda, is entitled to one vote for each share of stock held by the shareholder.
Although the Company is incorporated in Bermuda, the Company is classified as a non-resident of Bermuda for exchange control purposes by the BMA.
Other than transferring Bermuda Dollars out of Bermuda, there are no restrictions on its ability to transfer funds into and out of Bermuda or to pay
dividends in currency other than Bermuda Dollars to U.S. residents (or other non-residents of Bermuda) who are holders of its common shares.
In accordance with Bermuda law, share certificates may be issued only in the names of corporations, individuals or legal persons. In the case of an applicant
acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the
applicant is acting. Notwithstanding the recording of any such special capacity, the Company is not bound to investigate or incur any responsibility in
respect of the proper administration of any such estate or trust.
The Company will take no notice of any trust applicable to any of its shares or other securities whether or not the Company had notice of such trust.
25
INDUSTRY AND MARKET CONDITIONS
Market Overview
Ocean going vessels represent the most efficient and often the only means of transporting large volumes of dry cargo over long distances. Dry bulk cargo
includes both major and minor commodities such as coal, iron ore, grain, bauxite, cement clinker, and limestone. Dry bulk trade is influenced by the
underlying demand for the dry bulk commodities which in turn is influenced by the level of global economic activity.
The world’s fleet of vessels dedicated to carrying dry bulk cargoes is traditionally divided into six major categories, based on a vessel’s cargo carrying
capacity. These categories are: Handysize, Supramax, Ultramax, Panamax, Capesize and Very Large Ore Carrier. Certain routes and geographies are less
accessible to certain vessel sizes. For example, Panamax and Supramax vessels are the main dry bulk vessel types deployed in the Baltic due to draft
restrictions.
Dry bulk vessels are employed through a number of different chartering options. The most common are time charters, spot charters, and voyage charters.
Historically, charter rates have been volatile as they are driven by the underlying balance between vessel supply and demand. Ice class vessels, when
operating in ice-bound areas, usually command a rate premium to conventional trades.
Dry Bulk Shipping — the Main Participants
In the dry bulk shipping industry there are multiple functions, with individual parties carrying out one or more of such functions. In general, the principal
functions within dry bulk shipping are as follows:
•
•
•
•
•
Ship Owner or Registered Owner — Generally, this is an entity retaining the legal title of ownership over a vessel.
Ship Operator — Generally, this is an entity seeking to generate profit either through the chartering of ships (owned or chartered-in) to others, or from
the transportation of cargoes. Entities focusing on the transportation of cargoes may engage in chartering of ships to other entities, but those
companies focusing on chartering ships to other entities rarely act to carry cargoes for customers.
Shipmanager/Commercial Manager — This is an entity designated to be responsible for the day to day commercial management of the ship and the
best contact for the ship regarding commercial matters, including post fixture responsibilities, such as laytime, demurrage, insurance and charter
clauses. These companies undertake the activities of ship operators but, unlike a ship operator, they do not own or charter-in the vessels at their own
risk.
Technical Manager — This is an entity specifically responsible for the technical operation and technical superintendence of a ship. This company may
also be responsible for hiring, training and supervising ship officers and crew, and for all aspects of the day to day operation of the fleet, including
repair work, spare parts inventory, re-engineering, surveys and dry-docking.
Cargo Owner — This is normally a producer (e.g., a miner), consumer (e.g., a steel mill) or trading house who requires transportation of cargo by a
cargo focused ship operator.
The Company participates in each of these capacities with the exception of cargo owner, although at rare opportunistic times the Company may purchase
cargo for resale after completion of a voyage.
The Freight Market
Dry bulk vessels are employed in the market through a number of different chartering options. The general terms typically found in these types of contracts
are described below.
•
Time Charter. A charter under which the vessel owner or operator is paid charterhire on a per-day basis for a specified period of time. Typically, the
shipowner receives semi-monthly charterhire payments on a U.S. dollar-per-day basis and is responsible for providing the crew and paying vessel
operating expenses, while the charterer is responsible for paying the voyage expenses and additional voyage insurance. The ship owner is also
responsible for the vessel’s intermediate and special survey (heavy mandatory maintenance) costs. Under time charters, including trip charters, the
charterer pays all voyage expenses including port, canal and bunker (fuel) costs.
26
•
•
•
•
Trip Charter. A time charter for a trip to carry a specific cargo from a load port to a discharge port at a set daily rate.
Voyage Charter. A charter to carry a specific amount and type of cargo on a load-port to discharge-port basis, subject to various cargo handling terms.
Most of these charters are of a single voyage nature, as trading patterns do not encourage round trip voyage trading. The ship operator receives
payment based on a price per ton of cargo loaded on board the vessel. The ship operator is responsible for the payment of all voyage expenses, as well
as the costs of owning or hiring the vessel.
Contract of Affreightment. A contract of affreightment, or COA, relates to the carriage of multiple cargoes over the same route and enables the
service provider to nominate different vessels to perform the individual voyages. Essentially, it constitutes a series of voyage charters to carry a
specified amount of cargo during the term of the CoA, which usually spans a number of months or years. Freight normally is agreed on a U.S. dollar-
per-ton carried basis with bunker cost escalation or de-escalation adjustments.
Bareboat Charter. A bareboat charter involves the use of a vessel, usually over longer periods of time (several years). In this case, all voyage
expenses and vessel operating expenses, including maintenance, crewing and insurance, are paid for by the charterer. The owner of the vessel receives
monthly charterhire payments on a U.S. dollar per day basis and is responsible only for the payment of capital costs related to the vessel. A bareboat
charter is also known as a “demise charter” or a “time charter by demise.”
The Company primarily employs its vessels under voyage charters together with COAs and time charters.
Rates
In the time charter (period) market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed, size and fuel
consumption. In the voyage charter market, rates are influenced by cargo size, commodity, port dues, bunker prices, and canal transit fees, as well as
delivery and redelivery regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals
generally command higher rates. Voyages loading from a port where vessels usually discharge cargo, or discharging at a port where vessels usually load
cargo, are generally quoted at lower rates. These voyages are known as “backhaul” voyages.
In some cases, charters will include an additional payment known as a ballast bonus. A ballast bonus is a lump sum payment made to a shipowner or
operator (by the charterer) as compensation for delivering a ship in a particular loading region of the world. For a ship to enter a loading region, an empty
(ballast) leg may be required because there are no inbound cargoes. The ballast bonus should reflect the cost of the empty ballast in terms of time and fuel.
A typical fixture that involves a ballast bonus might be expressed as “freight hire of $10,000 per day, plus a ballast bonus of $100,000 lump sum”.
Within the dry bulk shipping industry, the freight rate indices issued by the Baltic Exchange in London are the references most likely to be monitored. These
references are based on actual charter hire rates under charters entered into by market participants as well as daily assessments provided to the Baltic
Exchange by a panel of major shipbrokers. The Baltic Exchange, an independent organization comprised of shipbrokers, shipping companies and other
shipping players, provides daily independent shipping market information and has created freight rate indices reflecting the average freight rates for the
major bulk vessel trading routes. The Baltic Dry Index ("BDI"), is a composite of the Capesize, Panamax and Supramax timecharter averages. It is
considered a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.
Dry Bulk Trades Requiring Ice Class Tonnage
Ice class vessels are required to serve ports accessed by routes crossing seasonal or year-round ice-covered oceans, lakes, seas or rivers. Ice class vessels are
mainly deployed in the Baltic Sea, the Northern Sea Route (NSR) and the Great Lakes/St. Lawrence Seaway. These regions have experienced strong trade
growth in dry bulk cargoes, driven in particular by increased mining activities supported by strong commodity demand in Asia, decreased level of ice, and
technology advancement in shipping. The Company's ice class vessels also serve a long term customers requirement in the Canadian Arctic.
TAXATION
U.S. Taxation
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended, or the Code, existing and proposed U.S.
Treasury Department regulations, or the Treasury Regulations, administrative rulings and
27
pronouncements and judicial decisions, all as of the date of this annual report. Unless otherwise noted, references to the “Company” include the Company’s
Subsidiaries. This discussion assumes that we do not have an office or other fixed place of business in the United States.
Taxation of the Company’s Shipping Income: In General
The Company anticipates that it will derive a significant portion of its gross income from the use and operation of vessels in international commerce and
that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of
services directly related thereto, which the Company refers to as “shipping income”. Shipping income that is attributable to transportation that begins or
ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping
income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United
States. The Company is not permitted by law to engage in transportation that gives rise to 100% U.S. source income.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United
States. Shipping income derived from sources outside the United States will not be subject to U.S. federal income tax.
Based upon the Company’s anticipated shipping operations, the Company’s vessels will operate in various parts of the world, including to or from U.S.
ports. Unless exempt from U.S. federal income taxation under Section 883 of the Code, the Company will be subject to U.S. federal income taxation, in the
manner discussed below, to the extent its shipping income is considered derived from sources within the United States.
Application of Section 883 of the Code
Under the relevant provisions of Section 883 of the Code, or Section 883, the Company will be exempt from U.S. federal income taxation on its U.S. source
shipping income if:
(i) It is organized in a “qualified foreign country,” which is one that grants an equivalent exemption from tax to corporations organized in the
United States in respect of the shipping income for which exemption is being claimed under Section 883, and which the Company refers to as the
Country of Organization Requirement; and
(ii) It can satisfy any one of the following two stock ownership requirements for more than half the days during the taxable year:
•
the Company’s stock is “primarily and regularly traded on an established securities market” located in the United States or a “qualified foreign
country,” which the Company refers to as the Publicly-Traded Test; or
• more than 50% of the Company’s stock, in terms of value, is beneficially owned by any combination of one or more individuals who are residents
of a “qualified foreign country” or foreign corporations that satisfy the Country of Organization Requirement and the Publicly-Traded Test, which
the Company refers to as the 50% Ownership Test.
The U.S. Treasury Department has recognized Bermuda, the country of incorporation of the Company and certain of its subsidiaries, as a “qualified foreign
country”. In addition, the U.S. Treasury Department has recognized Denmark, Canada, Greece, the Marshall Islands, Singapore, British Virgin Islands and
Cyprus, the countries of incorporation of certain of the Company’s vessel-owning subsidiaries, as “qualified foreign countries”. Accordingly, the Company
and its vessel-owning subsidiaries satisfy the Country of Organization Requirement. Therefore, the Company’s eligibility to qualify for exemption under
Section 883 is wholly dependent upon being able to satisfy one of the stock ownership requirements.
As discussed below, for the 2023 taxable year we believe the Company satisfied the Publicly-Traded Test, since on more than half the days in the taxable
year we believe the Company’s common shares were primarily and regularly traded on Nasdaq, an established securities market in the United States.
As to the Publicly-Traded Test, the Treasury Regulations under Section 883 provide, in pertinent part, that stock of a foreign corporation will be considered
to be “primarily traded” on an established securities market in a country if the number of shares of each class of stock that is traded during any taxable year
on all established securities markets in that country exceeds the number of shares in each such class that is traded during that year on established securities
markets in any other single country.
The Publicly-Traded Test also requires our common shares be “regularly traded” on an established securities market. Under the Treasury Regulations, our
common shares are considered to be “regularly traded” on an established securities market if shares representing more than 50% of our outstanding common
shares, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on the market, referred to as the “listing
threshold”. The Treasury Regulations further
28
require that with respect to each class of stock relied upon to meet the listing threshold (i) such class of stock is traded on the market, other than in minimal
quantities, on at least 60 days during the taxable year or 1/6 of the days in a short taxable year, which is referred to as the “trading frequency test”, and (ii)
the aggregate number of shares of such class of stock traded on such market during the taxable year is at least 10% of the average number of shares of such
class of stock outstanding during such year (as appropriately adjusted in the case of a short taxable year), which is referred to as the “trading volume test”.
Even if we do not satisfy both the trading frequency and trading volume tests, the Treasury Regulations provide that the trading frequency and trading
volume tests will be deemed satisfied if our common shares are traded on an established securities market in the United States and such stock is regularly
quoted by dealers making a market in our common shares, such the Nasdaq Capital Market, on which our common shares are listed.
Notwithstanding the foregoing, our common shares will not be considered to be regularly traded on an established securities market for any taxable year in
which 50% or more of the vote and value of the outstanding common shares are owned, actually or constructively under certain stock attribution rules, on
more than half the days during the taxable year by persons who each own 5% or more of the value of our common shares, which we refer to as the 5 Percent
Override Rule.
In order to determine the persons who actually or constructively own 5% or more of our common shares, or 5% Shareholders, we are permitted to rely on
those persons that are identified on Schedule 13G and Schedule 13D filings with the U.S. Securities and Exchange Commission as having a 5% or more
beneficial interest in our common shares. In addition, an investment company identified on a Schedule 13G or Schedule 13D filing which is registered
under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
For our 2023 taxable year, we do not believe that we were subject to the 5 Percent Override Rule and, therefore, we believe that we satisfied the Publicly-
Traded Test. There are, however, factual circumstances beyond our control that could cause the Company to lose the benefit of the Section 883 exemption
and thereby become subject to U.S. federal income tax on its U.S. source shipping income. There is, therefore, a risk that the Company could no longer
qualify for exemption under Section 883 for a particular taxable year if 5% Shareholders were to own 50% or more of the outstanding common shares of the
Company on more than half the days during the taxable year. Due to the factual nature of the issues involved, there can be no assurances as to the tax-
exempt status of the Company or any of its subsidiaries.
In the event the 5 Percent Override Rule is triggered, the 5 Percent Override Rule will nevertheless not apply if we can establish that among the closely-held
group of 5% Shareholders, there are sufficient 5% Shareholders that are considered to be “qualified shareholders” for purposes of Section 883 to preclude
non-qualified 5% Shareholders in the closely-held group from owning 50% or more of our common shares for more than half the number of days during the
taxable year.
In any year that the 5 Percent Override Rule is triggered with respect to us, we are eligible for the exemption from tax under Section 883 only if we can
nevertheless satisfy the Publicly-Traded Test (which requires, among other things, showing that the exception to the 5 Percent Override Rule applies) or if
we can satisfy the 50% Ownership Test. In either case, certain substantiation and reporting requirements regarding the identity of our shareholders must be
satisfied in order to qualify for the Section 883 exemption. These requirements are onerous and there is no assurance that we would be able to satisfy them.
Taxation in Absence of the Section 883 Exemption To the extent the benefits of Section 883 are unavailable with respect to any item of U.S. source income,
the Company’s U.S. source shipping income, to the extent not considered to be “effectively connected” with the conduct of a U.S. trade or business, as
described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as
the “4% gross basis tax regime”. Since, under the sourcing rules described above, no more than 50% of the Company’s shipping income would be treated as
being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company’s shipping income, to the extent not considered to
be “effectively connected” with the conduct of a U.S. trade or business, would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Section 883 exemption are unavailable and our U.S. source shipping income is considered to be “effectively connected”
with the conduct of a U.S. trade or business, as described below, any such “effectively connected” U.S. source shipping income, net of applicable
deductions, would be subject to the U.S. federal corporate income tax imposed at rate of 21%. In addition, we may be subject to the 30% “branch profits”
tax on earnings “effectively connected” with the conduct of such U.S. trade or business, as determined after allowance for certain adjustments, and on
certain interest paid or deemed paid attributable to the conduct of such U.S. trade or business. Our U.S. source shipping income would be considered
“effectively connected” with the conduct of a U.S. trade or business only if:
we have, or are considered to have, a fixed place of business in the United States involved in the earning of U.S. source shipping income;
•
and
29
•
substantially all of our U.S. source shipping income were attributable to regularly scheduled transportation, such as the operation of a
vessel that followed a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the
United States, or, in the case of income from the chartering of a vessel, were attributable to a fixed place of business in the United States.
We do not have, nor will we permit circumstances that would result in having, any vessel sailing to or from the United States on a regularly scheduled basis.
Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S. source shipping income
is or will be “effectively connected” with the conduct of a U.S. trade or business.
Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883, we will not be subject to U.S. federal income taxation with respect to gain realized on a
sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel
will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer
outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
Taxation of U.S. Holders
The following is a discussion of the material U.S. federal income tax considerations relevant to an investment decision by a U.S. Holder, as defined below,
with respect to our common shares. This discussion does not purport to deal with the tax consequences of owning our common shares to all categories of
investors, some of which may be subject to special rules. You are encouraged to consult your own tax advisors concerning the overall tax consequences
arising in your own particular situation under U.S. federal, state, local or foreign law of the ownership of our common shares.
As used herein, the term U.S. Holder means a beneficial owner of our common shares that (i) is a U.S. citizen or resident, a U.S. corporation or other U.S.
entity taxable as a corporation, an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if (a) a court
within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust or (b) the trust has in effect a valid election to be treated as a United States person for U.S. federal income tax
purposes, (ii) owns our common shares as a capital asset, generally, for investment purposes, and (iii) owns less than 10% of our common shares for U.S.
federal income tax purposes.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your own tax advisor regarding this issue.
Distributions
Subject to the discussion below of passive foreign investment companies, or PFICs, any distributions made by us with respect to our common shares to a
U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more detail below,
to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our
earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in his common shares on a dollar-for-
dollar basis and thereafter as capital gain. Because we are not a U.S. corporation, U.S. Holders that are corporations will generally not be entitled to claim a
dividends-received deduction with respect to any distributions they receive from us.
Dividends paid on our common shares to a U.S. Holder who is an individual, trust or estate, which we refer to as a U.S. Individual Holder, will generally be
treated as “qualified dividend income” that is taxable to such U.S. Individual Holders at preferential tax rates provided that (1) the common shares are
readily tradable on an established securities market in the United States (such as the Nasdaq Capital Market, on which our common shares are listed); (2) we
are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (see discussion below); and (3) the U.S.
Individual Holder has owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common
shares become ex-dividend.
30
There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of a U.S. Individual Holder.
Any dividends paid by the Company which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.
Sale, Exchange or other Disposition of Common Shares
Assuming we do not constitute a PFIC for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other
disposition of our common shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other
disposition and the U.S. Holder’s tax basis in such common shares. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s
holding period in the common shares is greater than one year at the time of the sale, exchange or other disposition. Otherwise, it will be treated as short-term
capital gain or loss. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for U.S. federal income tax
purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held our common shares, either
at least 75% of our gross income for such taxable year consists of “passive income” (e.g., dividends, interest, capital gains and rents derived other than in
the active conduct of a rental business), or at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are
held for the production of, “passive income”. For purposes of determining whether we are a PFIC, we will be treated as earning and owning our
proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the
subsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By
contrast, rental income would generally constitute “passive income” unless we were treated under specific rules as deriving our rental income in the active
conduct of a trade or business.
Although there is no legal authority directly on point, we believe that, for purposes of determining whether we are a PFIC, the gross income we derive or are
deemed to derive from the time chartering activities of our wholly-owned subsidiaries more likely than not constitutes services income, rather than rental
income. Correspondingly, we believe that such income does not constitute “passive income”, and the assets that we or our wholly-owned subsidiaries own
and operate in connection with the production of such income, in particular, the vessels, do not constitute passive assets for purposes of determining whether
we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and Internal Revenue Service, or IRS,
pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. This
position is principally based upon the positions that our time charter income will constitute services income, rather than rental income for other tax
purposes. Based on our current and anticipated chartering activities, we do not believe that we will be treated as a PFIC for the current or future taxable
years, although no assurance can be given in this regard. We intend to take the position that we were not treated as a PFIC for our 2023 taxable year.
We note that there is no direct legal authority under the PFIC rules addressing our current and proposed method of operation. In addition, although we
intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our
operations will not change in the future. Accordingly, no assurance can be given that the IRS or a court of law will accept our position, and there is a
significant risk that the IRS or a court of law could determine that we are a PFIC.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation rules depending
on whether the U.S. Holder makes an election to treat us as a “Qualified Electing Fund”, which election we refer to as a QEF Election. As an alternative to
making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our common shares, as discussed below, and
which election we refer to as a Mark-to-Market Election.
Taxation of U.S. Holders Making a Timely QEF Election
If we were to be treated as a PFIC for any taxable year and a U.S. Holder makes a timely QEF Election, which U.S. Holder we refer to as an Electing
Holder, the Electing Holder must report each year for U.S. federal income tax purposes its pro rata share of our ordinary earnings and our net capital gain, if
any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received from us by
the Electing Holder. The Electing Holder’s adjusted tax basis in the common shares will be increased to reflect taxed but undistributed earnings and profits.
Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common shares
and will not be taxed again once distributed. A U.S. Holder would make a QEF Election with respect to any
31
taxable year that we are a PFIC by filing one copy of IRS Form 8621 with its U.S. federal income tax return. To make a QEF Election, a U.S. Holder must
receive annually certain tax information from us. There can be no assurances that we will be able to provide such information annually. An Electing Holder
would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares.
Taxation of U.S. Holders Making a Mark-to-Market Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our common shares are treated as “marketable stock”, a U.S.
Holder would be permitted to make a Mark-to-Market Election with respect to our common shares, provided the U.S. Holder completes and files IRS Form
8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder generally would include as
ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such holder’s
adjusted tax basis in the common shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s
adjusted tax basis in the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included
in income as a result of the Mark-to-Market Election. A U.S. Holder’s tax basis in its common shares would be adjusted to reflect any such income or loss
amount. Gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the
sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-
market gains previously included in income by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF Election or a Mark-to-Market Election for
that year, whom we refer to as a Non-Electing Holder, would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any
distributions received by the Non-Electing Holder on our common shares in a taxable year in excess of 125% of the average annual distributions received by
the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common shares), and (2) any
gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:
•
•
the excess distribution or gain would be allocated ratably over the Non-Electing Holders’ aggregate holding period for the common shares;
the amount allocated to the current taxable year and any taxable years before the Company became a PFIC would be taxed as ordinary income; and
•
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer
for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable
year.
These penalties would not apply to a pension or profit-sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage
in connection with its acquisition of our common shares. If we were a PFIC, and a Non-Electing Holder who is an individual died while owning our
common shares, such holder’s successor generally would not receive a step-up in tax basis with respect to such common shares.
Taxation of Non-U.S. Holders
A beneficial owner of common shares (other than a partnership) that is not a U.S. Holder is referred to herein as a Non-U.S. Holder.
Dividends on Common Shares
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on dividends received from us with respect to our common shares,
unless that dividend is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is
entitled to the benefits of a U.S. income tax treaty with respect to those dividends, that income is taxable, or taxable at the full rate, only if it is attributable
to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Shares
32
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale, exchange or other disposition
of our common shares, unless:
the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if the Non-U.S. Holder is
•
entitled to the benefits of an income tax treaty with respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-U.S.
Holder in the United States); or
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other
•
conditions are met.
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common shares, including
dividends and the gain from the sale, exchange or other disposition of the common shares, that is effectively connected with the conduct of that trade or
business will generally be subject to regular U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S.
Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the effectively connected income, subject to
certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable income tax
treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements.
Such payments will also be subject to “backup withholding” if you are a non-corporate U.S. Holder and you:
•
•
•
•
fail to provide an accurate taxpayer identification number;
are notified by the IRS that you have failed to report all interest or dividends required to be shown on your
U.S. federal income tax returns; or
in certain circumstances, fail to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting and backup
withholding by certifying their status on an applicable IRS Form W-8.
If you are a Non-U.S. Holder and you sell your common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S.
backup withholding and information reporting unless you certify that you are a non-U.S. person, under penalties of perjury, or otherwise establish an
exemption. If you sell your common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States,
then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting, but not backup
withholding, will apply to a payment of sales proceeds, including a payment made to you outside the United States, if you sell your common shares through
a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Such information reporting requirements will not apply,
however, if the broker has documentary evidence that you are a non-U.S. person and certain other conditions are met, or you otherwise establish an
exemption.
Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that
exceed your income tax liability by filing a refund claim with the IRS.
Other U.S. Information Reporting Obligations
Individuals who are U.S. Holders (and to the extent specified in applicable Treasury regulations, certain individuals who are Non-U.S. Holders and certain
U.S. entities) who hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information
relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on
the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury regulations). Specified foreign financial assets would
include, among other assets, our common shares, unless the shares are held through an account maintained with a U.S. financial institution. Substantial
penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect.
Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury regulations, an individual Non-U.S. Holder or a U.S.
entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes
of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including U.S.
entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under this legislation.
33
Changes in Global Tax Laws
Long-standing international tax initiatives that determine each country’s jurisdiction to tax cross-border international trade and profits are evolving as a
result of, among other things, initiatives such as the Anti-Tax Avoidance Directives, as well as the Base Erosion and Profit Shifting reporting requirements,
mandated and/or recommended by the EU, G8, G20 and Organization for Economic Cooperation and Development, including the imposition of a minimum
global effective tax rate for multinational businesses regardless of the jurisdiction of operation and where profits are generated (Pillar Two). As these and
other tax laws and related regulations change (including changes in the interpretation, approach and guidance of tax authorities), our financial results could
be materially impacted. Given the unpredictability of these possible changes and their potential interdependency, it is difficult to assess whether the overall
effect of such potential tax changes would be cumulatively positive or negative for our earnings and cash flow, but such changes could adversely affect our
financial results.
On December 12, 2022, the European Union member states agreed to implement the OECD’s Pillar Two global corporate minimum tax rate of 15% on
companies with revenues of at least €750 million effective from 2024. Various countries have either adopted implementing legislation or are in the process
of drafting such legislation. Any new tax law in a jurisdiction where we conduct business or pay tax could have a negative effect on our company.
ITEM 1A. RISK FACTORS
An investment in our securities involves a high degree of risk. You should consider carefully the material risks described below, which we believe represent
the material risks related to our business and our securities, together with the other information contained in this Form 10-K, before making a decision to
invest in our securities. This Form 10-K also contains forward-looking statements that involve risks and uncertainties. In connection with such forward
looking statements, you should also carefully review the cautionary statements referred to under “Special Note Regarding Forward Looking Statements.”
Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks
described below.
Summary of Risk Factors
•
The cyclical and volatile nature of the seaborne drybulk transportation industry may lead to significant decreases in charter and freight rates, which
may have an adverse effect on our revenues, earnings and profitability and our ability to comply with our loan covenants.
Further increases in interest rates could adversely affect our cash flow and financial condition.
•
• Any change in drybulk carrier capacity in the future may result in lower charter and freight rates which, in turn, will adversely affect our
•
•
•
•
profitability.
The continuing conflict in Ukraine and the Middle East and resulting sanctions by the United States, European Union and other countries have
adversely impact global economic conditions and contribute to inflation and volatility in commodity prices.
The market values of our owned vessels may decrease, which could limit the amount of funds that we can borrow or cause us to breach certain
covenants in our credit facilities and we may incur impairment or a loss if we sell vessels following a decline in their market value.
The state of the global financial markets and economic conditions may adversely impact our ability to obtain additional financing on acceptable
terms and otherwise negatively impact our business.
Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material
adverse effect on our business, financial condition and results of operations.
• Our financial results and operations may be adversely affected by the continuing impacts of the outbreak of COVID-19, and other epidemic and
pandemic diseases and continuing governmental responses in certain jurisdictions, including China.
• Our revenues are subject to seasonal fluctuations, which could affect our operating results and our ability to pay dividends, if any, in the future.
•
If our vessels call on ports located in countries or territories or carry cargo that is the subject of sanctions or embargoes imposed by the U.S., the
European Union, the United Nations, or other governmental authorities, it could lead to monetary fines or penalties and may adversely affect our
reputation and the market for our securities.
• We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of
doing business.
Changes in fuel prices, that may result from increased oil prices, may adversely affect our profitability.
•
34
•
•
In the highly competitive international shipping industry, we may not be able to compete successfully for chartered-in vessels or for vessel
employment and, as a result, we may be unable to charter-in vessels at reasonable rates or employ our vessels profitably.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and
Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
• We depend upon a few significant customers for a large part of our revenues and cash flow, and the loss of one or more of these customers could
adversely affect our financial performance.
• We are subject to certain risks with counterparties on contracts and the failure of such counterparties to meet their obligations could cause us to
suffer losses or otherwise adversely affect our business and ability to comply with covenants in our loan agreements, which could impose operating
and financial restrictions on us.
• Obligations associated with being a public company require significant company resources and management attention, and we incur increased costs
•
as a result of being a public company.
Because we purchase and operate secondhand vessels, we may be exposed to increased operating costs which could adversely affect our earnings
and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.
• Our ability to obtain additional debt financing, or to refinance existing indebtedness, may be dependent on the performance and length of our
charter contracts and the creditworthiness of our contract counterparties.
• We depend on our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and other key employees, and the loss of their services
would have a material adverse effect on our business, results and financial condition.
Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.
•
• United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax
consequences to U.S. holders.
• We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect
our business and results of operations, including on our vessels. Additionally, if these systems fail or become unavailable for any significant period
of time, our business could be harmed.
• Volatility in the broader securities markets and trading volume of our common shares could adversely impact the trading price of our common
•
shares.
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have, and it may not be
possible for our investors to enforce U.S. judgments against us.
Risks Relating to our Industry
The seaborne drybulk transportation industry is cyclical and volatile, and this may lead to reductions in our charter hire rates, vessel values and results
of operations.
The international seaborne drybulk transportation industry is cyclical and volatile, and a lengthy downturn in the drybulk charter market could severely
affect the entire drybulk shipping industry. The degree of charter and freight rate volatility for vessels has varied widely and is due to various factors,
including changing crude oil prices, economic activity in the largest economies, including China, a strong U.S. Dollar and the associated weakening of other
world currencies and the supply of available tonnage. A worsening of current global economic conditions may cause dry bulk charter rates to decline and
thereby adversely affect our ability to charter or re-charter our vessels and any renewal or replacement charters that we enter into, may not be sufficient to
allow us to operate our vessels profitably. In addition, the conflict in Ukraine has continued disrupting energy production grain exports and trade patterns,
including shipping in the Black Sea and elsewhere, and its impact on such markets remains uncertain. Fluctuations in charter hire rates result from changes
in the supply of and demand for vessel capacity and changes in the supply of and demand for energy resources, commodities, semi-finished and finished
consumer and industrial products internationally carried at sea. If we enter into a charter when charter hire rates are low, our revenues and earnings will be
adversely affected. In addition, a decline in charter hire rates is likely to cause the market value of our vessels to decline. We cannot assure you that we will
be able to successfully charter our vessels in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably, meet
our obligations or pay dividends to our shareholders. The factors affecting the supply and demand for vessels are outside of our control, and the nature,
timing and degree of changes in industry conditions are unpredictable.
Although our operating fleet is primarily chartered-in on a short-term basis and lower charter rates result in lower charter hire costs, changes in charter and
freight rates in the drybulk market affect vessel values and earnings on our owned fleet, and may affect our cash flows, liquidity and ability to comply with
the financial covenants in our loan agreements. An extended downturn in the drybulk carrier market may have adverse consequences. The value of our
common shares could be substantially reduced under these circumstances.
35
We employ our vessels under a mix of voyage charters and time charters and COA’s which typically extend for varying lengths of time, from one month to
ten years. As a result, we are exposed to changes in market rates for drybulk carriers and such changes may affect our earnings and the value of our owned
drybulk carriers at any given time. A COA relates to the carriage of multiple cargoes over the same route and enables the COA holder to nominate different
vessels to perform individual voyages. We may not be able to successfully employ our vessels in the future or renew existing contracts at rates sufficient to
allow us to meet our obligations. We are also exposed to volatility in the market rates we pay to charter-in vessels. Fluctuations in charter and freight rates
result from changes in the supply of and demand for vessel capacity and changes in the demand for seaborne carriage of commodities. Because the factors
affecting the supply of and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in
industry conditions are also unpredictable.
Factors that influence demand for vessel capacity include:
•
•
•
•
•
•
•
•
•
•
•
•
supply of and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;
changes in the exploration or production of energy resources, commodities, semi-finished and finished consumer and industrial products;
the location of regional and global exploration, production and manufacturing facilities;
the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;
the globalization of production and manufacturing;
global and regional economic and political conditions, including armed conflicts, terrorist activities, sanctions, embargoes and strikes;
natural disasters and other disruptions in international trade;
disruptions and developments in international trade;
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
environmental and other regulatory developments;
currency exchange rates;
international sanctions, embargoes, import and export restrictions, nationalizations, piracy, terrorist attacks and armed conflicts, including the
ongoing Ukrainian-Russian and Israeli-Hamas conflicts;
economic slowdowns caused by public health pandemics;
bunker (fuel) prices; and
•
•
• weather.
Demand for our vessels is dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of
the global drybulk fleet and the sources and supply of drybulk cargo transported by sea. Although the current newbuilding orderbook (as a percentage of the
on-the-water fleet) is at a historically low level, a pickup in new ordering could increase global capacity and there can be no assurance that economic growth
will continue in order to absorb this higher supply. Adverse economic, political, social or other developments could have a material adverse effect on our
business and operating results.
The factors that influence the supply of vessel capacity include:
•
•
•
•
•
•
•
•
•
•
the number and size of newbuilding orders and deliveries;
port and canal congestion, including as the result of restrictions or reductions in the capacity of the Panama and Suez Canals due to environmental
or geopolitical factors,
bunker prices;
the scrapping rate of older vessels;
vessel casualties;
speed of vessels being operated;
the number of vessels that are out of service, namely those that are laid-up, dry-docked, awaiting repairs or otherwise not available for hire;
availability of financing for new vessels;
changes in national or international regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of
tonnage; and
changes in environmental and other regulations that may limit the useful lives of vessels or requires technological developments not yet perfected
for commercialization.
Furthermore, the conflict in Ukraine combined with inflationary pressures and/or supply chain disruptions across most major economies have negatively
impacted certain of the countries in which we operate in and may lead to a global economic
36
slowdown, which might in turn adversely affect demand for our vessels. In particular, the conflict in Ukraine and related sanctions measures imposed
against Russia has continued to disrupt energy production and trade patterns, including shipping in the Black Sea and elsewhere, and has impacted the price
of certain dry bulk goods, such as grain, as well as energy and fuel prices. Notably, various jurisdictions have imposed sanctions against Russia directly
targeting the maritime transport of goods originating from Russia, such as of oil products and agricultural commodities such as potash. Such measures, and
the response of targeted jurisdictions to them, have disrupted trade patterns of certain of the goods which we transport and have correspondingly impacted
charter rates for the transport of such goods.
The ongoing conflict between Israel and Hamas, which commenced in October 2023, has resulted in a surge in acts of piracy and assaults on vessels in the
Red Sea. According to reports from the U.S. military, three commercial vessels have been targeted in international waters in the southern Red Sea. Yemen's
Houthi group has claimed responsibility for drone and missile strikes on two vessels near the Cape of Good Hope in southern Africa. These incidents have
significantly extended the duration and expenses of voyages from east to west. While we cannot currently determine the immediate consequences of this
conflict, the continued occurrence of attacks or piracy attempts, as well as the response from the United States, Great Britain, and other governments, or the
continued diversion of vessels from the Suez Canal, may have an adverse impact on our business, financial condition, and operational outcomes.
In addition to the prevailing and anticipated charter and freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include
newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunker fuels and other operating costs, costs associated with classification
society surveys, normal maintenance and insurance coverage, the efficiency and age profile of the existing drybulk fleet in the market and government and
industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of
and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry
conditions.
We anticipate that the future demand for our drybulk carriers and our logistics services will be dependent upon economic growth in world economies and its
associated industrial production, seasonal and regional changes in demand, changes in the capacity of the global drybulk carrier fleet and the sources and
supply of drybulk cargoes to be transported by sea.
Global economic conditions may continue to negatively impact the drybulk shipping industry.
Major market disruptions and adverse changes in market conditions and regulatory climate in China, the United States, the European Union and worldwide
may adversely affect our business or impair our ability to borrow amounts under credit facilities or any future financial arrangements.
Chinese dry bulk imports have accounted for the majority of global dry bulk transportation growth annually over the last decade. Accordingly, our financial
condition and results of operations, as well as our future prospects, would likely be hindered by an economic downturn in any of these countries or
geographic regions. In recent years China and India have been among the world’s fastest growing economies in terms of gross domestic product, and any
economic slowdown in the Asia Pacific region particularly in China or India may adversely affect demand for seaborne transportation of our products and
our results of operations. Moreover, any deterioration in the economy of the United States or the European Union, may further adversely affect economic
growth in Asia.
Economic growth is uncertain but any slowdown, including due to supply-chain disruption, high energy process and the surge in inflation and related
actions by central banks and geopolitical conditions, could result in a significant risk of recession in many parts of the world in the near term. In particular,
an adverse change in economic conditions affecting China, Japan, India or Southeast Asia generally could have a negative effect on the drybulk market.
Variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly.
Our credit facilities use variable interest rates and expose us to interest rate risk. If interest rates increase and we are unable to effectively hedge our interest
rate risk, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our profitability
and cash available for servicing our indebtedness would decrease.
We may be adversely affected by developments in the SOFR market, changes in the methods by which SOFR is determined or the use of alternative
reference rates.
37
In 2017, the U.K. Financial Conduct Authority announced that it intended to phase out LIBOR, and in 2021, it announced that all LIBOR settings will either
cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of one-week and two-month U.S.
Dollar settings, and immediately after June 30, 2023, in the case of the remaining U.S. Dollar settings. The Federal Reserve also has advised banks to cease
entering into new contracts that use U.S. Dollar LIBOR as a reference rate. The Alternative Refinance Rate Committee, a committee convened by the
Federal Reserve that includes major market participants, has identified SOFR, an index calculated by short-term repurchase agreements, backed by U.S.
Treasury securities, as its preferred alternative rate for LIBOR in the U.S.
Although SOFR appears to be the preferred replacement rate for U.S. Dollar LIBOR and has been adopted as the benchmark interest rate for our debt
arrangements, it is unclear if other benchmarks may emerge. The consequences of these developments cannot be entirely predicted, and there can be no
assurance that they will not result in financial market disruptions, significant increases in benchmark interest rates, substantially higher financing costs or a
shortage of available debt financing, any of which could have an adverse effect on our business, financial position and results of operations, and our ability
to pay dividends.
Our business is affected by macroeconomic conditions, including rising inflation, interest rates, market volatility, economic uncertainty, and supply
chain constraints.
Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation,
interest rates and overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global financial
markets. For instance, inflation has negatively impacted us by increasing our labor costs, through higher wages and higher interest rates, and operating
costs. Supply chain constraints have led to higher inflation, which if sustained could have a negative impact on our operations. If inflation or interest rates
were to significantly increase, our business operations may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the
capital markets could also affect the operation of our business and our ability to raise capital on favorable terms, or at all, in order to fund our operations.
The invasion of Ukraine by Russia and resulting sanctions by the United States, European Union and other countries have contributed to inflation,
market disruptions and increased volatility in commodity prices in the United States and a slowdown in global economic growth.
On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. In response to the attacks on Ukraine, sanctions and other
penalties have been levied by the United States, European Union, and other countries and additional sanctions and penalties have been proposed. The
invasion by Russia and resulting sanctions have had a broad range of adverse impacts on global business and financial markets some of which have had and
may continue to have adverse impacts on our business. These include increased inflation, significant market disruptions and increased volatility in
commodity prices such as corn, oil and natural gas. Although the duration and extent of the ongoing military conflict is highly unpredictable, and the
magnitude of the potential economic impact is currently unknown, Russian military actions and resulting sanctions could have a negative effect on our
financial condition and operating results.
The ongoing conflict between Russia in Ukraine has developed into a war, posing an increasing risk for global economic growth. Major economic sanctions
against Russia are having a considerable impact on oil and gas prices, given the dependence of the EU on oil and gas exports out of Russia combined with
limited spare capacity of such commodities globally. Energy prices have increased significantly, leading to major inflationary pressures in the major
developed countries that rely heavily on oil and gas exports out of Russia. In addition, the combined Russia/Ukraine region account for approximately one
quarter of global grain production, one of the main cargoes transported by dry bulk vessels, while coal and iron ore exports out of the region have also been
reduced. The above factors can have a material negative impact on demand for dry bulk transportation, while slower economic growth could also negatively
affect demand for dry bulk commodities in the rest of the world, leading to lower dry bulk freight rates.
The recent conflict between Russia and Ukraine is having a profound impact on global commodities prices including grain and coal, two of the most
important commodities for dry bulk shipping. Given the importance of the region in export volumes for both grains and coal, a prolonged stoppage could
lead to significantly lower freight rates and thus a decline in freight futures prices. Although coal supplies could potentially be sourced from elsewhere
partly mitigating the negative impact of the lost volumes, global grain production capacity is limited, and thus the impact of the lost volumes could not be
easily mitigated. In addition, the recent geopolitical turmoil has led to an increase in government protectionism when it comes to commodities, and if such a
trend continues, it could lead to lower bulk commodities trading globally over the long term. The impact of such a scenario on dry bulk shipping will be
negative, leading to lower spot rates and as a result lower freight futures prices.
38
Any change in drybulk carrier capacity in the future may result in lower charter and freight rates which, in turn, will adversely affect our profitability.
The global drybulk fleet has increased significantly over the past 10 years as a result of the large number of newbuilding orders placed throughout this
period. Scrapping of older ships has helped curtail some of this new supply growth, but it has not been enough to materially offset the large net growth in
the fleet. Supply growth momentum has slowed significantly in recent years as less and less newbuilding orders have been placed.
The market values of our owned vessels may decrease, which could limit the amount of funds that we can borrow or cause us to breach certain
covenants in our credit facilities and we may incur impairment or a loss if we sell vessels following a decline in their market value.
The fair market values of our owned dry bulk vessels have generally experienced high volatility, and you should expect the market values of our vessels to
fluctuate depending on a number of factors including:
•
•
•
•
•
•
•
•
•
•
•
•
•
prevailing level of charter and freight rates;
general economic and market conditions affecting the shipping industry;
the balance between the supply of and demand for ships of a certain type;
competition from other shipping companies;
types and sizes of vessels;
supply of and demand for vessels;
the availability and cost of other modes of transportation;
cost of newbuildings;
shipyard capacity;
governmental and other regulations, including those that may limit the useful life of vessels;
the prevailing level of charter rates;
the need to upgrade secondhand and previously owned vessels as a result of environmental, safety, regulatory or charterer requirements; and
technological advances.
In addition, as vessels grow older, they generally decline in value. If the market values of our owned vessels decrease, we may not be in compliance with
certain covenants in our credit facilities secured by mortgages on our drybulk vessels unless we provide additional collateral or prepay a portion of the loan
to a level where we are again in compliance with our loan covenants. We were in compliance with all covenants for the years ended December 31, 2023 and
2022.
If we sell one or more of our vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our consolidated
financial statements, the sale proceeds may be less than the vessel’s carrying amount, resulting in a loss and a reduction in earnings. Conversely, if vessel
values are elevated at a time when we wish to acquire additional vessels, the cost of acquisition may increase and this could adversely affect our business,
results of operations, cash flow and financial condition.
The carrying amounts of vessels held and used by us are reviewed for potential impairment when events or changes in circumstances indicate that the
carrying amount of a particular vessel may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the
undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel’s carrying amount. This
assessment is made at the asset group level which represents the lowest level for which identifiable cash flows are largely independent of other groups of
assets. The asset groups are defined by vessel size and classification.
The current state of the global financial markets and economic conditions may adversely impact our ability to obtain additional financing on acceptable
terms and otherwise negatively impact our business.
Global financial markets can be volatile and contraction in available credit may occur as economic conditions change. In recent years, operating businesses
in the global economy have faced weakening demand for goods and services, deteriorating international liquidity conditions, and declining markets which
lead to a general decline in the willingness of banks and other financial institutions to extend credit, particularly in the shipping industry. As the shipping
industry is highly dependent on the availability of credit to finance and expand operations, it may be negatively affected by such changes and volatility.
Also, as a result of concerns about the stability of financial markets generally, and the solvency of counterparties specifically, the cost of obtaining money
from the credit markets may increase if lenders increase interest rates, enact tighter lending
39
standards, refuse to refinance existing debt at all or on terms similar to current debt, and reduce, or cease to provide funding to borrowers. Due to these
factors, additional financing may not be available to the extent required, on acceptable terms or at all. If additional financing is not available when needed,
or is available only on unfavorable terms, we may be unable to expand or meet our obligations as they come due or we may be unable to enhance our
existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
Credit markets in the United States and Europe have in the past experienced significant contraction, deleveraging and reduced liquidity, and there is a risk
that the U.S. federal government and state governments and European authorities continue to implement a broad variety of governmental action and/or new
regulation of the financial markets. Global financial markets and economic conditions have been, and continue to be, disrupted and volatile. We face risks
attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among
other factors which may have a material adverse effect on our results of operations and financial condition and may cause the price of our common shares to
decline.
As of December 31, 2023, we had total outstanding indebtedness of $ 100.3 million under our various credit facilities and a further $167.7 million of
finance lease obligations.
World events could affect our operations and financial results.
Past terrorist attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertainty in the world’s financial markets and may
affect our business, operating results and financial condition. Continuing conflicts, instability and other recent developments in Ukraine, the Middle East
and elsewhere, and the presence and continuing military actions of U.S. or other armed forces in these regions may lead to additional acts of terrorism and
armed conflict around the world, which may contribute to further economic instability in the global financial markets. Any of these occurrences could have
a material adverse impact on our business, financial condition and results of operations.
We face risks attendant to changes in economic and regulatory conditions around the world.
We face risks attendant to changes in economic environments, changes in interest rates, increasing inflation and the resulting monetary policies of central
governments, instability in the banking and securities markets and trade regulations around the world, among other factors. Major market disruptions and
adverse changes in market conditions and regulatory climate in China, the United States and worldwide may adversely affect our business or impair our
ability to borrow amounts under any future financial arrangements.
Chinese dry bulk imports have accounted for the majority of global dry bulk transportation growth annually over the last decade. Accordingly, our financial
condition and results of operations, as well as our future prospects, would likely be hindered by an economic downturn in any of these countries or
geographic regions. In recent years China and India have been among the world’s fastest growing economies in terms of gross domestic product, and any
economic slowdown in the Asia Pacific region particularly in China or India may adversely affect demand for seaborne transportation of our products and
our results of operations. Moreover, any deterioration in the economy of the United States or the European Union, may further adversely affect economic
growth in Asia.
Economic growth is uncertain but any slowdown, including due to supply-chain disruption, the recent surge in inflation and related actions by central banks
and geopolitical conditions, with a significant risk of recession in many parts of the world in the near term. In particular, an adverse change in economic
conditions affecting China, Japan, India or Southeast Asia generally could have a negative effect on the drybulk market. While global economic activity
levels, led by China, generally stabilized towards the last quarter of 2023, the outlook for China and the rest of the world remains uncertain and dependent
on inflation and present geopolitical instability, including the continuing trade tensions between the United States and China, which could derail recovery
from impacts of COVID-19 and the ongoing conflicts between Ukraine and Russia and Israel and Hamas.
Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material
adverse effect on our business, financial condition and results of operations.
The Chinese economy differs from the economies of western countries in such respects as structure, government involvement, level of development, growth
rate, capital reinvestment, allocation of resources, bank regulation, currency and monetary policy, rate of inflation and balance of payments position. Prior to
1978, the Chinese economy was a “planned economy”. Since 1978, increasing emphasis has been placed on the utilization of market forces in the
development of the Chinese economy. Annual and five-year State Plans are adopted by the Chinese government in connection with the development of the
economy. Although state-owned enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese
40
government is reducing the level of direct control that it exercises over the economy through State Plans and other measures. There is an increasing level of
freedom and autonomy in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a “market economy”
and enterprise reform. Limited price reforms were undertaken with the result that prices for certain commodities are principally determined by market
forces. In addition, economic reforms may include reforms to the banking and credit sector and may produce a shift away from the export-driven growth
model that has characterized the Chinese economy over the past few decades. Many of the reforms are unprecedented or experimental and may be subject to
revision, change or abolition based upon the outcome of such experiments. The level of imports to and exports from China could be adversely affected by
the failure to continue market reforms or changes to existing pro-export economic policies. The level of imports to and exports from China may also be
adversely affected by changes in political, economic and social conditions (including a slowing of economic growth) or other relevant policies of the
Chinese government, such as changes in laws, regulations or export and import restrictions, internal political instability, changes in currency policies,
changes in trade policies and territorial or trade disputes. A decrease in the level of imports to and exports from China could adversely affect our business,
operating results and financial condition.
In recent years, China and the United States have implemented certain increasingly protective trade measures with continuing trade tensions, including
significant tariff increases, between these countries. Although the United States and China successfully reached an interim trade deal in January 2020 that
de-escalated the trade tensions with both sides rolling back tariffs, the extent to which the trade deal will be successfully implemented is unpredictable. A
decrease in the level of imports to and exports from China could adversely affect our business, operating results and financial condition.
In addition, in September 2020 President Xi Jinping committed his country to achieving carbon neutrality by 2060 at the UN General Assembly, despite that
carbon emissions are currently a prominent part of China’s economic and industrial structure as it relies heavily on nonrenewable energy sources, generally
lacks energy efficiency, and has a rapidly growing energy demand. Depending on how China attempts to achieve carbon neutrality by 2060, including
through the reduction in the use of coal, an overall increase in the use of nonrenewable energy as part of the energy consumption mix and through other
means and any reduction in the demand for coal and related products could have a material adverse effect on our business, cash flows and results of
operations.
We may not be able to obtain financing on acceptable terms, which may negatively impact our planned growth.
As a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the ability to obtain money from the
credit markets has become more difficult as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt
at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, we cannot be certain
that financing will be available if needed and to the extent required, on acceptable terms. If financing is not available when needed, or is available only on
unfavorable terms, we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business
opportunities as they arise.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf
of Aden off the coast of Somalia and, in particular, the Gulf of Guinea region off Nigeria, which experienced increased incidents of piracy in recent years.
Sea piracy incidents continue to occur, increasingly in the Sulu Sea and the Gulf of Guinea, with drybulk vessels particularly vulnerable to such attacks. In
the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping particularly in the
Arabian Gulf region and most recently in the Black Sea in connection with the ongoing Ukraine-Russia conflict and in the Red Sea in connection with
Israeli-Hamas conflict. Commercial vessels have been attacked in international waters in the southern Red Sea, according to statements by the U.S. military,
with Yemen’s Houthi group claiming drone and missile attacks on two Israeli vessels in the area, in response to the ongoing conflict in the region. The
perception that our vessels are a potential piracy or terrorist target could have a material adverse impact on our business, financial condition and results of
operations.
Further, if these piracy attacks occur in regions in which our vessels are deployed that insurers characterize as “war risk” zones or by the Joint War
Committee as “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more
difficult to obtain, if available at all. In addition, crew costs, including costs that may be incurred to the extent we employ on-board security guards, could
increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In
addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could
have a material adverse impact on our business, results of operations, cash flows and financial condition, and
41
this may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us
under our charters.
Our operations outside the United States expose us to global risks, such as political instability, terrorist attacks, international hostilities and global
public health concerns, which may affect the seaborne transportation industry and adversely affect our business.
We conduct most of our operations outside of the United States, and our business, results of operations, cash flows, financial condition and ability to pay
dividends, if any, in the future may be adversely affected by changing economic, political and government conditions in the countries and regions where our
vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political
conflicts, including the current political instability in Ukraine, in the Middle East and the South China Sea region and other geographic countries and areas,
geopolitical events such as terrorist or other attacks, and war (or threatened war) or international hostilities, such as those between the United States and Iran
or North Korea. Terrorist attacks as well as the frequent incidents of terrorism in the Middle East, and the continuing response of the United States and
others to these attacks, as well as the threat of future terrorist attacks around the world, continues to cause uncertainty in the world's financial markets and
may affect our business, operating results and financial condition. As a result of the above, insurers have increased premiums and reduced or restricted
coverage for losses caused by terrorist acts generally. These uncertainties could also adversely affect our ability to obtain additional financing on terms
acceptable to us or at all. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
Further, governments may turn and have turned to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping
demand. In particular, beginning in February of 2022, President Biden and several European leaders also announced various economic sanctions against
Russia in connection with the aforementioned conflicts in the Ukraine region, which have continued to expand over the past two years and which may
adversely impact our business. The Russian Foreign Harmful Activities Sanctions program includes prohibitions on the import of certain Russian energy
products into the United States, including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal, as well as prohibitions on all new
investments in Russia by U.S. persons, among other restrictions. Furthermore, the United States has also prohibited a variety of specified services related to
the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping,
insurance (including reinsurance and protection and indemnity), flagging, and customs brokering. These prohibitions took effect on December 5, 2022 with
respect to the maritime transport of crude oil and on February 5, 2023 with respect to the maritime transport of other petroleum products. An exception
exists to permit such services when the price of the seaborne Russian oil does not exceed the relevant price cap; but implementation of this price exception
relies on a recordkeeping and attestation process that allows each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has
been purchased at or below the price cap. Violations of the price cap policy or the risk that information, documentation, or attestations provided by parties in
the supply chain are later determined to be false may pose additional risks adversely affecting our business. Our business could also be adversely impacted
by trade tariffs, trade embargoes or other economic sanctions that limit trading activities by the United States or other countries against countries in the
Middle East, Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures.
In the past, political instability has also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in
the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the
coast of Somalia.
In addition, public health threats, such as COVID-19, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to
time occurred in various parts of the world in which we operate, including China, could adversely impact our operations, the timing of completion of
scheduled dry-dockings and ballast water treatment system installation projects, as well as the operations of our customers.
Any of these occurrences could have a material adverse impact on our future performance, results of operations, cash flows and financial position.
Outbreaks of epidemic and pandemic diseases and governmental responses thereto could adversely affect our business, financial performance, and our
results of operations, including the ability to obtain charters and financing.
Our operations are subject to risks related to pandemics, epidemics or other infectious disease outbreaks and government responses thereto. COVID-19,
which was initially declared a pandemic by the World Health Organization on March 11, 2020
42
and was declared no longer a global health emergency on May 5, 2023, negatively affected economic conditions, supply chains, labor markets, and demand
for certain shipped goods.
The extent to which our business, results of operations and financial condition may be negatively affected by the COVID-19 pandemic or future pandemics,
epidemics or other outbreaks of infectious diseases is highly uncertain and will depend on numerous evolving factors that we cannot predict, including, but
not limited to (i) the duration and severity of the infectious disease outbreak; (ii) the imposition of restrictive measures to combat the outbreak and slow
disease transmission; (iii) the introduction of financial support measures to reduce the impact of the outbreak on the economy; (iv) volatility in the demand
for and price of oil and gas; (v) shortages or reductions in the supply of essential goods, services or labor; and (vi) fluctuations in general economic or
financial conditions tied to the outbreak, such as a sharp increase in interest rates or reduction in the availability of credit. We cannot predict the effect that
an outbreak of a new COVID-19 variant or strain, or any future infectious disease outbreak, pandemic or epidemic may have on our business, results of
operations and financial condition, which could be material and adverse.
Our revenues are subject to seasonal fluctuations, which could affect our operating results and our ability to pay dividends, if any, in the future.
We operate our drybulk vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter and freight rates. This
seasonality may result in quarter-to-quarter volatility in our operating results, which could affect our ability to pay dividends, if any, in the future. The
drybulk carrier market is typically stronger in the fall and winter months due to demand increases arising from agricultural harvest and increased coal
demand in preparation for winter in the Northern Hemisphere. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling
and supplies of certain commodities. This seasonality may adversely affect our operating results and our ability to pay dividends, if any, in the future.
Risks associated with operating ocean-going vessels could affect our business and reputation, which could adversely affect our revenues and the price of
our common shares.
The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:
•
•
•
•
•
•
a marine accident or disaster;
environmental accidents and pollution;
cargo and property losses or damage;
damage to the environment, including through spillage of fuel, lubricants or other chemicals and substances used in operations;
business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse
weather conditions; and
piracy.
These hazards may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates,
damage to our customer relationships and market disruptions, delay or rerouting, any of which may subject us to litigation. As a result, we could be exposed
to substantial liabilities not recoverable under our insurances. Further, the involvement of our vessels in an environmental disaster may harm our reputation
as a safe and reliable vessel owner and operator. Any of these circumstances or events could increase our costs or lower our revenues.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial.
We may have to pay drydocking costs that our insurance does not cover at all or in full. The loss of revenues while these vessels are being repaired and
repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities
is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our
vessels may be forced to travel to a drydocking facility that is not conveniently located relative to our vessels' positions. The loss of earnings while these
vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition.
The operation of drybulk carriers entails certain unique operational risks.
The operation of certain ship types, such as drybulk carriers, has certain unique risks. With a drybulk carrier, the cargo itself and its interaction with the ship
can be a risk factor. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, drybulk carriers
are often subjected to battering treatment during unloading
43
operations with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to the vessel. Vessels
damaged due to treatment during unloading procedures may be more susceptible to breach at sea. Furthermore, any defects or flaws in the design of a
drybulk carrier may contribute to vessel damage. Hull breaches in drybulk carriers may lead to the flooding of the vessels holds. If a drybulk carrier suffers
flooding in its holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel's bulkheads, leading to the loss of the
vessel. If we are unable to adequately maintain our vessels, we may be unable to prevent these events. Any of these circumstances or events could
negatively impact our business, financial condition, results of operations and our ability to pay dividends, if any, in the future. In addition, the loss of any of
our vessels could harm our reputation as a safe and reliable vessel owner and operator.
If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S., the European Union,
the United Nations, or other governmental authorities, it could lead to monetary fines or other penalties and may adversely affect our reputation and the
market for our securities.
Although no vessels owned or operated by us have called on ports located in countries or territories that are the subject of country-wide or territory-wide
sanctions or embargoes imposed by the U.S. government or other governmental authorities (“Sanctioned Jurisdictions”) in violation of applicable sanctions
or embargo laws, and we endeavor to take precautions designed to mitigate such risk, it is possible that, in the future, our vessels may call on ports located
in Sanctioned Jurisdictions on our charterers’ instructions and/or without our consent. If such activities result in a violation of sanctions or embargo laws,
we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our common shares could be adversely affected.
The applicable sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the
same activities, and such sanctions and embargo laws and regulations may be amended or expanded over time. Current or future counterparties of ours may
be affiliated with persons or entities that are or may be in the future the subject of sanctions or embargoes imposed by the U.S., the EU, and/or other
international bodies. If we determine that such sanctions require us to terminate existing or future contracts to which we, or our subsidiaries, are party or if
we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm. The
Company, or its respective counterparty, have cancelled certain voyages due to countries around the world imposing sanctions against Russia over its
invasion of Ukraine. The Company might be subject to litigation regarding canceled voyages. Although the current market remains strong, and the
Company expects to deploy vessels on other voyage and time charter arrangements, the rates achieved may not be at the same levels as the cancelled
voyages.
As a result of Russia’s actions in Ukraine and the war between Israel and Hamas, the U.S., EU and United Kingdom, together with numerous other
countries, have imposed significant economic sanctions which may adversely affect our ability to operate in the region and also restrict parties whose cargo
we may carry. Sanctions against Russia have also placed significant prohibitions on the maritime transportation of seaborne Russian oil, the importation of
certain Russian energy products and other goods, and new investments in the Russian Federation. These sanctions further limit the scope of permissible
operations and cargo we may carry.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such
compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be
subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could negatively impact our ability to access
U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us.
In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have
contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest
from, our securities may adversely affect the price at which our securities trade. Additionally, some investors may decide to divest their interest, or not to
invest, in our company simply because we do business with companies that do business in sanctioned countries or territories. Moreover, our charterers may
violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn
negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other
activities, such as lawfully entering into charters with individuals or entities that are not controlled by the governments of countries or territories that are the
subject of certain U.S. sanctions or embargo laws, or engaging in operations associated with those countries or territories pursuant to contracts with third
parties that are unrelated to those countries or territories or entities controlled by their governments. Investor perception of the value of our common shares
may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in the countries or territories that we
operate in.
44
We are subject to international safety regulations 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 and ship managers 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 for dealing with emergencies. The failure of a shipowner 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. Each of the vessels owned or operated by us is ISM Code-certified.
In addition, vessel classification societies impose significant safety and other requirements on our vessels. In complying with current and future
environmental requirements, vessel owners and operators may incur significant additional costs for maintenance and inspection requirements, in developing
contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and
environmental protection requirements, can be expected to become stricter in the future and may require us to incur significant capital expenditures to keep
our vessels in compliance.
On July 14, 2021, the European Commission formally proposed its plan to gradually include the maritime sector in the EU Emissions Trading System (“EU
ETS”) from 2024 by phasing the sector into the EU ETS requirements over a three-year period. Effective January 1, 2024, the scope of ETS has been
expanded to include maritime transport emissions, with a two-year phase-in period. This will require shipowners to buy permits to cover greenhouse gas
emissions and is expected to affect our vessels from January 1, 2024. The European Commission’s plan will permit vessel owners to pass the costs of
compliance with the EU ETS onto charterers for vessel emissions during on-hire periods. If we are unable to pass on these additional costs to our customers
during on-hire periods, this could have a material adverse effect on our financial position. During off-hire periods, we will need to develop a strategy for
purchasing EU ETS allocations at favorable rates. If we are unable to obtain favorable rates or are unable to implement adequate processes to manage the
purchasing and surrendering of EU ETS allocations, it could have a material adverse effect on the Company’s financial position.
We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing
business.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national
and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership cost and
operation of our vessels. These requirements include, but are not limited to, European Union Regulations, the International Convention for the Prevention of
Pollution from Ships of 1975, the International Maritime Organization, or IMO, International Convention for the Prevention of Marine Pollution of 1973,
the IMO International Convention for the Safety of Life at Sea of 1974, the International Convention on Load Lines of 1966, the U.S. Oil Pollution Act of
1990, or OPA, the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, the U.S. Clean Air Act, U.S.
Clean Water Act, the U.S. Marine Transportation Security Act of 2002 and the International Code for Ships Operating in Polar Waters.
Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational changes and may affect
the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations,
including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection,
development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents.
These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with
applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations.
Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability
without regard to whether we were negligent or at fault.
We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents.
Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such
risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition and our ability to
pay dividends.
45
Regulations relating to ballast water discharge may adversely affect our revenues and profitability.
The UN International Maritime Organization has imposed updated guidelines for ballast water management systems specifying the maximum amount of
viable organisms allowed to be discharged from a vessel’s ballast water. Depending on the date of the IOPP renewal survey, existing vessels constructed
before September 8, 2017 must comply with the updated D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard
will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are to
comply with the D-2 standards on or after September 8, 2017 and the costs of compliance may be substantial and adversely affect our revenues and
profitability.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (“VGP”) program and U.S. National Invasive
Species Act (“NISA”) are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act (“VIDA”), which
was signed into law on December 4, 2018, requires that the EPA develop national standards of performance for approximately 30 discharges, similar to
those found in the VGP within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge
National Standards of Performance under VIDA. On October 18, 2023, the EPA published a supplemental notice of the proposed rule sharing new ballast
water data received from the U.S. Coast Guard (“USCG”) and providing clarification on the proposed rule. The public comment period for the proposed
rule ended on December 18, 2023. Once EPA finalizes the rule (possibly by Fall 2024), USCG must develop corresponding implementation, compliance
and enforcement regulations regarding ballast water within two years. The new regulations could require the installation of new equipment, which may
cause us to incur substantial costs.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
International shipping is subject to various security and customs inspections and related procedures in countries of origin, destination and trans-shipment
points. Inspection procedures may result in the seizure of the contents of our vessels, delays in the loading, offloading or delivery of our vessels and the
levying of customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Changes to inspection procedures could
also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or
impractical. Any such changes or developments may have a material adverse effect on our business, financial condition and results of operations.
Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek to obtain security for its claim by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of money to have the
arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the
vessel which is subject to the claimant's maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants
could attempt to assert “sister ship” liability against a vessel in our fleet for claims relating to another of our vessels.
Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.
A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and
becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter
rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances.
Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be
uncertain. Government requisition of one or more of our vessels may negatively impact our revenues and reduce the amount of dividends, if any, in the
future.
Changes in fuel prices may adversely affect profits.
Fuel, or bunkers, is typically the largest expense of our operating business and therefore, changes in the price of fuel may adversely affect our profitability.
When we operate vessels under COAs or voyage charters, we are responsible for all voyage costs, including bunkers. The price and supply of fuel can be
unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the
Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions,
regional
46
production patterns and environmental concerns. Furthermore, fuel may become significantly more expensive in the future, which may reduce our
profitability.
We continually monitor the market volatility associated with bunker prices and seek to hedge our exposure to changes in the price of marine fuels with our
bunker hedging program. Please see “The Company’s Management and Discussion Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosures about Market Risks - Fuel Swap Contracts.”
In the highly competitive international shipping industry, we may not be able to compete successfully for chartered-in vessels or for vessel employment
and, as a result, we may be unable to charter-in vessels at reasonable rates or employ our vessels profitably.
We charter-in and employ vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other
vessel owners and operators, some of whom have substantially greater resources than we do. Competition for seaborne transportation of drybulk cargo by
sea is intense and depends on the charter or freight rate and on the location, size, age, condition and acceptability of a vessel and its operators. Due to the
highly fragmented market, competitors with greater resources are able to operate larger fleets and may be able to offer lower charter or freight rates and
higher quality vessels than we are able to offer. If we are unable to successfully compete with other drybulk shipping operators, we may be unable to retain
customers or attract new customers, which would have an adverse impact on our results of operations.
Labor interruptions could disrupt our business.
Our vessels are manned by masters, officers and crews that are contracted by our technical managers. If not resolved in a timely and cost-effective manner,
industrial action or other labor unrest could prevent or hinder our operations from being carried out normally and could have a material adverse effect on our
business, financial condition, results of operations and cash flows, and on our ability to pay dividends.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and
Governance ("ESG") policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors,
investment funds, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on
the implications and social cost of their investments.
In February 2021, the Acting Chair of the SEC issued a statement directing the Division of Corporation Finance to enhance its focus on climate-related
disclosure in public company filings and in March 2021 the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement
(the “Task Force”). The Task Force’s goal is to develop initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance
on climate and ESG-related disclosure and investment. To implement the Task Force’s purpose, the SEC has taken several enforcement actions, with the
first enforcement action taking place in May 2022, and proposed new rules. On March 21, 2022, the SEC proposed that all public companies are to include
extensive climate-related information in their SEC filings. On May 25, 2022, SEC proposed a second set of rules aiming to curb the practice of
"greenwashing" (i.e., making unfounded claims about one's ESG efforts) and would add proposed amendments to rules and reporting forms that apply to
registered investment companies and advisers, advisers exempt from registration, and business development companies.
The increased focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital
or to not commit capital as a result of their assessment of a company’s ESG practices. Companies which do not adapt to or comply with investor, lender or
other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing
concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial
condition, and/or stock price of such a company could be materially and adversely affected.
We may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize
sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG
procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments in us, especially given the
highly focused and specific trade of drybulk transportation in which we are engaged. If we do not meet these standards, our business and/or our ability to
access capital could be harmed.
47
These limitations in both the debt and equity capital markets may affect our ability to grow as our plans for growth may include accessing the equity and
debt capital markets. If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be
unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our
ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with
wide ranging ESG requirements. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.
Our insurance may not be adequate to cover our losses that may result from our operations due to the inherent operational risks of the seaborne
transportation industry.
We carry insurance to protect us against most of the accident-related risks involved in the conduct of our business, including marine hull and machinery
insurance, protection and indemnity insurance, which include pollution risks, crew insurance and war risks insurance. However, we may not be adequately
insured to cover all of our potential losses, which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular claims,
and our insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with the
applicable maritime regulatory organizations. Any significant uninsured or under-insured loss or liability could have a material adverse effect on our
business, financial condition, results of operations and cash flows and our ability to pay dividends. In addition, we may not be able to obtain adequate
insurance coverage at reasonable rates in the future during adverse insurance market conditions.
In addition, we do not carry loss-of-hire insurance, which covers the loss of revenues during extended vessel off-hire periods, such as those that occur
during an unscheduled drydocking due to damage to the vessel from accidents. Accordingly, any loss of a vessel or extended vessel off-hire, due to an
accident or otherwise, could have a material adverse effect on our business, financial condition, results of operations and our ability to pay dividends.
The logistics industry has its own set of risks, including infrastructure issues, operational efficiencies, lack of digital culture and training, labor
relations and operational costs. We may not be able to provide logistics solutions to our customers in the face of obstacles created as a result of one of
these factors.
The Company has dedicated resources to developing logistics solutions for our customers. These solutions may depend on infrastructure quality and
improvement, the ability to hire qualified personnel, the ability to coordinate operations, development of digital integration and collaboration with suppliers
and customers, and the ability to contain costs. If we are unable to facilitate these solutions due to any of these factors, we will not be able to continue
developing such solutions.
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, charter terminations and an adverse effect on
our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing
business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full
compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”). We are subject, however, to the risk that we, our affiliated
entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws,
including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain
jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our
reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume
significant time and attention of our senior management.
Risks Relating to Our Company
Our business strategy includes chartering-in vessels, and we may not be able to charter-in suitable vessels.
Our business strategy depends, in large part, on our ability to charter-in vessels. If we are not able to find suitable vessels to charter-in, or to charter-in
vessels at what we deem to be a reasonable rate, we may not be able to operate profitably or perform our contractual obligations. As a result, we may need
to adjust our business strategy, and we may experience material adverse effects on our business, financial condition and results of operations. In addition, if
we charter-in a vessel and shipping rates subsequently decrease, or we are unable to secure employment for such a vessel, our obligation under the charter
may adversely affect our financial condition and results of operations.
48
We depend upon a few significant customers for a large part of our revenues and cash flow, and the loss of one or more of these customers could
adversely affect our financial performance.
We expect to derive a significant part of our revenue and cash flow from a relatively small number of repeat customers. For the year ended December 31,
2023, two customers accounted for more than 10% of total revenue and all of our top ten customers, representing 57% of total revenue, are repeat
customers. If one or more of our significant customers is unable to perform under one or more charters or COAs and we are not able to find a replacement
charter or COA; or if a customer exercises certain rights to terminate the charter or COA, we could suffer a loss of revenues that could materially adversely
affect our business, financial condition, results of operations and cash available for distribution as dividends to our shareholders.
We could lose a customer or the benefits of a charter or COA if, among other things:
•
•
the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise; or
the customer terminates the charter because we do not perform in accordance with such charter and do not cure such failures within a specified
period.
If we lose a key customer, we may be unable to obtain replacement charters or COAs on comparable terms or at all. The loss of any of our customers,
COAs, charters or vessels, or a decline in payments under our agreements, could have a material adverse effect on our business, results of operations and
financial condition and our ability to pay dividends to our shareholders.
We are a holding company, and depend on the ability of our subsidiaries, through which we operate our business, to distribute funds to us in order to
satisfy our financial obligations or to make dividend payments.
We are a holding company, and our subsidiaries conduct all of our operations and own all of our operating assets. The equity interests in our vessel-owning
subsidiaries represent a significant portion of our operating assets. As a result, our ability to satisfy our financial obligations and to pay dividends to our
shareholders depends on the ability of our subsidiaries to generate profits available for distribution to us and, to the extent that they are unable to generate
profits, we will be unable to pay dividends to our shareholders.
We are subject to certain risks with counterparties on contracts and the failure of such counterparties to meet their obligations could cause us to suffer
losses or otherwise adversely affect our business and ability to comply with covenants in our loan agreements.
We enter into various contracts that are material to the operation of our business, including COAs, time charters and voyage charters under which we
employ our vessels, and charter agreements under which we charter-in vessels. We also enter into loan agreements and hedging agreements, such as bunker
swap agreements and forward freight agreements, or FFAs. Such agreements subject us to counterparty risks. The ability and willingness of each of our
counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control, including, among other
things, general economic conditions, the condition of the drybulk shipping industry, the overall financial condition of our counterparty, prevailing prices for
drybulk cargoes, rates received for specific types of vessels and voyages, and various expenses. In addition, in depressed market conditions, our customers
may no longer need us to carry a cargo that is currently under contract or may be able to obtain carriage at a lower rate. If our customers fail to meet their
obligations to us or attempt to renegotiate our agreements, it may be difficult to secure suitable substitute employment for the vessel, and any new charter
arrangements we secure may be at lower rates or, if our counterparties fail to deliver a vessel we have agreed to charter-in, or if a counterparty otherwise
fails to honor its obligations to us under a contract, we could sustain significant losses, which could have a material adverse effect on our business, financial
condition, results of operations, cash flows, ability to pay dividends to holders of our common shares in the amounts anticipated or at all and compliance
with covenants in our secured loan agreements.
Charterers are sensitive to the commodity markets and may be impacted by market forces affecting commodities and/or uncertain industry conditions. In
depressed market conditions, charterers may have incentive to renegotiate their charters or default on their obligations under charters. Should a charterer in
the future fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter
arrangements we secure on the spot market or on charters may be at lower rates, depending on the then existing charter rate levels, compared to the rates
currently being charged for our vessels. In addition, if the charterer of a vessel in our fleet that is used as collateral under one or more of our loan
agreements defaults on its charter obligations to us, such default may constitute an event of default under our loan agreements, which may allow the bank to
exercise remedies under our loan agreements.
Although we assess the creditworthiness of our counterparties, a prolonged period of difficult industry conditions could lead to changes in a counterparty’s
liquidity and increase our exposure to credit risk and bad debts. In addition, we may offer extended
49
payment terms to our customers in order to secure contracts, which may lead to more frequent collection issues and adversely affect our financial results and
liquidity.
Additionally, we are subject to certain risks as a result of using our vessels as collateral. If we are in breach of financial covenants contained in our loan
agreements, we may not be successful in obtaining waivers and amendments. If our indebtedness is accelerated, it may be difficult in the current financing
environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose on their liens.
We may be unable to comply with covenants in our credit facilities or any financial obligations that impose operating and financial restrictions on us.
Our credit facilities and finance leases, which are secured by mortgages on our vessels, impose certain operating and financial restrictions on us, mainly to
ensure that the market value of the mortgaged vessel under the applicable credit facility does not fall below a certain percentage of the outstanding amount
of the loan, which we refer to as the collateral maintenance or loan to value ratio. In addition, certain of our credit facilities include other financial
covenants, which require us to, among other things, maintain:
a consolidated leverage ratio of not more than 200%;
a consolidated debt service coverage ratio of not less than 120%;
•
•
• Minimum consolidated net worth of $45 million plus, with respect to any vessel purchased or leased by the Guarantor or its subsidiaries, for so
long as such vessels are legally or economically owned, 25% of the purchase price or (finance) lease amount of such vessels;
consolidated minimum liquidity of not less than $18 million.
•
In general, the operating restrictions that are contained in our credit facilities may prohibit or otherwise limit our ability to, among other things:
effect changes in management of our vessels;
sell or dispose of any of our assets, including our vessels;
declare and pay dividends;
incur additional indebtedness;
•
•
•
•
• mortgage our vessels; and
•
incur and pay management fees or commissions.
Non-compliance with any of our financial covenants or operating restrictions contained in our credit facilities may constitute an event of default under our
credit facilities, which, unless cured within the grace period set forth under the applicable credit facility, if applicable, or waived or modified by our lenders,
provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest
payments, pay down our indebtedness to a level where we are in compliance, sell vessels in our fleet, reclassify our indebtedness as current liabilities,
accelerate our indebtedness, or foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to
continue to conduct our business. As of December 31, 2023, we are in compliance with covenants contained in our debt agreements. Please read
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Borrowing Activities.”
Furthermore, certain of our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities. A
cross-default provision means that a default on one loan would result in a default on certain other loans. Because of the presence of cross-default provisions
in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our
indebtedness being accelerated. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment
for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose
their liens, which would adversely affect our ability to conduct our business.
We may be unable to effectively manage our growth strategy.
One of our principal business strategies is to continue to expand capacity and flexibility by increasing our owned fleet as we secure additional demand for
our services. Our growth strategy will depend upon a number of factors, some of which may not be within our control. These factors include our ability to:
•
enter into new contracts for the transportation of cargoes;
50
•
•
•
•
•
•
•
•
develop customized logistics solutions within targeted dry bulk trades;
locate and acquire suitable vessels for acquisitions at attractive prices;
obtain required financing for our existing and new operations;
integrate any acquired vessels successfully with our existing operations, including obtaining any approvals and qualifications necessary to operate
vessels that we acquire;
enhance our customer base;
hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
identify additional new markets; and
improve our operating, financial and accounting systems and controls.
We may undertake future financings to finance our growth. Our failure to effectively identify, purchase, develop and integrate any vessels could adversely
affect our business, financial condition and results of operations. The number of employees that perform services for us and our current operating and
financial systems may not be adequate as we implement our plan to expand the size of our fleet, and we may not be able to effectively hire more employees
or adequately improve those systems. Finally, acquisitions may require additional equity issuances or debt issuances (with amortization payments), both of
which could lower our available cash. If any such events occur, our financial condition may be adversely affected.
Growing any business presents numerous risks such as difficulty in obtaining additional qualified personnel and managing relationships with customers and
suppliers. The expansion of our fleet may impose significant additional responsibilities on our management and staff, and may necessitate that we increase
the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant
expenses and losses in connection with our future growth.
Investment in forward freight agreements and other derivative instruments could result in losses.
We manage our market exposure using forward freight agreements, or FFAs, and other derivative instruments, such as bunker hedging contracts. FFAs are
cash-settled derivative contracts based on future freight delivery rates and other derivative instruments. FFAs may be used to hedge exposure to the
changing rates by providing for the purchase or sale of a contracted charter rate along a specified route or combination of routes and over a specified period
of time. Upon settlement, if the contracted charter rate is less than the settlement rate, the seller of the FFA is required to pay the buyer an amount equal to
the difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period. Conversely, if the contracted rate
is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. If we take positions in FFAs and do not correctly anticipate rate
movements for the specified vessel route or routes and relevant time period or our assumptions regarding the relative relationships of certain vessels’
earnings, routes and other factors relevant to the FFA markets are incorrect, we could suffer losses in settling or terminating our FFAs. In addition, we
normally do not designate our FFAs for special hedge accounting and, as such, our use of such derivatives may lead to material fluctuations in our results of
operations.
We also seek to manage our exposure to volatility in the market price of bunkers by entering into bunker hedging contracts. There can be no assurance that
we will be able to successfully limit our risks, leaving us exposed to unprofitable contracts and we may suffer significant losses from these hedging
activities.
Our long-term COAs, single charter bookings and time-charter agreements may result in significant fluctuations in our quarterly results, which may
adversely affect our liquidity, as well as our ability to satisfy our financial obligations.
As part of our business strategy, we enter into long-term COAs, single charter bookings and time-charter agreements. We evaluate entering into long-term
positions based on the expected return over the full term of the contract. However, long-term contracts that we believe provide attractive returns over their
full term may produce losses over portions of the contract period. We may be required to provide additional margin collateral in connection with FFA
positions that are settled through clearinghouses, depending upon movements in the FFA markets. These interim losses, fluctuations in our quarterly results
or incremental collateral requirements may adversely affect our financial liquidity, as well as our ability to satisfy our financial obligations.
We depend on COAs, which could require us to operate at unfavorable rates for a certain amount of time or subject us to other operating risks.
A significant portion of our revenues are derived from COAs. While COAs provide a relatively stable and predictable source of revenue, they typically fix
the rate we are paid for our drybulk shipping services. Once we have entered into a COA, if we have not correctly anticipated vessel rates, location and
availability for our owned or chartered-in fleet to fulfill the COA, we could
51
suffer losses. Moreover, factors beyond our control may cause a COA to become unprofitable. Nevertheless, we would be obligated to continue to perform
for the term of the COA. In addition, factors beyond our control, such as vessel availability, port delays, changes in government or industry rules or
regulation, industrial actions or acts of terrorism or war, could affect our ability to perform our obligations under our COAs, which could result in breach of
contract or other claims by our COA counterparties. Any of these occurrences could have a material adverse effect on our business, financial condition and
results of operations and financial condition.
We are a “smaller reporting company” and an "accelerated filer" and we cannot be certain if the reduced disclosure requirements applicable to smaller
reporting companies will make our common shares less attractive to investors.
We are a “smaller reporting company,” as defined in the Securities Act of 1934, and may choose to rely on scaled disclosure requirements available to
smaller reporting companies. On June 28, 2018, the Commission adopted amendments to the definition of “smaller reporting company” that became
effective on September 10, 2018. Under the new definition, generally, a company qualifies as a “smaller reporting company” if it has public float of less
than $250 million; or it has less than $100 million in annual revenues and no public float or public float of less than $700 million.
The scaled disclosure requirements for smaller reporting companies permit us to include less extensive narrative disclosure than required of other reporting
companies, particularly in the description of executive compensation and to provide audited financial statements for two fiscal years, in contrast to other
reporting companies, which must provide audited financial statements for three fiscal years.
Investors may find our common shares and the price of our common shares less attractive because we rely, or may rely, on these exemptions. If some
investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the price of our common
shares may be more volatile.
Obligations associated with being a public company require significant company resources and management attention, and we incur increased costs as
a result of being a public company.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations of the
SEC, including Sarbanes-Oxley, and requirements of the NASDAQ Global Select Market. These requirements and rules may place a strain on our systems
and resources. For example, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition
and Sarbanes-Oxley requires that we document and maintain effective disclosure controls and procedures and internal control over financial reporting.
These reporting and other obligations place significant demands on our management, administrative, operational and accounting resources and we incur
significant legal, accounting and other expenses as a result. The expenses incurred by public companies, generally, for reporting and corporate governance
purposes have been increasing and the costs we incur for such purposes may strain our resources. We may implement additional financial and management
controls and procedures, reporting and business intelligence systems, create or outsource an internal audit function, or hire additional accounting and
finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting
requirements and other rules that apply to reporting companies could be impaired. In addition, our limited management resources may exacerbate the
difficulties in complying with these reporting and other requirements while focusing on executing our business strategy. Our incremental general and
administrative expenses as a publicly traded corporation include costs associated with preparing reports to shareholders, tax returns, investor relations,
registrar and transfer agent’s fees, incremental director and officer liability insurance costs and director compensation. Any failure to maintain effective
internal control over financial reporting could have a material adverse effect on our business, prospects, liquidity, results of operations and financial
condition. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common shares, fines,
sanctions and other regulatory action.
A failure to pass inspection by classification societies could result in vessels being unemployable until they pass inspection, resulting in a loss of
revenues from such vessels for that period.
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
United Nations Safety of Life at Sea Convention. Our owned fleet is currently enrolled with DNV GL Group (DNV), and Nippon Kaiji Kyokai (NK).
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous
survey cycle, under which the machinery would be surveyed periodically over a five-year
52
period. Our vessels are on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel must undergo
regulatory surveys of its underwater parts every 30 to 60 months.
If a vessel fails any annual survey, intermediate survey or special survey, the vessel may be unable to trade between ports and, therefore, would be
unemployable, potentially causing a negative impact on our revenues due to the loss of revenues from such vessel until it was able to trade again.
Because we purchase and operate secondhand vessels, we may be exposed to increased operating costs which could adversely affect our earnings and,
as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.
As part of our current business strategy to increase our owned fleet, we may acquire new and secondhand vessels. While we rigorously inspect previously
owned or secondhand vessels prior to purchase, this does not provide us with the same knowledge about their condition and cost of any required (or
anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us. Accordingly, we may not discover defects or
other problems with secondhand vessels prior to purchasing or chartering-in, or may incur costs to terminate a purchase agreement. Any such hidden defects
or problems may require us to put a vessel into drydock, which would reduce our fleet utilization and increase our operating costs. If a hidden defect or
problem is not detected, it may result in accidents or other incidents for which we may become liable to third parties.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient than
more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels
less desirable to charterers.
Furthermore, governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the
addition of new equipment and may restrict the type of activities in which the vessel may engage. As our vessels age, market conditions may not justify
those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
Unless we set aside reserves or are able to borrow funds for vessel replacement, we will be unable to replace the vessels in our fleet at the end of their
useful lives.
We estimate the useful life of our vessels to be 25 or 30 years from the date of initial delivery from the shipyard. The remaining estimated useful lives of our
vessels range from 11 to 23 years, depending on the age and type of vessel. The average age of our owned drybulk carriers at the time of this filing is
approximately 10 years. A portion of our cash flows and income are dependent on the revenues earned by employing our vessels. If we are unable to replace
the vessels in our fleet at the end of their useful lives, our business, results of operations, financial condition and ability to pay dividends could be materially
and adversely affected. We currently do not maintain reserves for vessel replacements. We intend to finance vessel replacements from internally generated
cash flow, borrowings under our credit facilities or additional equity or debt offerings.
Our ability to obtain additional debt financing, or to refinance existing indebtedness, may be dependent on the performance and length of our COAs
and charters, and the creditworthiness of our contract counterparties.
The performance and length of our COAs and charters and the actual or perceived credit quality of our contract counterparties, and any defaults by them,
may materially affect our ability to obtain the additional capital resources required to purchase additional vessels or may significantly increase our costs of
obtaining such capital. Our inability to obtain additional financing on acceptable terms or at all may materially affect our results of operations and our
ability to implement our business strategy.
We have and may continue to partially finance the acquisition of vessels with borrowings drawn under credit facilities or finance lease obligations. While
we may refinance amounts drawn under our credit facilities with the net proceeds of future debt and equity offerings, we cannot assure you that we will be
able to do so at interest rates and on terms that are acceptable to us or at all. If we are not able to refinance these amounts with the net proceeds of debt and
equity offerings at an interest rate or on terms acceptable to us or at all, we will have to dedicate a larger portion of our cash flow from operations to pay the
principal and interest of this indebtedness. If we are not able to satisfy these obligations, we may have to undertake alternative financing plans or sell
vessels. The actual or perceived credit quality of our contract counterparties, any defaults by them and the market value of our fleet, among other things,
may materially affect our ability to obtain alternative financing. In addition, debt service payments under our credit facilities, finance lease obligations or
alternative financing may limit funds otherwise available for working capital, capital expenditures, the payment of dividends and other purposes. If we are
unable to meet our debt obligations, or if we otherwise default under our credit facilities or alternative financing arrangements, our lenders could declare the
debt, together with accrued interest and fees, to be immediately due and payable and foreclose on our fleet, which
53
could result in the acceleration of other indebtedness that we may have at such time and the commencement of similar foreclosure proceedings by other
lenders.
We depend on our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and other key employees, and the loss of their services
would have a material adverse effect on our business, results and financial condition.
We depend on the efforts, knowledge, skill, reputations and business contacts of our Chief Executive Officer, Mark Filanowski, our Chief Financial Officer,
Gianni Del Signore, our Chief Operating Officer, Mads Boye Petersen and other key employees. Accordingly, our success will depend on the continued
service of these individuals. We do not have employment agreements with our executive officers or employees. We may experience departures of senior
executive officers and other key employees, and we cannot predict the impact that any of their departures would have on our ability to achieve our financial
objectives. The loss of the services of any of them could have a material adverse effect on our business, results of operations and financial condition.
Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.
We may generate our revenues and incur some of our operating expenses and general and administrative expenses in currencies other than the U.S. dollar.
This difference could lead to fluctuations in our revenues and vessel operating expenses, which would affect our financial results. Expenses incurred in
foreign currencies increase when the value of the U.S. dollar falls, which would reduce our profitability. Our operating results could suffer as a result.
We may be subject to litigation, arbitration and other proceedings that could have an adverse effect on our business
We may be, from time to time, involved in various litigation matters arising in the ordinary course of business, or otherwise. These matters may include,
among other things, contract disputes, personal injury claims, environmental matters, governmental claims for taxes or duties, securities, or maritime
matters. The potential costs to resolve any claim or other litigation matter, or a combination of these, may have a material adverse effect on us because of
potential negative outcomes, the costs associated with asserting our claims or defending such lawsuits, and the diversion of management's attention to these
matters.
United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax
consequences to U.S. holders
A foreign corporation will be treated as a “passive foreign investment company,” or a PFIC, for United States federal income tax purposes if either (1) at
least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation's
assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest,
and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties
in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not
constitute “passive income.” United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to
the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their
shares in the PFIC.
Based on our proposed method of operation, we do not expect that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the
gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe
that our income from our time chartering activities does not constitute “passive income,” and the assets that we own and operate in connection with the
production of that income do not constitute assets that produce, or are held for the production of, passive income for purposes of determining whether the
Company is a PFIC.
There is, however, no direct legal authority under the PFIC rules addressing our proposed characterization of income for United States federal income tax
purposes. Accordingly, in the absence of any legal authority specifically relating to the United States Internal Revenue Code of 1986, as amended, or the
“Code,” provisions governing PFICs, the IRS or a court could disagree with our position. Moreover, although we intend to conduct our operations in such a
manner as to avoid being classified as a PFIC, there can be no assurance that we would not constitute a PFIC for any future taxable year if there were to be
changes in the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States tax
consequences. Under the PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse
consequences for such shareholders, such shareholders would be liable to pay United
54
States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the
disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of our common
shares.
Based on our current and expected composition of assets and income, it is not anticipated that we will be treated as a PFIC. Actual PFIC status for any
taxable year, however, will not be determinable until after the end of such taxable year. Accordingly, there can be no assurances regarding our status as a
PFIC for the current taxable year or any future taxable year. United States Shareholders are urged to consult with their own tax advisors regarding the
possible application of the PFIC rules.
We may have to pay tax on United States source income, which would reduce our earnings.
Under sections 863(c)(3) and 887(a) of the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our
subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4%
United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under section 883 of the Code
and the applicable Treasury Regulations promulgated thereunder.
If we or our subsidiaries are not entitled to exemption under section 883 for any taxable year, we or our subsidiaries could be subject for those years to an
effective 2% United States federal income tax on the shipping income these companies derive during the year that are attributable to the transport of cargoes
to or from the United States. The imposition of this taxation would have a negative effect on our business and would result in decreased earnings available
for distribution to our shareholders.
Changes in tax laws and unanticipated tax liabilities could materially and adversely affect the taxes we pay, results of operations and financial results.
We are subject to income and other taxes in the United States and foreign jurisdictions, and our results of operations and financial results may be affected by
tax and other initiatives around the world. For instance, there is a high level of uncertainty in today’s tax environment stemming from global initiatives put
forth by the Organisation for Economic Co-operation and Development’s (“OECD”) two-pillar base erosion and profit shifting project. In October 2021,
members of the OECD put forth two proposals: (i) Pillar One reallocates profit to the market jurisdictions where sales arise versus physical presence; and
(ii) Pillar Two compels multinational corporations with €750 million or more in annual revenue to pay a global minimum tax of 15% on income received in
each country in which they operate. The reforms aim to level the playing field between countries by discouraging them from reducing their corporate
income taxes to attract foreign business investment. Over 140 countries agreed to enact the two-pillar solution to address the challenges arising from the
digitalization of the economy and, in 2024, these guidelines were declared effective and must now be enacted by those OECD member countries. It is
possible that these guidelines, including the global minimum corporate tax rate measure of 15%, could increase the burden and costs of our tax compliance,
the amount of taxes we incur in those jurisdictions and our global effective tax rate, which could have a material adverse impact on our results of operations
and financial results.
Information technology failures and data security breaches, including as a result of cybersecurity attacks, could negatively impact our results of
operations and financial condition, subject us to increased operating costs, and expose us to litigation.
We rely on our computer systems and network infrastructure across our operations, including on our vessels. The safety and security of our vessels and
efficient operation of our business, including processing, transmitting and storing electronic and financial information, are dependent on computer hardware
and software systems. Our vessels rely on information systems for a significant part of their operations, including navigation, provision of services,
propulsion, machinery management, power control, communications and cargo management. Despite our implementation of security and back-up measures,
all of our technology systems are vulnerable to damage, disability or failures due to physical theft, fire, power loss, telecommunications failure, operational
error, or other catastrophic events. Our technology systems are also subject to cybersecurity attacks including malware, other malicious software, phishing
email attacks, attempts to gain unauthorized access to our data, the unauthorized release, corruption or loss of our data, loss or damage to our data delivery
systems, and other electronic security breaches. In addition, as we continue to grow the volume of transactions in our businesses, our existing IT systems
infrastructure, applications and related functionality may be unable to effectively support a larger scale operation, which can cause the information being
processed to be unreliable and impact our decision-making or damage our reputation with customers.
Despite our efforts to ensure the integrity of our systems and prevent future cybersecurity attacks, it is possible that our business, financial and other systems
could be compromised, especially because such attacks can originate from a wide variety
55
of sources including persons involved in organized crime or associated with external service providers. Those parties may also attempt to fraudulently
induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or use electronic means to
induce the company to enter into fraudulent transactions. A successful cyber-attack could materially disrupt our operations, including the safety of our
vessel operations. Past and future occurrences of such attacks could damage our reputation and our ability to conduct our business, impact our credit and
risk exposure decisions, cause us to lose customers or revenues, subject us to litigation and require us to incur significant expense to address and remediate
or otherwise resolve these issues, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Further, data protection laws apply to us in certain countries in which we do business. Specifically, the EU General Data Protection Regulation, or GDPR,
which was applicable beginning May 2018, increases penalties up to a maximum of 4% of global annual turnover for breach of the regulation. The GDPR
requires mandatory breach notification, the standard for which is also followed outside the EU (particularly in Asia). Non-compliance with data protection
laws could expose us to regulatory investigations, which could result in fines and penalties. In addition to imposing fines, regulators may also issue orders to
stop processing personal data, which could disrupt operations. We could also be subject to litigation from persons or corporations allegedly affected by data
protection violations. Violation of data protection laws is a criminal offense in some countries, and individuals can be imprisoned or fined. Any violation of
these laws or harm to our reputation could have a material adverse effect on our earnings, cash flows and financial condition.
Moreover, our risk of cyber-attack and other sources of security breaches and incidents may be elevated as a result of the ongoing conflicts between Russia
and Ukraine and the Israel-Hamas conflict. To the extent such attacks have collateral effects on global critical infrastructure or financial institutions, such
developments could adversely affect our business, operating results and financial condition. At this time, it is difficult to assess the likelihood of such threat
and any potential impact.
Further, in July 2023, the SEC adopted amendments to its rules on cybersecurity risk management, strategy, governance, and incident disclosure. The
amendments require us to report material cybersecurity incidents involving our information systems and periodic reporting regarding our policies and
procedures to identify and manage cybersecurity risks, amongst other disclosures.
Risks Related To Our Common Shares
Future sales of our common shares could cause the market price of our common shares to decline.
The market price of our common shares could decline due to sales of a large number of shares in the market, including sales of shares by our large
shareholders, or the perception that these sales could occur. These sales could also make it more difficult or impossible for us to sell equity securities in the
future at a time and price that we deem appropriate to raise funds through future offerings of common shares.
We may need to raise additional capital in the future, which may not be available on favorable terms or at all or which may dilute our common shares
or adversely affect its market price.
We may require additional capital to expand our business and increase revenues, add liquidity in response to negative economic conditions, meet
unexpected liquidity needs caused by industry volatility or uncertainty and reduce our outstanding indebtedness under our existing facilities. To the extent
that our existing capital and borrowing capabilities are insufficient to meet these requirements and cover any losses, we will need to raise additional funds
through debt or equity financings, including offerings of our common shares, securities convertible into our common shares, or rights to acquire our
common shares, or curtail our growth and reduce our assets or restructure arrangements with existing security holders. Any equity or debt financing, or
additional borrowings, if available at all, may be on terms that are not favorable to us. Equity financings could result in dilution to our shareholders, as
described further below, and the securities issued in future financings may have rights, preferences and privileges that are senior to those of our common
shares. If our need for capital arises because of significant losses, the occurrence of these losses may make it more difficult for us to raise the necessary
capital. If we cannot raise funds on acceptable terms if and when needed, we may not be able to take advantage of future opportunities, grow our business or
respond to competitive pressures or unanticipated requirements.
Future issuances of our common shares could dilute our shareholders’ interests in our company.
We may, from time to time, issue additional common shares to support our growth strategy, reduce debt or provide us with capital for other purposes that
our Board of Directors believes to be in our best interest. To the extent that an existing shareholder does not purchase additional shares that we issue, that
shareholder’s interest in our company will be diluted, which
56
means that its percentage of ownership in our company will be reduced. Following such a reduction, that shareholder’s common shares would represent a
smaller percentage of the vote in our Board of Directors’ elections and other shareholder decisions.
Volatility in the market price and trading volume of our common shares could adversely impact the trading price of our common shares.
The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the
operating performance of companies like us. These broad market factors may materially reduce the market price of our common shares, regardless of our
operating performance. The market price of our common shares, which has experienced significant price fluctuations in the past twelve months, could
continue to fluctuate significantly for many reasons, including in response to the risks described herein or for reasons unrelated to our operations, such as
reports by industry analysts, investor perceptions or negative announcements by our competitors or suppliers regarding their own performance, as well as
industry conditions and general financial, economic and political instability.
Classified Board of Directors.
Our Board of Directors is divided into three classes serving staggered, three-year terms. This classified board provision could discourage a third party from
making a tender offer for our shares or attempting to obtain control of us. It could also delay shareholders who do not agree with the policies of our Board of
Directors from removing a majority of our Board of Directors for up to two years.
We are incorporated in Bermuda and it may not be possible for our investors to enforce U.S. judgments against us.
We are incorporated in Bermuda and substantially all of our assets are located outside the United States. In addition, one of our directors is a non-resident of
the United States, and all or a substantial portion of such director’s assets are located outside the United States. As a result, it may be difficult or impossible
for U.S. investors to serve process within the United States, upon us or our directors and executive officers, or to enforce a judgment against us for civil
liabilities in United States courts.
In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located would enforce judgments of
United States courts obtained in actions against us based upon the civil liability provisions of applicable United States federal and state securities laws or
would enforce, in original actions, liabilities against us based on those laws.
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have.
We are a Bermuda exempted company. Our memorandum of association and bye-laws and the Companies Act, 1981 of Bermuda, or the Companies Act,
govern our affairs. The Companies Act does not as clearly establish your rights and the fiduciary responsibilities of our directors as do statutes and judicial
precedent in some United States jurisdictions. Therefore, you may have more difficulty in protecting your interests as a shareholder in the face of actions by
the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction. There is a
statutory remedy under Section 111 of the Companies Act which provides that a shareholder may seek redress in the courts as long as such shareholder can
establish that our affairs are being conducted, or have been conducted, in a manner oppressive or prejudicial to the interests of some part of the shareholders,
including such shareholder. However, you may not have the same rights that a shareholder in a United States corporation may have.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. CYBERSECURITY
Our Board of Directors oversees our risk management process, including risks from cybersecurity threats. Our Board of Directors reviews strategic risk
exposure, and members of our management are responsible for addressing the material risks we face on a day-to-day basis. Our Board of Directors
administers its cybersecurity risk oversight function directly as a whole as well as through our Audit Committee. Our Board and our Audit Committee
receive updates from time to time from our management as appropriate on cybersecurity.
57
Our Chief Financial Officer and our Information Technology department are primarily responsible to assess and manage material risks from cybersecurity
threats and oversee key cybersecurity policies and processes. They are informed about policies and processes to monitor the prevention, detection,
mitigation, and remediation of cybersecurity incidents. Our Global IT Director has 20 years of experience in the design, implementation, and support of
information technology infrastructures.
Network and information systems and other technologies play an important role in our business activities. We also obtain certain confidential, proprietary
and personal information about our charterers, personnel, and vendors. To protect our data, we have employed cybersecurity protocols which are designed to
work in tandem with internal controls to safeguard our information technology environment. Our information technology infrastructure is designed with
commercial flexibility, data integrity, and safety in mind. We utilize a layered approach of systems and policies intended to provide a secure operating
environment and promote business continuity. Our hardware and software systems are equipped with technology intended to offer access and intrusion
protection, software and communications systems protections, and mitigate cybersecurity threats.
We have established policies and processes for assessing, identifying, and managing material risk from cybersecurity threats, and have integrated these
processes into our overall risk management systems and processes. We routinely assess material risks from cybersecurity threats, including any potential
unauthorized occurrence on or conducted through our information systems that may result in adverse effects on the confidentiality, integrity, or availability
of our information systems or any information maintained in them.
We utilize industry standard software packages such as RSA and Cisco Firepower to secure our networks. We conduct regular risk assessments to identify
cybersecurity threats. These risk assessments include identifying reasonably foreseeable potential internal and external risks, the likelihood of occurrence
and any potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, controls, and other safeguards in
place to manage such risks. As part of our risk management process, we may engage third party experts to help identify and assess risks from cybersecurity
threats. For example, we perform penetration tests, data recovery testing, security audits and risk assessments throughout the year. We hold online
cybersecurity training for our employees. Our risk management process also encompasses cybersecurity risks associated with our use of third-party service
providers. Following these risk assessments, we design, implement, and maintain safeguards intended to minimize the identified risks; address any
identified gaps in existing safeguards; update existing safeguards as necessary; and monitor the effectiveness of our safeguards.
While we develop and maintain protocols, controls, and systems, that seek to prevent cybersecurity incidents from occurring, we must constantly monitor
and update these protocols, controls, and systems in the face of sophisticated and rapidly evolving attempts to overcome them. The occurrence of
cybersecurity incidents could cause a variety of material adverse impacts on our business, although no such incident has had any such impact to date. For
additional information regarding whether any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially
affected or are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition, please refer
to Item 1A, “Risk Factors,” in this report, including the risk factor entitled “Security breaches and other disruptions to our information technology
infrastructure could interfere with our operations and expose us to liability.” and Item 1, “Business – Environmental and Other Regulations - Safety
Management System Requirements” in this report.
ITEM 2. PROPERTIES
Phoenix Bulk Carriers (US) LLC, the administrative agent for the Company, maintains office space at 109 Long Wharf, Newport, Rhode Island 02840. The
building is owned by 109 Long Wharf LLC (“Long Wharf”), a wholly-owned subsidiary of the Company since September 1, 2014. Long Wharf was
previously owned by certain of the Company’s Executive Officers and Directors. The Company leases office space in Copenhagen, Athens, Singapore and
Port Everglades.
ITEM 3. LEGAL PROCEEDINGS
We have not been involved in any legal proceedings which we believe are likely to have, or have had a significant effect on our business, financial position,
results of operations or cash flows, nor are we aware of any proceedings that are pending or threatened which we believe are likely to have a significant
effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the
ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to
customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
ITEM 4. MINE SAFETY DISCLOSURES
58
Not applicable.
59
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Our common shares have been traded on The Nasdaq Capital Market under the symbol PANL since our common shares began public trading on October 3,
2014.The Company's internet address is www.pangaeals.com.
Holders of Record
As of the close of business on March 14, 2024, there were approximately 14 stockholders of record of our common stock. The actual number of
stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by
brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
Under our By-laws, our board of directors may declare dividends or distributions out of contributed surplus and may also pay interim dividends to be paid in
cash, shares of the Company’s stock or any combination thereof. Our board of directors’ objective is to generate competitive returns for our shareholders.
Any dividends declared will be in the sole discretion of the board of directors and will depend upon earnings, restrictions in our debt agreements described
later in this prospectus, market prospects, current capital expenditure programs and investment opportunities, the provisions of Bermuda law affecting the
payment of distributions to shareholders and other factors. Under Bermuda law, the board of directors has no discretion to declare or pay a dividend if there
are reasonable grounds for believing that the Company is, or would after the payment be, unable to pay its liabilities as they become due or the realizable
value of the Company’s assets would thereby be less than its liabilities.
In addition, since we are a holding company with no material assets other than the shares of our subsidiaries through which we conduct our operations, our
ability to pay dividends will depend on our subsidiaries’ distributing to us their earnings and cash flows. The Company paid a quarterly cash dividend
ranging from $0.035 to $0.10 per common share commencing in May 2019. We cannot assure you that we will be able to pay regular quarterly dividends,
and our ability to pay dividends will be subject to the limitations set forth above and in the section of this Form 10-K titled “Risk Factors.” The Company
has dividends payable of $1.1 million at December 31, 2023. On February 15, 2024, the Company's Board of Directors declared a quarterly cash dividend of
$0.10 per common share, to be paid on March 15, 2024, to all shareholders of record as of March 1, 2024.
Use of Proceeds
Not applicable
Purchases of Equity Securities by Issuer and Affiliates
Not applicable
Securities Authorized for Issuance Under Equity Compensation Plan
See Part III, Item 12 for information regarding securities authorized for issuance under our equity compensation plan.
ITEM 6. SELECTED FINANCIAL DATA
60
(in thousands, except shipping days data)
Selected Data from the Consolidated Statements of Income
Voyage revenue
Charter revenue
Terminal & stevedore revenue
Total revenue
Voyage expense
Charter hire expense
Vessel operating expenses
Terminal Expenses
Total cost of transportation and service revenue
Vessel depreciation and amortization
Gross Profit
Other operating expenses
Loss on impairment of vessels
Loss on sale of vessels
Income from operations
Total other expense, net
Net income
Income attributable to noncontrolling interests
Net income attributable to Pangaea Logistics Solutions Ltd.
Net income from continuing operations per common share information
Basic income per share
Diluted income per share
Weighted-average common shares Outstanding - basic
Weighted-average common shares Outstanding - diluted
Cash dividends declared per share
Adjusted EBITDA
(1)
(2)
Shipping Days
Voyage days
Time charter days
Total shipping days
TCE Rates ($/day)
Selected Data from the Consolidated Balance Sheets
Cash and cash equivalents
Total assets
Total secured debt, including obligations under finance leases
Total shareholders' equity
Selected Data from the Consolidated Statements of Cash Flows
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in by financing activities
61
As of and for the years ended December 31,
2023
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
468,581 $
23,716
6,971
499,268
227,435
111,034
55,784
5,809
400,061
29,339
69,868
23,512
—
1,739
44,617
(16,079)
28,538
(2,214)
26,323 $
0.59 $
0.58 $
44,774
45,475
0.40 $
640,034
59,673
—
699,707
262,089
222,332
56,859
—
541,280
29,377
129,050
20,216
3,008
318
105,508
(20,000)
85,508
(6,016)
79,490
1.79
1.76
44,399
45,060
0.30
79,724
140,898
14,922
1,789
16,711
15,849 $
99,038 $
705,180 $
264,435 $
370,196 $
53,787 $
(15,982) $
(67,152) $
15,237
2,478
17,715
24,434
128,385
748,241
299,481
368,722
134,801
(28,509)
(34,117)
Amounts in the table above have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
(1)
(2)
Adjusted EBITDA represents operating earnings before interest expense, interest income, income taxes, depreciation and amortization, loss on sale of vessels, share-
based compensation and other non-operating income and/or expense, and other non-recurring items, if any. Adjusted EBITDA is included because it is used by
management and certain investors to measure operating performance and is also reviewed periodically as a measure of financial performance by Pangaea's Board of
Directors. Adjusted EBITDA is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not
be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s
definition of Adjusted EBITDA used here may not be comparable to the definition of EBITDA used by other companies.
Shipping days are defined as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage
days) or time charter (time charter days).
The reconciliation of gross profit to net transportation and service revenue and income from operations to Adjusted EBITDA is as follows:
(in thousands)
(4)
Net Transportation and Service Revenue
Gross Profit
Add:
Vessel Depreciation and Amortization
(3)
Net transportation and service revenue
Adjusted EBITDA
Net Income
Interest expense, net
Depreciation and amortization
EBITDA
Loss on sale of vessel
Loss on impairment of vessels
Share-based compensation
Unrealized gain on derivative instruments, net
Other non-recurring items
Adjusted EBITDA
Years Ended December 31,
2022
2023
69,868 $
129,050
29,339
99,207 $
28,538 $
13,916
30,070
72,524 $
1,739
—
2,088
2,925
448
79,724 $
29,377
158,427
85,508
21,490
29,490
136,487
318
3,008
1,768
(682)
—
140,898
$
$
$
$
$
Amounts in the table above have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
(3)
Net transportation and service revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel
operating expenses, and terminal & stevedore expenses. Net transportation and service revenue is included because it is used by management and certain investors to
measure performance by comparison to other logistic service providers. Net transportation and service revenue is not an item recognized by the generally accepted
accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other
indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of net transportation and service revenue used here may not be
comparable to an operating measure used by other companies.
(4)
Gross profit represents total revenue less total cost of transportation and service revenue and less vessel depreciation and amortization.
62
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and footnotes thereto contained in this report.
Forward Looking Statements
All statements other than statements of historical fact included in this Form 10-K including, without limitation, statements under “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of
management for future operations, are forward looking statements. When used in this Form 10-K, words such as “anticipate,” “believe,” “estimate,”
“expect,” “intend” and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements
are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could
differ materially from those contemplated by the forward looking statements as a result of the risk factors and other factors detailed in our filings with the
Securities and Exchange Commission, including the risk factors set forth in Part I, Item 1A, above. All subsequent written or oral forward looking
statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
Overview
Critical Accounting Policies and Estimates
As discussed in Note 3, "Summary of Significant Accounting Policies," of our Financial Statements, which more fully describes our significant accounting
policies, the preparation of consolidated financial statements in accordance with U.S. GAAP requires us to exercise judgment in the process of applying our
accounting policies. It also requires that we make estimates and assumptions about future events that affect the amounts reported in the consolidated
financial statements and accompanying notes. The accounting policies and estimates that we believe are most critical to the portrayal of our financial
condition and results of operations are listed below. We believe these policies require the most difficult, subjective, and complex judgments in estimating the
effect of inherent uncertainties.
Revenue Recognition: Revenues are generated from time charters and voyage charters. Time charter revenues are recognized on a straight-line basis over
the term of the respective time charter agreements as service is provided. Voyage revenues represent revenues earned by the Company, principally from
providing transportation services under voyage charters. A voyage charter involves the carriage of a specific amount and type of cargo on a load port to
discharge port basis, subject to various cargo handling terms. Under a voyage charter, the service revenues are earned and recognized ratably over the
duration of the voyage. A contract is accounted for when it has approval and commitment from both parties, the rights and payment terms are identified, the
contract has commercial substance and collectability of consideration is probable.
Estimated losses under a voyage charter are provided for in full at the time such losses become probable. Demurrage, which is included in voyage revenues,
represents payments by the charterer to the vessel owner when loading and discharging time exceed the stipulated time in the voyage charter. Demurrage is
measured in accordance with the provisions of the respective charter agreements and the circumstances under which demurrage revenues arise. Demurrage
revenue is included in the calculation of voyage revenue and recognized ratably over the duration of the voyage to which it pertains. Voyage revenue
recognized is presented net of address commissions.
Charter revenues relate to a time charter arrangement under which the Company is paid to provide transportation services on a per day basis for a specified
period of time. Revenues from time charters are earned and recognized on a straight-line basis over the term of the charter, as the charters do not fall under
the scope of ASC 606. Revenue is not earned when vessels are offhire.
Terminal & Stevedore Revenue. Terminal & Stevedore revenue is derived from inbound and outbound cargo handling services at ports which the Company
operates in. Gross revenue is earned typically based on a per-unit rate for volumes handled.
Long-lived Assets Impairment Considerations: The carrying values of the Company’s vessels may not represent their fair market value or the amount that
could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates
and the pricing of new vessels, which tend to be cyclical. The carrying value of each group of vessels classified as held and used are reviewed for potential
impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances,
an
63
impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual
disposition is less than its carrying value. This assessment is made at the assets group level, which represents the lowest level for which identifiable cash
flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or
trade.
The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future time
charter equivalent "TCE" rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated
TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of
the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is
contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company
prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and
address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of
drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate.
The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash
flows do not exceed the carrying value of the asset group, an impairment charge would be calculated. Measurement of the impairment loss is based on the
fair value of the asset as provided by third parties.
In both the first and fourth quarters of 2023, the Company identified triggering events associated with the sale of vessels, where the carrying value exceeded
their fair value. On January 18, 2023, the Company entered into a memorandum of agreement to sell the m/v Bulk Newport for $8.9 million in net
consideration after brokerage commissions, resulting in a recorded loss on sale of $1.2 million in the first quarter of 2023. Similarly, on October 17, 2023,
the Company signed a memorandum of agreement to sell the m/v Bulk Trident for $9.5 million in net consideration after brokerage commissions, resulting
in a loss on sale of $0.6 million in the fourth quarter of 2023.
The Company conducted an impairment analysis on each asset group and determined that the estimated undiscounted future cash flows exceeded their
carrying amounts. Therefore, no additional loss on impairment was recognized. Also the Company concluded that no other triggering event had occurred
during the remaining period of the 2023 which would require impairment testing.
During the first quarter of 2022, the Company determined that a triggering event occurred related to the sale of a vessel, as the carrying value exceeded its
fair value. On April 20, 2022, the Company signed a memorandum of agreement to sell the m/v Bulk Pangaea for a total net consideration of $8.6 million
after brokerage commissions. As a result, we recorded an impairment charge of $3.0 million in the first quarter of 2022. The impairment analysis did not
indicate any impairment on the remaining fleet. Also the Company concluded that no triggering event had occurred during the remaining period of the 2022
which would require impairment testing.
64
The table set forth below indicates the purchase price of the Company’s vessels and the net carrying amount of each vessel as of December 31, 2023.
(In thousands of U.S. dollars)
Vessel Name
Date Acquired
Size
Year Build
Purchase Price
Net Carrying
Amount
m/v Bulk Endurance
m/v Bulk Destiny
m/v Bulk Prudence
m/v Bulk Courageous
m/v Nordic Oasis
m/v Nordic Olympic
m/v Nordic Odin
m/v Nordic Oshima
m/v Nordic Orion
m/v Nordic Odyssey
m/v Bulk Valor
m/v Bulk Friendship
m/v Bulk Sachuest
m/v Bulk Independence
m/v Bulk Pride
m/v Bulk Freedom
m/v Bulk Spirit
m/v Bulk Xaymaca
m/v Bulk Concord
m/v Bulk Promise
m/v Nordic Nuluujaak
m/v Nordic Qinngua
m/v Nordic Sanngijuq
m/v Nordic Siku
Miss Nora G. Pearl
Total
January 2017
January 2017
June 2023
April 2021
January 2016
February 2015
February 2015
September 2014
April 2012
April 2012
June 2021
September 2019
October 2022
May 2019
December 2017
June 2017
February 2019
August 2018
February 2022
July 2021
May 2021
June 2021
September 2021
November 2021
November 2017
UMX - 1C
UMX - 1C
UMX
UMX
PMX-1A
PMX-1A
PMX-1A
PMX-1A
PMX-1A
PMX-1A
SMX
SMX
SMX
SMX
SMX
SMX
SMX
PMX
PMX
PMX
Post Panamax 1A
Post Panamax 1A
Post Panamax 1A
Post Panamax 1A
Deck Barge
2017
2017
2014
2013
2016
2015
2015
2014
2011
2010
2013
2011
2010
2008
2008
2005
2009
2006
2009
2013
2021
2021
2021
2021
1979
$
$
28,000 $
24,000
26,650
16,798
32,600
32,600
32,625
33,709
32,363
32,691
18,182
14,447
17,364
14,393
14,023
9,016
13,000
14,010
19,900
18,633
38,424
38,471
37,920
37,935
3,833
601,586 $
21,859
18,770
26,534
15,145
24,854
23,306
23,412
22,938
19,790
18,950
16,434
12,811
16,487
13,753
11,194
8,150
12,970
11,624
18,966
16,970
36,088
36,019
35,623
36,010
1,821
500,477
Recent Accounting Pronouncements
On of January 1, 2023, we adopted ASU No. 2016-13, "Financial Instruments—Credit Losses" ("ASU 2016-13"). ASU 2016-13 amends the current
financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain
types of financial instruments, including trade receivables. The adoption of the accounting standard did not have any material impact on our consolidated
financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting,” which provides optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging
relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January
2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which clarified that certain optional expedients and exceptions in
Topic 848 apply to derivatives that are affected by the discounting transition due to reference rate reform. In December 2022, the FASB issued ASU No.
2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31,
2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief under Topic 848. The Company is currently evaluating the
impact that adopting this new accounting standard will have on its consolidated financial statements and related disclosures.
65
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements to
Reportable Segment Disclosures (“ASU 2023-07”), which amends the existing segment reporting guidance (ASC Topic 280 — Segment Reporting (“ASC
280”)) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly
provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount for other
segment items by reportable segment and a description of its composition, the title and position of the CODM and an explanation of how the CODM uses
the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. In addition, companies with a
single reporting segment will have to provide all of the disclosures required by ASC 280, including the significant segment expense disclosures.
The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after
December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of our pending adoption of this standard on its financial
statement disclosures.
Important Financial and Operational Terms and Concepts
The Company uses a variety of financial and operational terms and concepts when analyzing its performance.
These include revenue recognition, deferred revenue, allowance for credit losses, vessels and depreciation and long-lived assets impairment considerations,
as defined above as well as the following:
Voyage Expenses. The Company incurs expenses for voyage charters, including bunkers (fuel), port charges, canal tolls, brokerage commissions and cargo
handling operations, which are expensed as incurred.
Charter Expenses. The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels
under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the
charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated
balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and
stores.
Vessel Operating Expenses. Vessel operating expenses represent the cost to operate the Company’s owned vessels. Vessel operating expenses include crew
hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes, other
miscellaneous expenses, and technical management fees. These expenses are recognized as incurred. Technical management services include day-to-day
vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, arranging the hire of crew, and
purchasing stores, supplies, and spare parts.
Terminal & Stevedore Expenses. Terminal & Stevedore expenses represent the cost to provide the Company's cargo handling services. Terminal &
Stevedore expenses include direct labor and related costs, the cost of insurance, expenses relating to repairs and maintenance of shore based equipment,
trucking, and other direct miscellaneous expenses.
Fleet Data. The Company believes that the measures for analyzing future trends in its results of operations consist of the following:
• Shipping days. The Company defines shipping days as the aggregate number of days in a period during which its owned or chartered-in vessels are
performing either a voyage charter (voyage days) or a time charter (time charter days).
• Daily vessel operating expenses. The Company defines daily vessel operating expenses as vessel operating expenses divided by ownership days for the
period. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares
and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees.
• Chartered in days. The Company defines chartered in days as the aggregate number of days in a period during which it chartered in vessels from third
party vessel owners.
• Time Charter Equivalent ‘‘TCE’’ rates. The Company defines TCE rates as total revenues less voyage expenses divided by the length of the voyage, which
is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by
vessels on time charters with daily earnings generated by vessels on
66
voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters
generally are expressed in per-day amounts.
Business Overview
The dry bulk sector of the transportation and logistics industry is cyclical and can be volatile due to changes in supply of vessels and demand for
transportation of dry bulk commodities. After reaching levels not seen in over a decade in 2021, the dry bulk freight market remained strong in historical
terms in the first half of 2022 before slowing down in the second half of the year due to decreased freight demand. This slowdown continued through the
first quarter of 2023, with signs of improvement throughout the remainder of 2023. The Baltic Dry Index (“BDI”), a measure of dry bulk market
performance, averaged 1,426 for 2023, compared to an average of 1,832 for 2022, down approximately 22%. More specifically, and reflecting the
composition of the Company's fleet, the average published market rates for Supramax and Panamax vessels decreased approximately 43% from an average
of $20,012 in 2022 to $11,391 in 2023. We have historically experienced fluctuations in our results of operations on a quarterly and annual basis due to the
volatility of the dry bulk sector. We expect to experience continued fluctuations in our operating results in the foreseeable future due to a variety of factors,
including cargo demand for vessels, supply of vessels, competition, and seasonality.
Effect of Inflation
High inflation in the United States and in many of the global economies where the Company operates has impacted vessel operating costs, including crew
travel, transportation of equipment and spares, and drydocking costs. We expect crew payroll expenses to continue to increase over the near and medium
future, and other inflated cost changes may make our vessel daily operating costs higher. Increases in the cost of fuel consumed on voyages are usually
absorbed by cargo market rates passed on to customers or covered by fuel cost pass through under the terms of long-term contracts. Because interest rates
on a large portion of the Company’s long-term debt, and finance leases is fixed or capped, the impact of higher interest rates on the Company’s earnings is
limited.
TCE Performance
For the year ended December 31, 2023, the Company's TCE rates were down 35% to $15,849 from $24,434 for the year ended December 31, 2022, while
the overall dry bulk market rates declined by approximately 43% for the year ended December 31, 2023. The Company's achieved TCE rate for the year
ended December 31, 2023 outperformed the average of the Baltic Panamax and Supramax market indexes and exceeded the average market rates by
approximately 39% due to its long-term contracts of affreightment, ("COAs"), its specialized fleet and its cargo-focused strategy.
2023 Highlights
• Net income attributable to Pangaea Logistics Solutions Ltd. was $26.3 million for twelve months ended December 31, 2023 as compared to $79.5
million for the same period of 2022.
• Diluted net income per share was $0.58 for twelve months ended December 31, 2023, as compared to $1.76 for the same period of 2022.
•
Time Charter Equivalent ("TCE") rates earned by Pangaea was $15,849 per day for twelve months ended December 31, 2023 and $24,434 per day
for the same period of 2022.
• Adjusted EBITDA was $79.7 million for twelve months ended December 31, 2023, as compared to $140.9 million for the same period of 2022.
• At the end of the year, Pangaea had $99.0 million in cash, and cash equivalents.
Results of Operations
Fiscal Year Ended December 31, 2023 Compared to Fiscal Year Ended December 31, 2022
Revenues
Pangaea’s revenues are derived predominantly from voyage charters and time charters. Total revenue for the fiscal year ended December 31, 2023, was
$499.3 million compared to $699.7 million, for the same period in 2022, a 29% decrease. The number of shipping days decreased 6% to 16,711 in the fiscal
year ended December 31, 2023, from 17,715 for the same period in 2022. The revenue decrease was primarily due to a 35% decrease in the average TCE
rate, which was $15,849 per day for the twelve months ended December 31, 2023, compared to $24,434 per day for the same period in 2022.
67
Components of revenue are as follows:
Voyage revenues decreased by 27% for the fiscal year ended December 31, 2023 to $468.6 million from $640.0 million for the same period in 2022. The
decrease in voyage revenues was primarily due to lower average TCE rates earned throughout 2023 due to declined market rates. The number of voyage
days decreased 2% to 14,922 for the twelve months ended December 31, 2023 from 15,237 for the same period in 2022.
Charter revenues decreased to $23.7 million from $59.7 million, or 60%, for the year ended December 31, 2023 compared to the same period in 2022.
The decrease in charter revenues was due to a decrease in time charter days as well as a decrease in charter hire rates evidenced by the decrease in index
rates for Panamax and Supramax vessels of approximately 43% compared to the same period of 2022. The time charter days were down 28% to 1,789 in
the twelve months ended December 31, 2023 from 2,478 in the twelve months ended December 31, 2022. The time charter revenue per day was $13,258
for the twelve months ended December 31, 2023 compared to $24,078 for the same period of 2022. The optionality of our chartering strategy, in which
the Company charters vessels in on short term periods with market available days during the charter period, allows the Company to selectively release
excess ship days, if any, into the market under time charter arrangements.
Terminal & Stevedore revenues increased to $7.0 million, for the twelve months ended December 31, 2023, as a result of the company's acquisition of
port and terminal operations in June 2023.
Voyage Expenses
Voyage expenses for the fiscal year ended December 31, 2023 were $227.4 million compared to $262.1 million for the year ended 2022, a decrease of
approximately 13%. The decrease is primarily due to a decrease in bunker consumption expense of $40.7 million driven by a decrease in bunker fuel prices,
partially offset by an increase in port charges and canal tolls of $2.3 million. Total costs of bunkers consumed decreased by 25% for the twelve months
ended December 31, 2023 compared to the same period in 2022. The port charges and canal tolls increased primarily due to an increase in the market cost of
canal tolls over the period.
Charter Hire Expenses
The Company charters in vessels, typically on short term basis, from other shipowners to supplement its owned fleet. Charter hire expenses paid to third
party shipowners were $111.0 million for the year ended December 31, 2023, compared to $222.3 million for the year ended December 31, 2022, a 50%
decrease. The decrease in charter hire expenses was primarily due to a decrease in market rates to charter-in vessels and a decrease in the number of
chartered-in days from 8,971 days in the twelve months ended December 31, 2022 to 7,933 days for the twelve months ended December 31, 2023. Charter
hire expenses on a per day basis were $13,996 for the twelve months ended December 31, 2023 and $24,783 for the same period in 2022. The average
published market rates for Supramax and Panamax vessels decreased approximately 43% from an average of $20,012 in 2022 to $11,391 in the same period
of 2023. The Company's flexible charter-in strategy allows it to supplement its owned fleet with short term chartered-in tonnage at prevailing market prices,
when needed, to meet cargo demand.
Vessel Operating Expenses
Vessel operating expenses for the year ended December 31, 2023 were $55.8 million, compared to $56.9 million for the same period in 2022, a decrease of
approximately 2%. Ownership days for the twelve months ended December 31, 2023 and 2022 were 8,988 and 8,962, respectively. Excluding technical
management fees, vessel operating expenses on a per day basis were $5,703 for the twelve months ended December 31, 2023 and $5,804 for the same
period in 2022. Technical management fees were approximately $4.5 million and $4.8 million for the twelve months ended December 31, 2023 and 2022,
respectively. The decrease in vessel operating expenses was also attributable a decrease in crew expenses due to a decrease in crewing costs, crew changes
and expenses related to COVID-19 and the war in Ukraine in the prior year. The Company continues to face general inflationary pressures particularly
impacting the cost of lubes, stores and spares.
Terminal & Stevedore Expenses
Terminal & Stevedore expenses increased to $5.8 million for the twelve months ended December 31, 2023, as a result of the company's acquisition of port
and terminal operations in June 2023.
68
General and Administrative Expenses
General and administrative expenses increased from $20.1 million for the year ended December 31, 2022 to $22.8 million for the year ended December 31,
2023. The increase was primarily due to an increase in costs associated with the acquisition of port and terminal operations in June of 2023.
Depreciation and Amortization
We depreciate the cost of our vessels on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less
its estimated residual value. We estimate the useful life of our vessels ranging between 25 years to 30 year from the date of initial delivery from the shipyard
to the original owner. We estimate the scrap rate to be $300/lwt to compute each vessel's residual value.
Depreciation and amortization expense increased $0.6 million or 2%. The increase was primarily due to the increase in ownership days to 8,988 days in
2023 from 8,962 days in 2022. The increase in ownership days is due to the acquisition of vessels, offset by vessel sales in the current year, which was part
of a fleet renewal plan. The increase in depreciation and amortization expense was due to an increase in drydocking amortization. Three drydockings were
completed in 2023 and four drydockings were completed in 2022.
Loss on sale of vessels
The Company recorded a loss of $1.7 million on the sale of the m/v Bulk Trident and m/v Bulk Newport in the year ended December 31, 2023. The
Company recorded a loss of $0.3 million on the sale of the m/v Bulk Pangaea in the year ended December 31, 2022.
Impairment of vessels
During the twelve months ended December 31, 2022, the Company recorded $3.0 million of impairment of vessel assets. On April 20, 2022 the Company
entered into an agreement to sell the Bulk Pangaea for $8.8 million, the sale was finalized and the vessel delivered to its new owner on June 23, 2022. No
loss on impairment of vessels were recorded in the year ended December 31, 2023.
Unrealized (Loss) Gain on Derivative Instruments
The Company assesses risk associated with fluctuating future freight rates and bunker prices, when appropriate, actively hedges identified economic risk
that may impact the operating income of long-term cargo contracts with forward freight agreements or bunker swaps. The usage of such derivatives can lead
to fluctuations in the Company’s reported results from operations on a period-to-period basis. The Company recorded an unrealized loss on derivative
instruments of $2.9 million in the year ended December 31, 2023 and an unrealized gain on derivative instruments of $0.7 million in the year ended
December 31, 2022, respectively. Refer to Note 7 Margin Account, Derivative and Fair Value Measures to the consolidated financial statements for further
information.
Liquidity and Capital Resources
Liquidity and Cash Needs
The Company has historically financed its capital requirements with cash flow from operations, the issuance of common stock, proceeds from non-
controlling interests, and proceeds from long-term debt and finance lease financing arrangements. The Company has used its capital primarily to fund
operations, vessel acquisitions, and the repayment of debt and the associated interest expense. The Company may consider debt or additional equity
financing alternatives from time to time. However, if market conditions deteriorate, the Company may be unable to raise additional debt or equity financing
on acceptable terms or at all. As a result, the Company may be unable to pursue opportunities to expand its business.
At December 31, 2023 and 2022, the Company had working capital of $86.5 million and $130.3 million, respectively. The decrease in working capital was
primarily driven by (i) $34.5 million of cash acquisitions, including the m/v Bulk Prudence and the port and terminal operation in June of 2023, (ii)
$20.4 million reclassifications of long-term debt to current portion of long-term debt, and (iii) partially offset by proceeds from the sale of vessels and
operating income generated during the twelve months ended December 31, 2023.
69
Considerations made by management in assessing the Company’s ability to continue as a going concern are its ability to consistently generate positive cash
flows from operations, which were approximately $53.8 million in 2023, and $134.8 million in 2022; its excess of cash and cash restricted by facility agents
over the current portion of secured long-term debt and finance lease obligations, and its focus on contract employment (COAs). In addition, the Company
has demonstrated its ability to adapt to changing market conditions by changing the chartered-in profile to meet its cargo commitments and react to volatile
market rates. The Company believes that future operating cash flows together with cash on hand, availability of borrowings, and contributions from non-
controlling interests will be sufficient to meet our future operating and capital expenditure cash requirements for the next 12 months and the foreseeable
future. For more information on the results of operations, see Part II. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Results of Operations.
The table below summarizes our primary sources and uses of cash for the fiscal years ended December 31, 2023 and 2022. We have derived these
summarized statements of cash flows from the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Amounts in the
table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
(in millions)
Net cash provided by/(used in):
Operating activities:
Net income adjusted for non-cash items
Changes in operating assets and liabilities, net
Operating activities
Investing activities
Financing activities
Net change
Operating Activities
2023
2022
$
$
65.0 $
(11.2)
53.8
(16.0)
(67.2)
(29.3) $
122.8
12.0
134.8
(28.5)
(34.1)
72.2
Net cash provided by operating activities during the year ended December 31, 2023 was $53.8 million, compared to net cash provided by operating
activities of $134.8 million during the year ended December 31, 2022. The cash flows from operating activities decreased compared to the same period in
the prior year primarily due to the decrease in income from operations, and timing of customer receipts and supplier payments.
Investing Activities
Net cash used in investing activities during the twelve months ended December 31, 2023 was $16.0 million compared to net cash used in investing activities
was $28.5 million for the same period in 2022. During the year ended December 31, 2023, the Company (i) paid $27.3 million for the purchase of one
vessel and other vessel improvements and (ii) paid $7.2 million net, for cash acquisition of a port and terminal operation. This use of cash was partially
offset by the proceeds from the sale of two vessels for $17.3 million. Net cash used in investing activities of $28.5 million in 2022 primarily consists of
$35.7 million for vessel acquisitions partially offset by the proceeds from the sale of one vessel for $8.4 million.
Financing Activities
Net cash used in financing activities in 2023 was $67.2 million compared to net cash used in financing activities of $34.1 million for the same period of
2022. During the twelve months ended December 31, 2023, the Company repaid $15.8 million of long term debt, and $20.2 million of finance leases. The
Company also paid $18.1 million of common stock cash dividends and $10.4 million cash dividends to non-controlling interests.
Net cash used in financing activities was $34.1 million for 2022. During the twelve months ended December 31, 2022, the Company received $8.5 million
in proceeds from long-term debt, $15.0 million in proceeds from finance leases. The Company repaid $15.4 million of long term debt, $15.8 million of
finance leases and $5.0 million of other long term liabilities. The Company also paid $13.4 million of common stock cash dividends and $5.0 million cash
dividends to non-controlling interests.
70
Capital Expenditures
The Company’s capital expenditures relate to the purchase of vessels and interests in vessels, and to capital improvements to its vessels which are expected
to enhance the revenue earning capabilities and safety of these vessels. The Company’s owned or partially owned and controlled fleet at December 31, 2023
includes: nine Panamax drybulk carriers (six of which are Ice-Class 1A); seven Supramax drybulk carriers, two Ultramax Ice-Class IC, two Ultramax and
four Post Panamax Ice Class 1A drybulk vessels.
In addition to vessel acquisitions that the Company may undertake in future periods, its other major capital expenditures include funding its program of
regularly scheduled drydockings necessary to make improvements to its vessels, as well as to comply with international shipping standards and
environmental laws and regulations. This includes installation of BWTS required under new regulations, the cost of which will be $0.5 million to $0.7
million per vessel. The Company has some flexibility regarding the timing of drydocking, but the total cost is unpredictable. The Company expects to
perform two special surveys in 2024 at an aggregate total cost of approximately $2.0 million. The Company expects to perform four intermediate surveys in
2024 at an aggregate total cost of approximately $0.3 million. The Company estimates that offhire related to the surveys and related repair work is ten to
twenty days per vessel, depending on the size and condition of the vessel. Funding of these requirements is anticipated to be met with cash from operations.
The Company anticipates that this process of recertification will require it to reposition these vessels from a discharge port to shipyard facilities, which will
reduce the Company’s available days and operating days during that period.
71
Borrowing Activities
Long-term debt consists of the following:
(2) (3)
Bulk Nordic Odyssey (MI) Corp., Bulk Nordic Orion (MI) Corp.
Senior Secured Term Loan Facility
Bulk Nordic Oshima (MI) Corp., Bulk Nordic Odin (MI) Corp., Bulk
Nordic Olympic (MI) Corp., Bulk Nordic Oasis (MI) Corp. Secured
Term Loan Facility
The Amended Senior Facility - Dated May 13, 2019 (formerly The
Amended Senior Facility - Dated December 21, 2017)
(2) (3) (4)
(4)
December 31,
2023
December 31,
2022
Interest Rate
(%)
(1)
Maturity Date
12,512,080
14,395,409
2.95 %
December 2027
39,800,000
44,600,000
3.38 %
June 2027
– Bulk Nordic Six Ltd. - Tranche A
(2)
9,033,325
10,099,993
– Bulk Nordic Six Ltd. - Tranche B
– Bulk Pride - Tranche C
– Bulk Independence - Tranche E
(2)
(2)
Bulk Valor Corp. Loan and Security Agreement
Bulk Promise Corp.
Bulk Sachuest
(2)
(2)
(2)
109 Long Wharf Commercial Term Loan
Total
Less: unamortized bank fees
(5)
Less: current portion
Secured long-term debt, net
—
1,900,000
9,500,000
10,087,642
9,685,334
7,733,094 $
—
100,251,475 $
(1,053,440)
99,198,035 $
(30,751,726)
68,446,309 $
2,070,000
3,000,000
10,500,000
11,424,507
11,069,630
8,500,000
374,466
116,034,005
(1,431,736)
114,602,269
(15,782,530)
98,819,739
$
$
$
$
4.39 %
— %
5.39 %
3.54 %
3.29 %
5.45 %
6.19 %
— %
May 2024
Paid in full in
January 10, 2023
May 2024
May 2024
June 2028
October 2027
October 2029
Paid in full in
January 24, 2023
(1)
(2)
(3)
(4)
(5)
As of December 31, 2023.
Interest rates on the loan facilities are fixed.
The borrowers under this facility are owned by NBHC. The Company has two-third's ownership interest and STST has one-third ownership interest in NBHC.
NBHC is consolidated in accordance with ASC 810-10 and as such, amounts pertaining to the non-controlling ownership held by the third parties in the financial
position of NBHC are reported as non-controlling interest in the accompanying balance sheets.
This facility is cross-collateralized by the vessels m/v Bulk Endurance, m/v Bulk Pride, and m/v Bulk Independence and is guaranteed by the Company.
A portion of unamortized debt issuance costs were reclassified as a reduction of the finance leases liabilities. Refer to Note 10 "Finance Leases" for additional
information.
The Bulk Nordic Odyssey (MI) Corp., Bulk Nordic Orion (MI) Corp. Senior Secured Term Loan Facility - Dated December 23, 2020.
The agreement advanced $18,000,000 in respect of the m/v Nordic Odyssey and m/v Nordic Orion. The agreement requires repayment of the
advance in 28 equal quarterly principal and interest installments of $571,821 beginning on March 23, 2021 and a balloon payment of $4,400,000
due with the final installment in December 2027. Interest on this advance is fixed at 2.95%.
The loan is secured by a first preferred mortgage on the m/v Nordic Odyssey and m/v Nordic Orion, the assignment of earnings, insurances and
requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio
clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain
above defined ratios. As of December 31, 2023 and 2022 the Company was in compliance with its financial covenants.
72
Bulk Nordic Oshima (MI) Corp., Bulk Nordic Odin (MI) Corp., Bulk Nordic Olympic (MI) Corp., and Bulk Nordic Oasis (MI) Corp. Facility Agreement
dated April 26, 2021
On April 26, 2021, NBHC entered into a new Senior Secured Term Loan Facility with two new lenders. The agreement advanced $53.0 million in
respect of the m/v Nordic Oshima, m/v Nordic Olympic, m/v Nordic Odin and m/v Nordic Oasis. The agreement requires repayment of the
advance in 24 equal quarterly principal installments of $1,200,000 beginning on June 15, 2021 and a balloon payment of $24,200,000 due in
March 2027. Interest on this advance is fixed at 3.38% effective May 5, 2021. The Loan is secured by a first lien on m/v Nordic Bulk Oshima, m/v
Nordic Bulk Odin, m/v Nordic Bulk Olympic and m/v Nordic Bulk Oasis. The Company used a portion of the proceeds of the loan to repay the
outstanding balance of $51.5 million for the Nordic Oshima, Nordic Odin, Nordic Olympic and Nordic Oasis loan facilities which was set to
mature on October 1, 2021. As of December 31, 2023 and 2022 the Company was in compliance with its financial covenants.
The Amended Senior Facility - Dated May 13, 2019 (previously identified as The Amended Senior Facility - Dated December 21, 2017)
On May 13, 2019, the Company, through its wholly owned subsidiaries, Bulk Endurance, Bulk Pride and Bulk Independence entered into the
Second Amendatory Agreement, (the "Second Amendment"), amending and supplementing the First Amendatory Agreement dated December 17,
2017. The Second Amendment advanced $14,000,000 under Tranche E in respect to the m/v Bulk Independence, extended maturity dates on
Tranche A, B, and C to May 2024, and reduced applicable interest rate margin on Tranche A, B, and C to 1.70% for the first eight quarters
following the drawdown of Tranche E, and 2.40% thereafter.
Bulk Endurance Tranche A and B
The amended agreement advanced $19,500,000 in respect of the m/v Bulk Endurance on January 7, 2017, in two tranches. The agreement
requires repayment of Tranche A, totaling $16,000,000, in three equal quarterly installments of $100,000 beginning on April 7, 2017 and
27 equal quarterly installments of $266,667. A balloon payment of $8,766,658 is due with the final installment in May 2024. Interest on
this advance was fixed at 3.69% through March 2021, fixed at 4.39% through December 2021, and fixed at 3.46% thereafter. The
agreement also advanced $3,500,000 under Tranche B, which is payable in 28 equal quarterly installments of $65,000 beginning on
September 27, 2017, and a balloon payment of $1,745,000 due with the final installment in May 2024. Interest on this advance is floating
at LIBOR plus 1.70% (3.63% at December 31, 2022) through March 2021, and thereafter at LIBOR plus 2.4%. The loan was repaid in full
on January 10, 2023.
Bulk Pride Tranche C and D
The amended agreement advanced $10,000,000 in respect of the m/v Bulk Pride on December 21, 2017, in two tranches. The agreement
requires repayment of Tranche C, totaling $8,500,000, in 26 equal quarterly installments of $275,000 beginning in March 2018 and a
balloon payment of $1,350,000 due with the final installment in May 2024. Interest on this advance was fixed at 4.69% through March
2021, fixed at 5.39% through December 2021, and fixed at 3.6% thereafter. The agreement also advanced $1,500,000 under Tranche D,
which is payable in 4 equal quarterly installments of $375,000 beginning in September 2018. Tranche D was fully repaid in June 2019.
Bulk Independence Tranche E
The amended agreement advanced $14,000,000 under Tranche E in respect of the m/v Bulk Independence on May 13, 2019, which
requires repayment of 20 equal quarterly installments of $250,000 beginning in September 2019 and a balloon payment of $9,000,000 due
with the final installment in May 2024. Interest on this advance was fixed at 3.48% through March 31, 2020, fixed at 2.84% through
December 31, 2021 and fixed at 3.54% thereafter.
The loan is secured by first preferred mortgages on the m/v Bulk Endurance, the m/v Bulk Pride and the m/v Bulk Independence, the
assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the
agreement contains a minimum liquidity requirement, positive working capital of the borrower and a collateral maintenance ratio clause
which requires the fair market value
73
of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At
December 31, 2023 and 2022, the Company was in compliance with these covenants.
The Bulk Freedom Corp. Loan Agreement -- Dated June 14, 2017
The agreement advanced $5,500,000 in respect of the m/v Bulk Freedom on June 14, 2017. The agreement requires repayment of the loan in 8
quarterly installments of $175,000 and 12 quarterly installments of $150,000 beginning on September 14, 2017. A balloon payment of $2,300,000
is due on June 14, 2022 with the final installment. The loan was repaid in full on June 13, 2022.
109 Long Wharf Commercial Term Loan
Initial amount of $1,096,000 entered into on May 27, 2016. The Long Wharf Construction to Term Loan was repaid from the proceeds of this new
facility. The loan is payable in 120 equal monthly installments of $9,133. Interest is floating at the 30 day LIBOR plus 2.00%. The loan is
collateralized by all real estate located at 109 Long Wharf, Newport, RI, and a corporate guarantee of the Company. The loan contains a maximum
loan to value covenant and a debt service coverage ratio. The loan was repaid in full on January 25, 2023. At December 31, 2022, the Company
was in compliance with these covenants.
The Bulk Valor Corp. Loan Agreement -- Dated June 17, 2021
The agreement advanced $13,350,000 in respect of the m/v Bulk Valor on June 17, 2021. The agreement requires repayment of the loan in 28
quarterly installments commencing on September 17, 2021. A balloon payment is due on June 17, 2028. Interest on this advance is fixed at 3.29%.
The loan is secured by a first preferred mortgage on the m/v Bulk Valor, the assignment of earnings, insurances and requisite compensation of the
entity, and by guarantees of its shareholders. As of December 31, 2023 and 2022 the Company was in compliance with its financial covenants.
The Bulk Promise Corp. Loan Agreement -- Dated July 12, 2021
The agreement advanced $12,800,000 in respect of the m/v Bulk Promise on July 7, 2021. The agreement requires repayment of the loan in 24
quarterly installments of $346,074 commencing on October 15, 2021. A balloon payment of $4,494,224 is due on October 15, 2027. Interest on
this advance was fixed at 5.45% on July 15, 2022 through maturity. The loan is secured by a first preferred mortgage on the m/v Bulk Promise, the
assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. As of December 31, 2023 and
2022 the Company was in compliance with its financial covenants.
The Bulk Sachuest Corp. Loan Agreement -- Dated October 13, 2022
The agreement advanced $8,500,000 in respect of the m/v Bulk Sachuest on October 13, 2022. The agreement requires repayment of the loan in 27
quarterly installments commencing on January 13, 2023. A balloon payment is due on October 13, 2029. Interest on this advance is fixed at 6.19%.
The loan is secured by a first preferred mortgage on the
m/v Bulk Sachuest, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. As of
December 31, 2023 and 2022 the Company was in compliance with its financial covenants.
The future minimum annual payments under the debt agreements are as follows:
2024
2025
2026
2027
2028
Thereafter
Related Party Transactions
74
Years ending December 31,
$
$
30,751,726
10,476,019
10,638,024
39,955,014
5,322,454
3,108,240
100,251,477
Amounts and notes payable to related parties consist of the following:
Included in accounts payable and accrued expenses on the consolidated
balance sheets:
Trade payables due to Seamar
(i)
December 31, 2022
Activity
December 31, 2023
$
1,643,806 $
(153,746) $
1,490,060
i.
Seamar Management S.A. ("Seamar") is a joint venture of which the Company owns 51% at December 31, 2023 and 2022.
Under the terms of a technical management agreement between the Company and Seamar Management S.A. (Seamar), an equity method investee, Seamar
is responsible for the day-to-day operation of some of the Company’s owned vessels. During the years ended December 31, 2023 and 2022, the Company
incurred technical management fees of $3,328,800 and $3,280,920 under this arrangement, which is included in vessel operating expenses in the
consolidated statements of income. The total amounts payable to Seamar at December 31, 2023 and 2022, (including amounts due for vessel operating
expenses), were $1,490,060 and $1,643,806, respectively.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2023 or 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
Not applicable for a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information appears following Item 15 of this Report and is included herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2023. The term "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"), means controls and other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as
appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-
benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our
Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable
assurance level.
75
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal year covered by this report that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Management of Pangaea Logistic Solutions Ltd. (the "Company") is responsible for establishing and maintaining adequate internal control over financial
reporting as is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control system was designed to provide reasonable
assurance to the Company’s management, Board of Directors, and shareholders regarding the preparation and fair presentation of the Company’s published
financial statements in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those
policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management of the
Company; 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.
There are inherent limitations to the effectiveness of any system of internal control over financial reporting. Accordingly, even an effective system of
internal control over financial reporting can only provide reasonable assurance with respect to financial statement preparation and presentation in
accordance with accounting principles generally accepted in the United States of America. Our internal controls over financial reporting are subject to
various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness
of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may be inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may
deteriorate over time.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making its assessment of
internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway
Commission in May 2013.
Based on the results of this assessment, management, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, has
concluded that, as of December 31, 2023, the Company’s internal control over financial reporting was effective, except as described below relating to the
acquisition of Port and Terminal Operation.
The Company acquired the Port and Terminal Operation on June 1, 2023. The new acquisition's total assets and revenues both constituted approximately 1%
of the Company’s consolidated total assets and revenues as shown on our consolidated financial statements as of and for the year ended December 31, 2023.
As the acquisition occurred during the second quarter of 2023, the Company excluded Port and Terminal Operation from the scope of the assessment of the
effectiveness of the Company’s internal control over financial reporting and, with respect to the portion of disclosure controls and procedures that are
subsumed by internal control over financial reporting of Port and Terminal Operation, the Company's disclosure controls and procedures. This exclusion is
in accordance with the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recently-acquired business
may be omitted from the scope in the year of acquisition if specified conditions are satisfied.
Attestation Report of the Registered Public Accounting Firm on Internal Control over Financial Reporting
The Company’s internal control over financial reporting as of December 31, 2023 has been audited by Grant Thornton LLP, an independent registered
public accounting firm, as stated in their report which is included herein.
ITEM 9B. OTHER INFORMATION.
None.
76
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
None.
77
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our current directors and executive officers are as follows:
Name
Mark L. Filanowski
Gianni Del Signore
Mads Boye Petersen
Carl Claus Boggild
Anthony Laura
Richard T. du Moulin
Eric S. Rosenfeld
David D. Sgro
Karen H. Beachy
Age
69
41
44
67
71
77
66
47
52
Position
Chief Executive Officer and Director
Chief Financial Officer
Chief Operating Officer
Lead Independent Director
Director
Chairman of the Board, Director
Director
Director
Director
Class I Directors with Terms Expiring in 2024
Eric S. Rosenfeld. Mr. Rosenfeld serves as a director of the Company. Eric Rosenfeld of New York, New York, U.S.A., has been the President and Chief
Executive Officer of Crescendo Partners, L.P., a New York based investment firm, since its formation in November 1998. Prior to forming Crescendo
Partners, he held the position of Managing Director at CIBC Oppenheimer and its predecessor company Oppenheimer & Co., Inc. for 14 years. Mr.
Rosenfeld currently serves on the board at Aecon Group, Inc., a construction company, and Algoma Steel, Inc., a fully integrated producer of hot and cold
rolled steel products. Mr. Rosenfeld has also served as Chairman and CEO for Arpeggio Acquisition Corporation, Rhapsody Acquisition Corporation, Trio
Merger Corp, Quartet Merger Corp and Harmony Merger Corp., all blank check corporations that later merged with Hill International, Primoris Services
Corporation, SAExploration Holdings, Pangaea Logistics Solutions Ltd and NextDecade Corporation respectively. Mr. Rosenfeld has also served as the
Chief SPAC Officer of Legato Merger Corp and Legato Merger Corp II., blank check corporations that later merged with Algoma Steel, Inc. and Southland
Holdings, respectively. Mr. Rosenfeld is currently the Chief SPAC Officer of Legato Merger Corp. III, a blank check corporation. Mr. Rosenfeld is also
currently the CEO of Allegro Merger Corp, a non-listed shell company. He was also a director of Primo Water Corp, a water delivery and filtration
company, CPI Aero (Chairman Emeritus), a company engaged in the contract production of structural aircraft parts, Canaccord Genuity Group, a full-
service financial services company, NextDecade Corporation, a development stage company building natural gas liquefaction plants, Absolute Software
Corp., a leader in firmware-embedded endpoint security and management for computers and ultraportable devices, AD OPT Technologies, an airline crew
planning service, Sierra Systems Group Inc., an information technology, management consulting and systems integration firm, Emergis Inc., an electronic
commerce company, Hill International, a construction management firm, Matrikon Inc. a company that provides industrial intelligence solutions, DALSA
Corp., a digital imaging and semiconductor firm, HIP Interactive, a video game company, GEAC Computer, a software company, Computer Horizons Corp.
(Chairman), an IT services company, Pivotal Corp, a cloud software firm, Call-Net Enterprises, a telecommunication firm Primoris Services Corporation, a
specialty construction company, and SAExploration Holdings, a seismic exploration company.
Mr. Rosenfeld is a regular guest lecturer at Columbia Business School and has served on numerous panels at Queen’s University Business Law School
Symposia, McGill Law School, the World Presidents’ Organization, and the Value Investing Congress. He is a senior faculty member at the Director’s
College. He is a guest lecturer at Tulane Law School. He has also been a regular guest host on CNBC. Mr. Rosenfeld received an A.B. in economics from
Brown University and an M.B.A. from the Harvard Business School. The board nominated Mr. Rosenfeld to be a director because he has extensive
experience serving on the boards of multinational public companies and in capital markets and mergers and acquisitions transactions. Mr. Rosenfeld also has
valuable experience in the operation of a worldwide business faced with a myriad of international business issues. Mr. Rosenfeld’s leadership and
consensus-building skills, together with his experience as senior independent director of all boards on which he currently serves, make him an effective
board member.
Mark L. Filanowski. Mr. Filanowski was appointed to the position of Chief Executive Officer of the Company in December 2021. He served as Pangaea’s
Chief Operating Officer from 2016 until his appointment as CEO, was a consultant to the Company from 2014 to 2016, and he has been a board member of
the Company since 2014. Mr. Filanowski formed Intrepid Shipping LLC with another board member, Richard du Moulin, in 2002. From 1989 to 2002, he
served as Chief Financial Officer and Senior Vice President at Marine Transport Corporation. Mr. Filanowski was Vice President and Controller at
78
Armtek Corporation from 1984 to 1988. Mr. Filanowski started his career at Ernst & Young and worked as a Certified Public Accountant at EY from 1976
to 1984. He has served as the Chairman of the Board at Arvak and at Shoreline Mutual (Bermuda) Ltd., both marine insurance companies. He earned a BS
from the University of Connecticut and an MBA from New York University. Mr. Filanowski’s experience in many aspects of the shipping industry, his
participation as a director on other independent company boards, and his financial background, qualifications, and experience, make him a valuable part of
the Company’s board.
Anthony Laura. Mr. Laura is a founder of Pangaea and served as its Chief Financial Officer from the Company's inception until his retirement in April
2017. Prior to co-founding Bulk Partners Ltd., the predecessor to Pangaea, in 1996, Mr. Laura spent 10 years as CFO of Commodity Ocean Transport
Corporation (COTCO). Mr. Laura also served as Chief Financial Officer at Navinvest Marine Services from 1986 to 2002. Mr. Laura is a graduate of
Fordham University.
Class II Directors with Terms Expiring in 2025
Carl Claus Boggild. Mr. Boggild is a founder of Pangaea and served as its President (Brazil) from the Company's inception until his retirement in 2016.
Prior to co-founding Bulk Partners Ltd., the predecessor company to Pangaea, in 1996, Mr. Boggild was Director of Chartering and Operations at the Korf
Group of Germany. He also was a partner at Trasafra Ltd., a Brazilian agent for the largest independent grain parcel operator from Argentina and Brazil to
Europe. He worked for Hudson Trading and Chartering where he was responsible for Brazilian related transportation services. As President of COTCO, he
was responsible for the operations of its affiliate Handy Bulk Carriers Corporation. Prior to becoming President of COTCO, Mr. Boggild was an Executive
Vice President and was responsible for its Latin American operations. Mr. Boggild holds a diploma in International Maritime Law. Mr. Boggild’s
qualifications to sit on our board include his operational experience and deep knowledge of the shipping industry.
David D. Sgro. Mr. Sgro serves as a director of the Company. Mr. Sgro served as Quartet’s chief financial officer, secretary, and a member of its Board of
Directors. He has been the Head of Research of Jamarant Capital Mgmt. since its inception in 2015. From 2005 through 2021, Mr. Sgro was an employee of
Crescendo Partners, where he completed his tenure as a Senior Managing Director of the firm. Mr. Sgro presently serves or has served on the board of
directors of Legato Merger Corp. III, Algoma Steel, Inc., Legato Merger Corp. II, Legato Merger Corp., Allegro Merger Corp., Hill International,
NextDecade Corporation, Trio, Primoris Services Corporation, Bridgewater Systems, Inc., SAExploration Holdings, Harmony Merger Corp., Imvescor
Restaurant Group, BSM Technologies and COM DEV International Ltd. Mr. Sgro attended Columbia Business School and prior to that, Mr. Sgro worked as
an analyst and then senior analyst at Management Planning, Inc., a firm engaged in the valuation of privately held companies. Simultaneously, Mr. Sgro
worked as an associate with MPI Securities, Management Planning, Inc.’s boutique investment banking affiliate. Mr. Sgro received a B.S. in Finance from
The College of New Jersey and an M.B.A. from Columbia Business School. In 2001, he became a Chartered Financial Analyst (CFA®) Charterholder. Mr.
Sgro is an adjunct faculty member at the College of New Jersey and a regular guest lecturer at Columbia Business School.
Class III Directors with Terms Expiring in 2026
Richard T. du Moulin. Mr. du Moulin is currently the President of Intrepid Shipping LLC, a position he has held since he founded Intrepid in 2002. From
1974, he spent 15 years with OMI Corporation, where he served as Executive Vice President, Chief Operating Officer, and as a member of the company's
Board of Directors. From 1998 to 2002, Mr. du Moulin served as Chairman and Chief Executive Officer of Marine Transport Corporation. From 1989 to
1998, Mr. du Moulin served as Chairman and CEO of Marine Transport Lines. Mr. du Moulin is a member of the Board Trustees of the Seamen's Church
Institute of New York and New Jersey. He currently serves as a Director of Teekay Tankers and an advisor to Hudson Structured Capital Management. Mr.
du Moulin served as Chairman of Intertanko, the leading trade organization for the tanker industry, from 1996 to 1999. Mr. du Moulin served in the US
Navy and is a recipient of the US Coast Guard's Distinguished Service Medal. He received a BA from Dartmouth College and an MBA from Harvard
University. Mr. du Moulin’s qualifications to sit on our board include his operational experience and deep knowledge of the shipping industry.
Karen H. Beachy. Ms. Beachy serves as a director of Oceaneering International (NYSE: OII), a global provider of engineered services and products for the
offshore energy, defense, aerospace, and entertainment industries. In March 2022, Ms. Beachy was named to the board of Pangea Logistics Solutions
(NASDQ: PANL), a Rhode Island based company that transports a wide variety of dry bulk cargoes and provides its customers with a comprehensive set of
services and activities, including cargo loading, cargo discharge, vessel chartering, and voyage planning. Ms. Beachy founded her strategic consulting firm,
Think B3 Consulting, in January 2021 and worked with The Alliance Risk Group, a consulting that helps energy leaders develop and enhance their
integrated risk management and smart, clean resilient grid solutions. Prior to starting her consulting firm and joining Oceaneering, Ms. Beachy served as the
Senior Vice President of Growth and Strategy at Black Hills Corporation, an investor-owned electric and gas utility in the Midwest, where she was
responsible for corporate planning, business
79
development, process improvement, enterprise data and analytics, natural gas retail marketing, products and services, energy innovation and asset
optimization. Ms. Beachy began her tenure at Black Hills in Rapid City, South Dakota in 2014 as the Director of Supply Chain and was promoted to Vice
President of Supply Chain in 2016. She was responsible for sourcing, procurement, fleet, and materials management. Ms. Beachy worked at Vectren (now
CenterPoint Energy) Corporation, an electric and gas utility in Indiana and Ohio, from 2010 to 2014 where Ms. Beachy led the gas operations division in
Ohio and worked in supply chain. From 1995 to 2008, Ms. Beachy worked at Louisville Gas and Electric/Kentucky Utilities, an electric and gas utility in
Kentucky and Western Virginia, where she held several positions in corporate development, products and services, electric operations, and supplier
diversity. In 2007, Ms. Beachy completed an expatriate assignment in Germany with E.ON, a European electric utility, where she served as a project
manager in the global liquified natural gas procurement group. Throughout her career, Ms. Beachy has served on several non-profit Boards with a focus on
supporting and growing young people and entrepreneurs in the communities where she lived and worked. Ms. Beachy holds a bachelor’s degree in political
science and a master’s degree in management from Purdue University.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our Section 16 officers and directors and persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC. SEC regulations require our Section officers, directors, and greater than 10%
shareholders to provide us with copies of all Section 16(a) forms they file. Based solely on our review of these forms, during 2023 all of our Section 16
officers, directors, and greater than 10% shareholders complied with all Section 16(a) filing requirements applicable to them.
Code of Ethics
In October 2014, our board of directors adopted a code of ethics that applies to directors, officers, and employees of ours and of any subsidiaries we may
have in the future (including our principal executive officer, our principal financial officer, our principal accounting officer or controller, and persons
performing similar functions). We will provide, without charge, upon request, copies of our code of ethics. Requests for copies of our code of ethics should
be sent in writing to Pangaea Logistics Solutions Ltd., 109 Long Wharf, Newport, RI 02840.
Corporate Governance
Audit Committee
The Company’s Audit Committee is comprised of David Sgro, Anthony Laura and Karen Beachy, each of whom qualifies as independent under the
applicable Nasdaq listing requirements and SEC rules.
The Board of Directors has determined that David Sgro is an audit committee “financial expert” as such term is defined in applicable SEC rules, and that he
has the requisite financial management expertise within the meaning of Nasdaq rules and regulations. The Audit Committee is responsible for, among other
duties, appointing and overseeing the work of, and relationship with, the independent auditors, including reviewing their formal written statement describing
the Company’s internal quality-control procedures and any material issues raised by the internal quality-control review or peer review of the Company or
any inquiry or investigation by governmental or professional authorities and their formal written statement regarding auditor independence; reading and
discussing with management and the independent auditors the annual audited financial statements and quarterly financial statements, and preparing annually
a report to be included in the Company’s proxy statement; providing oversight of the Company’s accounting and financial reporting principles, policies,
controls, procedures and practices; and discussing with management polices with respect to risk assessment and risk management. In addition, the Board of
Directors has tasked the Audit Committee with reviewing transactions with related parties.
Nominating and Corporate Governance Committee
The Company’s Nominating and Governance Committee is comprised of Richard du Moulin, Eric Rosenfeld and Carl Claus Boggild, each of whom
qualifies as independent under the applicable Nasdaq listing requirements and SEC rules.
The Nominating and Governance Committee, among other duties, assists the Board of Directors in identifying and evaluating qualified individuals to
become members of the Board of Directors, and proposing nominees for election to the Board of Directors and to fill vacancies; considers nominees duly
recommended by shareholders for election to the Board of Directors; and evaluates annually the independence of each member of the Board of Directors
under applicable Nasdaq listing requirements and SEC rules.
80
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are specified in our Nominating and Corporate Governance Committee Charter, generally provide that persons
to be nominated:
•
•
•
should have demonstrated notable or significant achievements in business, education or public service;
should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors and bring a
range of skills, diverse perspectives and backgrounds to its deliberations; and
should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of our stockholders.
The Nominating and Corporate Governance Committee will consider a number of qualifications relating to management and leadership experience,
background, integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating and Corporate
Governance committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time
to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating and
Corporate Governance committee does not distinguish among nominees recommended by stockholders and other persons.
There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
Compensation Committee
The Company’s Compensation Committee is comprised of independent directors Richard du Moulin, Eric Rosenfeld, David Sgro and Karen Beachy. The
Compensation Committee reviews and approves compensation paid to the Company’s officers and directors and administers the Company’s incentive
compensation plans, including authority to make and modify awards under such plans. The Compensation Committee Charter is available on the Company’s
website at www.pangaeals.com.
Compensation Committee Interlocks and Insider Participations
As of December 31, 2023, none of the members of our compensation committee will be, or will have at any time during the past year been, one of our
officers or employees. None of our executive officers currently serves or in the past year has served as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.
ITEM 11. EXECUTIVE COMPENSATION
The Company’s senior executives are generally awarded merit increases and annual incentive compensation in December of each year, following
completion of annual performance review cycle.
The Company does not have employment agreements with any of its senior executives, including its executive officers.
Summary Compensation Table of the Company’s Named Executive Officers
Smaller reporting companies meet the Regulation S-K Item 402 disclosure requirements by providing the shorter disclosures required under the Securities
Act of 1934, specifically, the total compensation of the Company’s named executive officer’s which consists of (i) the Company’s Chief Executive Officer,
(ii) each of the Company’s next two most highly compensated executive officers, other than its Chief Executive Officer, who served as an executive officer
at December 31, 2023 and whose total compensation exceeded $100,000, and (iii) two individuals for whom disclosure would have been required but who
were not serving as executive officers of the Company at December 31, 2023. The following table sets forth the total compensation for the fiscal years
ended December 31, 2023 and 2022:
81
Name and Principal Position
Mark L. Filanowski
Chief Executive Officer
(Principal Executive Officer)
Gianni Del Signore
Chief Financial Officer
(Principal Financial Officer)
Mads Rosenberg Boye Petersen
(2)
Chief Operating Officer
Year
2023
2022
2023
2022
2023
2022
$
$
$
$
$
$
Salary and
Compensation
Cash Bonus
All Other
Compensation
(1)
450,000 $
250,000 $
600,000 $
1,350,000 $
386,452 $
207,196 $
Total
1,436,452
1,807,196
300,000 $
200,000 $
275,000 $
450,000 $
406,990 $
201,853 $
981,990
851,853
350,000 $
223,770 $
375,000 $
600,000 $
213,740 $
116,833 $
938,740
940,603
(1)
(2)
All other compensation includes employer matching contribution to the 401(k) plan and vesting of restricted share grants.
On February 22, 2022, Mads Rosenberg Boye Petersen was appointed as Chief Operating Officer, effective on April 1, 2022. The information in above table represents
the period from January 1, 2022 to December 31, 2022.
Narrative Disclosure to Summary Compensation Table
The Company does not have employment agreements with any of its named executive officers. Bonuses paid to our named executive officers are purely
discretionary, as determined by our Compensation Committee, and may be paid in the year following the calendar year to which they relate.
The Company maintains, and the named executive officers participate in, a 401(k) retirement savings plan. Each participant who is a United States
employee may contribute to the 401(k) plan, through payroll deductions, up to 90% of his or her salary limited to the maximum allowed by the Internal
Revenue Service regulations. All amounts contributed by employee participants and earnings on these contributions are fully vested at all times and are not
taxable to participants until withdrawn. Employee participants may elect to invest their contributions in various established funds. The Company also makes
matching contributions to the accounts of all plan participants.
Except as set forth above, the Company’s named executive officers generally participate in the same programs as its other employees.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2023, the Company’s named executive officers held the following outstanding equity or equity-based awards, all of which are earned:
82
Mark Filanowski
Chief Executive Officer
Gianni Del Signore
Chief Financial Officer
Mads Rosenberg Boye Petersen
Chief Operating Officer
Stock Award Grant Date
Number of Shares or Units of
Stock That Have Not Vested
Market Value of Shares or
Units of Stock That Have
Not Vested
(1)
01/02/23
01/02/22
12/28/20
12/31/19
01/02/19
01/02/23
01/02/22
12/28/20
12/31/19
01/02/19
01/02/23
01/02/22
12/15/20
12/15/19
01/02/19
81,301 $
35,000 $
33,334 $
16,667 $
15,000 $
181,302
50,813 $
30,000 $
36,667 $
18,334 $
16,667 $
152,481
60,976 $
30,000 $
20,000 $
10,000 $
6,667 $
127,643
669,920
288,400
274,672
137,336
123,600
1,493,928
418,699
247,200
302,136
151,072
137,336
1,256,443
502,442
247,200
164,800
82,400
54,936
1,051,778
(1)
Market value is calculated by multiplying the number of restricted stock awards that have not vested by $8.24, which was the closing price of our common stock on the
Nasdaq Global Select Market on December 29, 2023, the last trading day of 2023.
Retirement Benefits, Termination, Severance and Change in Control Payments
As of December 31, 2023, none of the Company’s officers, including its named executive officers, have any retirement benefits (other than their right to
participate in the Company’s 401(k) retirement plan, as described above) or have any rights to severance payments.
Compensation of Non-Employee Directors.
Under the compensation program for our non-employee directors, non-employee directors received a combination of cash compensation and restricted
shares of our common stock, pursuant to the 2014 Long-Term Incentive Plan (the "2014 Plan"), as payment for services rendered as such members. See
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS -
Equity Compensation Plan Information for additional information on the 2014 Plan.
Our director compensation policy provides that each director elected or appointed to the Board is granted a RSU award with a grant-date fair value of
approximately $100,000 calculated in accordance with ASC 718. Refer to Note 14, "Stock Incentive Plans and Non-Controlling Interest", to our financial
statements contained herein.
83
The following table sets forth compensation paid to or earned by our non-employee directors during 2023:
(1)
Name
Richard DuMoulin
Eric Rosenfeld
David Sgro
Anthony Laura
Claus Boggild
Karen H Beachy
Fees Earned or
Paid in Cash
Stock Awards
(2)
Total
$
$
$
$
$
$
97,500 $
97,500 $
97,500 $
82,500 $
82,500 $
90,000 $
100,000 $
100,000 $
100,000 $
100,000 $
100,000 $
100,000 $
197,500
197,500
197,500
182,500
182,500
190,000
(1)
(2)
Information for Messrs. Filanowski, who served as a member of our board of directors in 2023, are not included in this table because he did not receive
additional compensation for his services rendered as a member of our board of directors.
Represents the grant-date fair value calculated in accordance with ASC 718. Refer to Note 13, "Stock Incentive Plans and Non-Controlling Interest" for
additional information.
We also reimburse our directors for reasonable and necessary out-of-pocket expenses incurred in attending Board and committee meetings or performing
other services for us in their capacities as directors.
84
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER
MATTERS
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by
shareholders
Total
(a) Number of securities to
be issued upon exercise of
outstanding options, warrants,
and rights
(b) Weighted-average
exercise price of
outstanding options,
warrants, and rights
(c) Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
—
—
—
—
1,362,000
1,362,000
During 2014, the Company adopted, and our shareholders approved, the 2014 Share Incentive Plan (the “2014 Plan”). The purpose of the 2014 Plan is to
assist in attracting, retaining, motivating, and rewarding certain key employees, officers, directors, and consultants of the Company and its affiliates and
promoting the creation of long-term value for our shareholders by closely aligning the interests of such individuals with those of such shareholders. The
2014 Plan authorizes the award of share-based incentives to encourage eligible employees, officers, directors, and consultants, as described below, to
expend maximum effort in the creation of shareholder value.
On August 5, 2022, the Company's shareholders approved an amendment and restatement of the 2014 Plan that was adopted by the Board on May 6, 2022.
The PANGAEA LOGISTICS SOLUTIONS LTD. 2014 SHARE INCENTIVE PLAN (as amended and restated by the Board of Directors on May 6, 2022),
(the "Amended Plan"), increased the aggregate number of common shares with respect to which awards may be granted under the Amended Plan, such that
the total number of shares made available for grant is 6,200,000. There are 1,362,000 shares available for future issuance under the equity compensation
plans as of December 31, 2023.
Security Ownership of Certain Beneficial Owners
The following table sets forth information regarding the beneficial ownership of our common stock as of March 12, 2024 by:
•
•
•
each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
each of our officers and directors; and
all of our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock
beneficially owned by them.
85
(1)
(3)
Name and Address of Beneficial Owner
Directors and Executive Officers:
Lagoa Investments
c/o Phoenix Bulk Carriers (US) LLC
109 Long Wharf
Newport, RI 02840
Gianni DelSignore*
109 Long Wharf
Newport, RI 02840
Richard T. du Moulin*
52 Elm Avenue
Larchmont, NY 10538
(4)
Mark L. Filanowski
109 Long Wharf
Newport, RI 02840
Mads Rosenberg Boye Petersen *
109 Long Wharf
Newport, RI 02840
Eric S. Rosenfeld
777 Third Ave, 37th Floor
New York, NY 10017
David D. Sgro*
777 Third Ave, 37th Floor
New York, NY 10017
Karen H. Beachy *
4579 Thorpe Ct
Sparks, NV 89436
*
All Directors and Officers as a Group
Five Percent Holders:
Lagoa Investments
Edward Coll and Julia Coll Irrevocable Trust for the benefit of Andrew
Coll, James Coll and Aidan Coll
BlackRock, Inc.
*Less than 1%.
Amount and Nature of Beneficial
Ownership
Approximate Percentage of Beneficial
Ownership
(2)
8,342,193
17.86 %
333,368
243,041
405,683
583,676
599,617
324,583
44,593
10,876,754
8,342,193
4,802,070
2,516,994
0.71 %
0.52 %
0.87 %
1.25 %
1.28 %
0.69 %
0.10 %
23.28 %
17.86 %
10.28 %
5.39 %
(1)
(2)
(3)
(4)
Unless otherwise indicated, the business address of each of the individuals is c/o Phoenix Bulk Carriers (US) LLC, 109 Long Wharf, Newport, Rhode Island 02840.
The beneficial ownership of the common shares by the shareholders set forth in the table is determined in accordance with Rule 13d-3 under the Exchange Act, and the
information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any common shares as to which
the shareholder has sole or shared voting power or investment power and also any common shares that the shareholder has the right to acquire within 60 days. The
percentage of beneficial ownership is calculated based on 46,721,228 outstanding common shares. Unless otherwise indicated, we believe that all persons named in the
table have sole voting and investment power with respect to all common shares beneficially owned by them.
Shares owned by Lagoa Investments. Mr. Boggild is the Managing Director of Lagoa Investments and solely for purposes of reporting beneficial ownership of such
shares pursuant to Section 13(d) of the Exchange Act, Mr. Boggild may be deemed to be the beneficial owner of the shares held by Lagoa Investments.
Shares owned by Mark Filanowski include 61,007 common shares held by his family members.
86
ITEM 13. CERTAIN RELATIONSHIPS, RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no
less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval by our audit committee and a majority of
our disinterested independent directors, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into
any such transaction unless our audit committee and a majority of our disinterested independent directors determine that the terms of such transaction are no
less favorable to us than those that would be available to us with respect to such a transaction with unaffiliated third parties.
Related Party Policy
Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except
under guidelines approved by the board of directors (or the audit committee). Related-party transactions are defined as transactions in which (1) the
aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any
(a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate
family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a
director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may
make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family,
receives improper personal benefits as a result of his or her position.
We also require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party
transactions.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of
interest on the part of a director, employee or officer.
Related Party Transactions
For more information, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Related Party Transactions.”
Director Independence
We have determined that Richard du Moulin, Eric Rosenfeld, David Sgro, Anthony Laura, Carl Claus Boggild and Karen Beachy are “independent
directors” under the Nasdaq listing rules, which is defined generally as a person other than an officer or employee of the Company or its subsidiaries or any
other individual having a relationship, which, in the opinion of the Company’s board of directors would interfere with the director’s exercise of independent
judgment in carrying out the responsibilities of a director.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The firm of Grant Thornton LLP acts as our independent registered public accounting firm. The following is a summary of fees paid to Grant Thornton LLP
for services rendered.
Audit Fees
Audit fees consist of the fees and expenses for professional services rendered in connection with the audit of the Company’s consolidated financial
statements, reviews of the consolidated financial statements included in each of the Company’s Quarterly Reports on Form 10-Q and fees for services
related to the Company’s registration statements, consents, and assistance with and review of documents filed with the SEC. During the years ended
December 31, 2023 and 2022, the Company incurred an aggregate of $961,144 and $899,411 in audit fees, respectively.
Audit-related fees
During each of the years ended December 31, 2023 and 2022, the Company incurred audit-related fees of $65,000 and $62,500, respectively, consisting of
the fees and expenses for the audit of Nordic Bulk Holding Company Ltd., a subsidiary of the Company.
87
Tax Fees
During the year ended December 31, 2023, the Company incurred tax related fees of $14,000. During the year ended December 31, 2022, the Company
incurred tax related fees of $14,000.
All Other Fees
During the years ended December 31, 2023 and 2022, there were no fees billed for services provided by our independent registered public accounting firm
other than those set forth above.
Pre-Approval of Audit and Non-Audit Services
Our Audit Committee charter provides that all audit services and non-audit services must be pre-approved by the Audit Committee. The Audit Committee
may delegate authority to grant pre-approvals of audit and permitted non-audit services to a subcommittee consisting of one or more members of the Audit
Committee, provided that any pre-approvals granted by any such subcommittee must be presented to the full Audit Committee at its next scheduled
meeting. From time to time, the Audit Committee has delegated to the Chairman of the committee the authority to pre-approve audit, audit-related and
permitted non-audit services.
All non-audit services were reviewed with the Audit Committee or the Chairman, which concluded that the provision of such services by Grant Thornton
LLP were compatible with the maintenance of such firm's independence in the conduct of their respective auditing functions.
88
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Contents
Report of Independent Registered Public Accounting Firm (PCAOB ID: 248)
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-5
F-6
F-7
F-8
F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Pangaea Logistic Solutions Ltd.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Pangea Logistics Solutions Ltd. (a Bermuda corporation) and subsidiaries (the
“Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of
the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted
in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s
internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 14, 2024 expressed an unqualified
opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinions on the
critical audit matter or on the accounts or disclosures to which they relate.
Vessel Impairment Analysis
As described further in Note 3 to the financial statements, the Company identified a triggering event which required management to evaluate each vessel
asset group for impairment. As a result, an impairment analysis was performed for each vessel asset group to determine whether the estimated undiscounted
future cash flows exceed the vessel asset group’s carrying amount. We identified the Company’s vessel impairment analysis as a critical audit matter.
The principal considerations for our determination that the Company’s vessel impairment analysis is a critical audit matter is that the impairment analysis
for each vessel asset group requires management to make significant estimates and assumptions related to forecasts of future cash flows, including but not
limited to revenue growth rates, projected expenses, drydocking costs and estimated vessel salvage values. Evaluating the reasonableness of these estimates
and projections require significant auditor judgment.
Our audit procedures related to the Company’s vessel impairment analysis included the following, among others.
• We tested the design and operating effectiveness of internal controls over the Company's vessel impairment analysis.
F-2
• We evaluated the reasonableness of the projected time charter equivalent (TCE) rates and projected expenses, including drydocking costs, used in
management's undiscounted cash flow analysis for each vessel asset group for consistency with historical data and changes in the business.
• We agreed the inputs included in management's estimated salvage value calculation to third-party sources.
• We performed sensitivity analyses on the projected revenue, expenses, and useful lives used in the impairment analysis to evaluate the impact on
the conclusions reached.
Valuation of Accounts Receivable
As described further in Note 3 to the financial statements, the Company had a significant customer who accounted for 37% of the trade receivable balance
as of December 31, 2023. These accounts receivable relate to services performed under a contract of affreightment during 2023. We identified the valuation
of the accounts receivable as a critical audit matter.
The principal considerations for our determination that the measurement of the receivable is a critical audit matter is that there is a degree of estimation
uncertainty resulting from management judgment of the customer’s ability to meet its remaining payment obligation under the contract. Given the
customer’s balance is past due, management qualitatively evaluated whether any credit losses exist, including consideration of alternative funding sources
the customer may use to meet the obligation. Management’s qualitative evaluation of the measurement of receivables and the determination of the
customer’s ability and intent to remit payment required a high degree of auditor judgment and an increased extent of effort to assess the reasonableness of
management’s estimates and assumptions.
Our audit procedures related to the measurement of the receivable included the following, among others.
• We tested the design and operating effectiveness of internal controls over the assessment of the receivable.
• We tested management’s process related to the qualitative assessment and obtained an understanding of the relevant facts and circumstances related
to the status of collection
• We confirmed the outstanding balance, intent to pay and the existence and accuracy of agreements with the customer as of December 31, 2023.
• We inspected guarantees from the ultimate parent company of the customer (“Parent”) and financial information of the Parent and corroborated
their ability to pay.
• We inspected support for cash collections subsequent to year-end
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2013.
Boston, Massachusetts
March 14, 2024
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Pangaea Logistic Solutions Ltd.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Pangaea Logistics Solutions Ltd. (a Bermuda corporation) and subsidiaries (the “Company”)
as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
financial statements of the Company as of and for the year ended December 31, 2023, and our report dated March 14, 2024 expressed an unqualified on
those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Our audit of, an opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Pangaea
Baltimore LLC, a wholly-owned subsidiary whose financial statements reflect total assets and total revenue constituting less than one percent, respectively,
and Pangaea Port Everglades LLC, a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting of one percent,
respectively, of the related consolidated financial statements as of and for the year ended December 31, 2023. As indicated in Management’s Report, these
subsidiaries were acquired during 2023. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded
the internal control over financial reporting of Pangaea Baltimore LLC and Pangaea Port Everglades LLC.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s 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. 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.
/s/ GRANT THORNTON LLP
Boston, Massachusetts
March 14, 2024
F-4
Pangaea Logistics Solutions Ltd.
Consolidated Balance Sheets
Assets
Current Assets
Cash and cash equivalents
Accounts receivable (net of allowance of $5,657,837 and $4,367,848 at December 31, 2023 and 2022,
respectively)
Bunker inventory
Advance hire, prepaid expenses and other current assets
Total current assets
Fixed assets, at cost, net of accumulated depreciation of $127,015,253 and $108,844,668, at December 31,
2023 and 2022, respectively
Finance lease right of use assets, at cost, net of accumulated depreciation of $10,393,823 and $12,139,654
at December 31, 2023 and 2022, respectively
Goodwill
Other Non-current Assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Accounts payable, accrued expenses and other current liabilities
Deferred revenue
Current portion of long-term debt
Current portion of finance lease liabilities
Dividends payable
Total current liabilities
Secured long-term debt, net
Finance lease liabilities
Long-term liabilities - other - Note 11
Commitments and contingencies - Note 12
Stockholders' equity:
Preferred stock, $0.0001 par value, 1,000,000 shares authorized and no shares issued or outstanding
Common stock, $0.0001 par value, 100,000,000 shares authorized, 46,466,622 and 45,898,395 shares
issued and outstanding at December 31, 2023 and 2022, respectively
Additional paid-in capital
Retained Earnings
Total Pangaea Logistics Solutions Ltd. equity
Non-controlling interests
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements
F-5
December 31, 2023
December 31, 2022
$
99,037,866 $
128,384,606
47,891,501
16,556,266
28,340,246
191,825,879
36,755,149
29,104,436
28,266,831
222,511,022
474,265,171
476,524,752
30,393,823
3,104,800
5,590,295
705,179,968 $
43,921,569
—
5,284,127
748,241,470
35,836,262 $
15,629,886
30,751,726
21,970,124
1,146,321
105,334,319
68,446,309
143,266,867
17,936,540
38,554,131
20,883,958
15,782,530
16,365,075
626,178
92,211,872
98,819,739
168,513,939
19,974,390
—
—
4,648
164,854,546
159,026,799
323,885,993
46,309,940
370,195,933
705,179,968 $
4,590
162,894,080
151,327,392
314,226,062
54,495,468
368,721,530
748,241,470
$
$
$
Pangaea Logistics Solutions Ltd.
Consolidated Statements of Income
Revenues:
Voyage revenue
Charter revenue
Terminal & stevedore revenue
Total revenue
Operating expenses:
Voyage expense
Charter hire expense
Terminal & stevedore expenses
Vessel operating expenses
General and administrative
Depreciation and amortization
Loss on impairment of vessels
Loss on sale of vessels
Total operating expenses
Income from operations
Other (expense) income:
Interest expense
Interest income
Income attributable to Non-controlling interest recorded as long-term liability interest expense
Unrealized (loss) gain on derivative instruments
Other income
Total other expense, net
Net income
Income attributable to noncontrolling interests
Net income attributable to Pangaea Logistics Solutions Ltd.
Earnings per common share:
Basic
Diluted
Weighted average shares used to compute earnings per common share
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements
F-6
Years ended December 31,
2022
2023
$
468,580,914 $
23,715,895
6,971,025
499,267,834
640,033,668
59,673,238
—
699,706,906
227,434,670
111,033,537
5,809,025
55,783,562
22,780,937
30,070,395
—
1,738,511
454,650,637
262,088,555
222,332,197
—
56,859,340
20,103,346
29,489,810
3,007,809
318,032
594,199,089
44,617,197
105,507,817
(17,025,547)
3,572,134
(462,150)
(2,925,347)
761,485
(16,079,425)
28,537,772
(2,214,472)
26,323,300 $
(15,704,233)
932,069
(6,717,414)
682,323
807,142
(20,000,113)
85,507,704
(6,016,291)
79,491,413
0.59 $
0.58 $
1.79
1.76
44,773,899
45,475,453
44,398,987
45,059,587
$
$
$
Pangaea Logistics Solutions Ltd. Consolidated Statements of Changes in Stockholders' Equity
Common Stock
Amount
Additional Paid-
in Capital
Retained
Earnings
4,562 $
—
161,534,280 $
1,767,726
85,663,375 $
—
Total Pangaea
Logistics
Solutions Ltd.
Equity
247,202,217 $
1,767,726
Non-
Controlling
Interest
Total
Stockholders'
Equity
Shares
45,617,840 $
—
280,555
—
—
—
45,898,395 $
—
28
—
—
—
4,590 $
—
(407,926)
—
—
—
162,894,080 $
2,087,807
—
—
(13,827,396)
79,491,413
151,327,392 $
—
—
(407,898)
—
(13,827,396)
79,491,413
314,226,062 $
2,087,807
(127,283)
568,227
58
(127,341)
53,479,177 $
—
—
(5,000,000)
—
6,016,291
54,495,468 $
—
—
300,681,394
1,767,726
(407,898)
(5,000,000)
(13,827,396)
85,507,704
368,721,530
2,087,807
(127,283)
(10,400,000)
(18,623,893)
28,537,772
370,195,933
Balance at December 31, 2023
46,466,622 $
—
—
—
—
—
—
4,648 $
—
—
—
164,854,546 $
—
(18,623,893)
26,323,300
159,026,799 $
—
(18,623,893)
26,323,300
323,885,993 $
(10,400,000)
—
2,214,472
46,309,940 $
Balance at December 31, 2021
Share-based compensation
Issuance of restricted shares, net of
forfeitures
Distribution to Non-Controlling Interests
Common Stock Dividend
Net income
Balance at December 31, 2022
Share-based compensation
Issuance of restricted shares, net of
forfeitures
Distribution to Non-Controlling
interests
Common Stock Dividend
Net income
The accompanying notes are an integral part of these consolidated financial statements
F-7
Pangaea Logistics Solutions, Ltd.
Consolidated Statements of Cash Flows
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense
Amortization of deferred financing costs
Amortization of prepaid rent
Unrealized loss (gain) on derivative instruments
Income from equity method investee
Earnings attributable to non-controlling interest recorded as interest expense
Provision for doubtful accounts
Loss on impairment of vessels
Loss on sales of vessels
Drydocking costs
Share-based compensation
Change in operating assets and liabilities:
Accounts receivable
Bunker inventory
Advance hire, prepaid expenses and other current assets
Accounts payable, accrued expenses and other current liabilities
Deferred revenue
Net cash provided by operating activities
Investing activities
Purchase of vessels and vessel improvements
Proceeds from sale of vessels
Acquisitions, net of cash acquired
Purchase of equipment and internal use software
Contribution to non-consolidated subsidiaries and other investments
Dividends received from equity method investments
Net cash used in investing activities
Financing activities
Proceeds from long-term debt
Payments of financing and issuance costs
Payments of long-term debt
Proceeds from finance leases
Payments on finance lease obligation
Payments on other long-term liability
Dividends paid to non-controlling interests
Common stock accrued dividends paid
Cash paid for incentive compensation shares relinquished
Payments to non-controlling interest recorded as long-term liability
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow items:
Cash paid for interest
The accompanying notes are an integral part of these consolidated financial statements
F-8
Years ended December 31,
2023
2022
$
28,537,772 $
85,507,704
30,070,395
946,593
121,532
2,925,347
(684,470)
462,150
2,938,879
—
1,738,511
(4,154,283)
2,087,807
(14,075,231)
12,548,170
(342,776)
(4,079,047)
(5,254,072)
53,787,277
(27,264,044)
17,271,489
(7,200,000)
—
(427,270)
1,637,500
(15,982,325)
—
—
(15,782,528)
—
(20,238,131)
—
(10,400,000)
(18,103,750)
(127,283)
(2,500,000)
(67,151,692)
(29,346,740)
128,384,606 $
99,037,866 $
29,489,810
1,005,487
122,343
(682,323)
(807,142)
6,717,414
2,377,389
3,007,809
318,032
(6,019,126)
1,767,726
15,126,727
(1,956,676)
19,086,893
(8,939,313)
(11,321,354)
134,801,400
(35,740,482)
8,400,000
—
(653,452)
(515,162)
—
(28,509,096)
8,500,000
(466,544)
(15,443,115)
15,000,000
(15,834,059)
(5,000,000)
(5,000,000)
(13,414,984)
(407,898)
(2,050,000)
(34,116,600)
72,175,704
56,208,902
128,384,606
18,850,078 $
14,906,972
$
$
$
NOTE 1 - GENERAL INFORMATION
Pangaea Logistics Solutions Ltd. and its subsidiaries (collectively, the “Company” or “Pangaea”) provides seaborne drybulk logistics and transportation
services. Pangaea utilizes its logistics expertise to service a broad base of industrial customers who require the transportation of a wide variety of drybulk
cargoes, including grains, pig iron, hot briquetted iron, bauxite, alumina, cement clinker, dolomite and limestone. The Company addresses the logistics
needs of its customers by undertaking a comprehensive set of services and activities, including cargo loading, cargo discharge, vessel chartering, voyage
planning, and technical vessel management.
At December 31, 2023 the Company owned three Panamax, two Ultramax Ice Class 1C, two Ultramax and seven Supramax vessels.
The Company owns two-thirds of consolidated subsidiary Nordic Bulk Holding Company Ltd. (“NBHC”) which owns a fleet of six Panamax Ice Class 1A
drybulk vessels. The Company owns 50% of Nordic Bulk Partners LLC. ("NBP") which owns a fleet of four Post Panamax Ice Class 1A drybulk vessels.
The Company also has a 50% interest in the owner of a deck barge. On June 1, 2023, the Company completed the acquisition of port and terminal
operations in Fort Lauderdale, Florida and Baltimore, Maryland.
NOTE 2 – NATURE OF ORGANIZATION
The consolidated financial statements include the operations of Pangaea Logistics Solutions Ltd. and its wholly-owned subsidiaries (collectively referred to
as “the Company”), as well as other entities consolidated pursuant to Accounting Standards Codification (“ASC”) 810, Consolidation. A summary of the
Company’s consolidation policy is provided in Note 3. A summary of the Company’s variable interest entities is provided at Note 5. At December 31, 2023
and 2022, entities that are consolidated pursuant to ASC 810-10 include the following wholly-owned subsidiaries:
•
•
•
Bulk Partners (Bermuda) Ltd. (“Bulk Partners”) – a corporation that was duly organized under the laws of Bermuda. The primary purpose of
this corporation is a holding company.
Phoenix Bulk Carriers (BVI) Limited – a corporation that was duly organized under the laws of the British Virgin Islands. The primary purpose
of this corporation is to provide logistics services to its customers, and to manage and operate ocean-going vessels. The Company was renamed
Pangaea Logistics Solutions (BVI) Limited ("Pangaea BVI") in 2023.
Phoenix Bulk Management Bermuda Limited (“PBM”) – a corporation that was duly organized under the laws of Bermuda. Certain of the
administrative management functions of PBC have been assigned to PBM.
• Americas Bulk Transport (BVI) Limited – a corporation that was duly organized under the laws of the British Virgin Islands. The primary
purpose of this corporation is to charter ships.
•
•
Bulk Ocean Shipping (Bermuda) Ltd. – a corporation that was duly organized under the laws of Bermuda. The primary purpose of this
corporation is to manage the fuel procurement of the chartered vessels.
Phoenix Bulk Carriers (US) LLC – a corporation that duly organized under the laws of Delaware. The primary purpose of this corporation is to
act as the U.S. administrative agent for the Company.
• Allseas Logistics Bermuda Ltd. – a corporation that was duly organized under the laws of Bermuda. The primary purpose of this corporation is
the Treasury Agent for the group of Companies.
• Narragansett Bulk Carriers (US) Corp. - a corporation organized in July 2012 under the laws of Rhode Island. The primary purpose of this
corporation is to manage and operate ocean-going vessels.
•
Bulk Pangaea Limited (“Bulk Pangaea”) – a corporation that was duly organized under the laws of Bermuda. Bulk Pangaea was established in
September 2009 for the purpose of acquiring the m/v Bulk Pangaea.
F-9
•
•
•
Bulk Trident Ltd. (“Bulk Trident”) – a corporation that was duly organized under the laws of Bermuda. Bulk Trident was established in August
2012 for the purpose of acquiring the m/v Bulk Trident.
Bulk Phoenix Ltd. (“Bulk Phoenix”) – a corporation that was duly organized under the laws of Bermuda. Bulk Phoenix was established in July
2013 for the purpose of acquiring the m/v Bulk Newport.
109 Long Wharf LLC (“Long Wharf”) – a limited liability company that was duly organized under the laws of Delaware for the objective and
purpose of holding real estate located in Newport, Rhode Island.
• Nordic Bulk Ventures (Cyprus) Limited (“NBV”) – a corporation that was duly organized in April 2009 under the laws of Cyprus. NBV is the
holding company of Nordic Bulk Carriers AS (“NBC”). NBC's name was changed to Pangaea Logistics Solutions Denmark AS ("Pangaea
Denmark") in 2023. Pangaea Denmark specializes in ice trading, as well as the carriage of a wide range of commodities, including cement
clinker, steel scrap, fertilizers, and grains.
•
Pangaea Logistics Solutions Singapore Pte. Ltd. ("Pangaea Singapore") - a corporation that was duly organized in March 2014 under the laws of
Singapore. Pangaea Singapore focuses on chartering and operating bulk carriers trading in a wide range of commodities; and is a wholly-owned
subsidiary of Pangaea Denmark.
• Nordic Bulk Ventures Holding Company Ltd. (“BVH”) – a corporation that was duly organized under the laws of Bermuda. BVH was
established in August 2013 for the purpose of owning Bulk Nordic Five Ltd. (“Five”) and Bulk Nordic Six Ltd. (“Six”). Five and Six are
corporations that were duly organized under the laws of Bermuda in November 2013 for the purpose of owning m/v Bulk Destiny and m/v Bulk
Endurance, Ultramax newbuildings delivered in January 2017. The Company acquired its joint venture partner's 50% interest in January 2017
for $0.8 million after which BVH is a wholly-owned subsidiary of the Company.
•
•
•
•
•
•
•
•
•
•
Bulk Freedom Corp. (“Bulk Freedom”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Freedom was
established in May 2017 for the purpose of acquiring the m/v Bulk Freedom.
Bulk Pride Corp. (“Bulk Pride”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Pride was established in
October 2017 for the purpose of acquiring the m/v Bulk Pride.
Flintstone Ventures Limited ("FVL") - a corporation that was duly organized under the laws of the Province of Nova Scotia on March 17, 2017.
FVL focuses on the carriage of specialized cargo.
Bulk PODS Ltd. (“Bulk PODS”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk PODS was established in
April 2018 for the purpose of acquiring the m/v Bulk PODS. The vessel was renamed m/v Bulk Xaymaca in 2022.
Bulk Spirit Ltd. (“Bulk Spirit”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Spirit was established in
October 2018 for the purpose of acquiring the m/v Bulk Spirit.
Bulk Independence Ltd. (“Bulk Independence”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk
Independence was established in May 2019 for the purpose of acquiring the m/v Bulk Independence.
Bulk Friendship Ltd. (“Bulk Friendship”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Friendship was
established in September 2019 for the purpose of acquiring the m/v Bulk Friendship.
Bulk Courageous Corp. (“Bulk Courageous”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Courageous
was established in January 2021 for the purpose of acquiring the m/v Bulk Courageous.
Bulk Valor Corp. (“Bulk Valor”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Valor was established in
May 2021 for the purpose of acquiring the m/v Bulk Valor.
Bulk Promise Corp. (“Bulk Promise”) – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Promise was
established in April 2021 for the purpose of acquiring the m/v Bulk Promise.
F-10
•
•
•
•
•
•
•
Phoenix Bulk 25 Corp. (“Phoenix Bulk 25”) – a corporation that was duly organized under the laws of the Marshall Islands. Phoenix Bulk 25
was established in November 2021 for the purpose of acquiring the m/v Bulk Concord.
Bulk Sachuest Corp. (“Bulk Sachuest") – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Sachuest was
established in August 2022 for the purpose of acquiring the m/v Bulk Sachuest.
Bulk Prudence Corp. (“Bulk Prudence") – a corporation that was duly organized under the laws of the Marshall Islands. Bulk Prudence was
established in April 2023 for the purpose of acquiring the m/v Bulk Prudence.
Pangaea Logistics Solutions (US) LLC ("PANL US") – a corporation that was duly organized under the laws of Delaware, was established in
2019 for the purpose of managing the Company's U.S.-based business activities.
Pangaea Baltimore LLC - a corporation that was duly organized under the laws of Delaware, was established in 2023 for the purpose of
acquiring Terminal and Stevedore operations at Port Baltimore, Maryland.
Pangaea Port Everglades LLC - a corporation that was duly organized under the laws of Delaware, was established in 2023 for the purpose of
acquiring Terminal and Stevedore operations at Port Everglades, Florida.
Bay Stevedoring LLC - a corporation that was duly organized under the laws of Delaware, was established in 2019 for the primary purpose of
managing and operating a port terminal in Louisiana.
At December 31, 2023 and 2022, entities that are consolidated pursuant to ASC 810-10, but which are not wholly-owned, include the following:
• Nordic Bulk Holding Company Ltd. (“NBHC”) - a corporation that was duly organized under the laws of Bermuda. NBHC was established in
October 2012, for the purpose of owning Bulk Nordic Odyssey Ltd. (“Bulk Odyssey”) and Bulk Nordic Orion Ltd. (“Bulk Orion”) and to invest
in additional vessels through its wholly-owned subsidiaries. On September 28, 2020, the Company acquired an additional one-third equity
interest in its partially-owned consolidated subsidiary Nordic Bulk Holding Company Ltd. (“NBHC”) from one of NBHC’s shareholders. The
Company owns two-thirds equity interest of NBHC after the acquisition and the remainder one-third equity interest is owned by a third-party at
December 31, 2023. The Company determined that NBHC is a VIE and that it is the primary beneficiary of NBHC, as it has the power to direct
its activities through time charter arrangements with Pangaea Denmark covering all of its owned vessels. Accordingly, the Company has
consolidated NBHC for the years ended December 31, 2023 and 2022. Bulk Odyssey, Bulk Orion, Bulk Nordic Oshima Ltd. (“Bulk Oshima”),
Bulk Nordic Olympic Ltd. (“Bulk Olympic”), Bulk Nordic Odin Ltd. (“Bulk Odin”) and Bulk Nordic Oasis Ltd. (“Bulk Oasis”), corporations
duly organized under the laws of Bermuda between March 2012 and February 2015, are owned by NBHC. These entities were established for
the purpose of owning m/v Nordic Odyssey, m/v Nordic Orion, m/v Nordic Oshima, m/v Nordic Olympic, m/v Nordic Odin and m/v Nordic
Oasis, respectively. On December 23, 2020 NBHC formed two new wholly owned subsidiaries, Bulk Nordic Odyssey (MI) Corp., and Bulk
Nordic Orion (MI) Corp. for the purpose of transferring ownership of the m/v Nordic Odyssey and m/v Nordic Orion to these companies
respectively. On January 21, 2021 NBHC formed four new wholly owned subsidiaries, Bulk Nordic Oasis (MI) Corp., Bulk Nordic Odin (MI)
Corp., Bulk Nordic Olympic (MI) Corp., and Bulk Nordic Oshima (MI) Corp. for the purpose of transferring ownership of the m/v Nordic
Oasis, m/v Nordic Odin, m/v Nordic Olympic and m/v Nordic Oshima to these companies respectively.
• Venture Logistics NL Inc. ("VLNL") - a corporation that was duly organized m/v in Newfoundland and Labrador, Canada on October 19, 2018.
VLNL was established for the purpose of owning and operating a deck barge. At December 31, 2023 the Company had a 50% ownership
interest in VLNL with the other 50% ownership interest owned by the independent third-party.
• Nordic Bulk Partners LLC. (“NBP”) – a corporation that was duly organized under the laws of the Marshall Island. NBP was established in
September 2019 for the purpose of providing funding to Bulk Seven, Bulk Eight, Bulk Nine, and Bulk Ten for the construction of four
newbuilding vessels and subsequently at completion and delivery of the newbuilding vessels owning Bulk Seven, Bulk Eight, Bulk Nine, and
Bulk Ten. Bulk Seven, Bulk Eight, Bulk Nine and Bulk Ten are corporations that were duly organized under the laws of the Marshall Islands in
September 2019 for the purpose of constructing and owning Post-Panamax newbuilding vessels named m/v Nordic Nuluujaak, m/v Nordic
Qinngua, m/v Nordic Sanngijuq and m/v Nordic Siku, respectively, the four newbuilding vessels were delivered in 2021. At December 31, 2023
the Company had a 50% ownership interest in NBP with the other 50% ownership interest owned by the independent third-party.
F-11
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company and its subsidiaries is presented to assist in understanding the Company’s consolidated
financial statements. These accounting policies conform to accounting principles generally accepted in the United States, and have been applied in the
preparation of the consolidated financial statements.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
The accompanying consolidated financial statements present separately our financial position, results of operations, cash flows, and changes in
shareholders’ equity.
All intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior periods to conform to current period
presentation.
Principles of Consolidation
The purpose of consolidated financial statements is to present the financial position and results of operations of a company and its subsidiaries as if the
group were a single company. The first step in the Company’s consolidation policy is to determine whether an entity is to be evaluated for potential
consolidation based on its outstanding voting interests or its variable interests. Accordingly, the Company first determines whether the entity is a Variable
Interest Entity (“VIE”) pursuant to the provisions of ASC 810-10. If the entity is a VIE, consolidation is based on the entity’s variable interests and not its
outstanding voting shares. If the entity is not determined to be a VIE, the Company evaluates the entity based on its outstanding voting interests.
Amounts pertaining to the non-controlling interests and redeemable noncontrolling interests held by third parties in the financial position and operating
results of the Company’s subsidiaries and/or consolidated VIEs are reported as non-controlling interest and redeemable noncontrolling interests in the
accompanying consolidated balance sheets.
As part of the Company’s consolidation process, all intercompany balances and transactions are eliminated in the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include the percentage completion of spot voyages, the establishment of the allowance for doubtful accounts and the estimate of
salvage value used in determining vessel depreciation expense.
Revenue Recognition
Voyage revenues represent revenues earned by the Company, principally from providing transportation services under voyage charters. A voyage charter
involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. Under a voyage
charter, the service revenues are earned and recognized ratably over the duration of the voyage. Estimated losses under a voyage charter are provided for in
full at the time such losses become probable. The voyage contract generally has standard payment terms of 95% freight paid within three days after
completion of loading.
Demurrage, which is included in voyage revenues, represents payments by the charterer to the vessel owner when loading and discharging time exceed the
stipulated time in the voyage charter. The voyage charter party generally has a “demurrage” or “despatch” clause. As per this clause, the charterer
reimburses the Company for any potential delays exceeding the allowed laytime as per the charter party clause at the ports visited which is recorded as
demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime known as despatch
resulting in a reduction in revenue. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo.
The demurrage and despatch represent variable consideration which is estimated at contract inception. Voyage revenue recognized is presented net of
address commissions.
F-12
Charter revenues relate to a time charter arrangement under which the Company is paid to provide transportation services on a per day basis for a specified
period of time. Revenues from time charters are earned and recognized on a straight-line basis over the term of the charter, as the charters do not fall under
the scope of ASC 606. Revenue is not earned when vessels are offhire.
Costs incurred in fulfillment of a contract that meet certain criteria are deferred and recognized when or as the related performance obligations are satisfied.
The contract fulfillment costs consist primarily of the fuel consumption that is incurred by the Company from the latter of the end of the previous vessel
employment and the contract date until the arrival at the loading port in addition to any port expenses incurred prior to arrival at the load port, as well as any
charter hire expenses for third party vessels that are chartered-in. The fuel consumption and any port expenses incurred prior to arrival at the load port
during this period are capitalized and recorded in Bunker inventory and Advance hire, prepaid expenses and other current assets, respectively in the
Consolidated Balance Sheets and are amortized ratably over the total transit time of the voyage from arrival at the loading port until the vessel departs from
the discharge port and expensed as part of Voyage expense. As of December 31, 2023 and 2022, the Company recognized $2.0 million and $2.3 million,
respectively, of deferred costs which represents bunker expenses and charter hire expenses incurred prior to commencement of loading. These costs are
recorded in Advance hire, prepaid expenses and other current assets in the Consolidated Balance Sheet and are expensed as part of Voyage expense and
Charter hire expense. Similarly, for any third party vessels that are chartered-in, the charter hire expenses during this period are capitalized and recorded in
Advance hire, prepaid expenses and other current assets in the Consolidated Balance Sheets and are expensed as part of Charter hire expense.
The performance obligations under our contracts are transportation services, which are received and consumed by our customers over time, as we perform
the services. Revenues are recognized using the input method, proportionate to the days elapsed since the service commencement compared to the total days
anticipated to complete the service. Under the ASC 606 revenue recognition standard, voyage revenue is recognized over the period between load port and
discharge port. Costs to fulfill contracts for voyages for which loading has not commenced are recognized as assets and amortized pro rata over the period
between load and discharge. Costs to obtain a contract are expensed as incurred, as provided by a practical expedient, since all such costs are expected to be
amortized over less than one year.
Assets and liabilities related to our voyage contracts with customers are reported on a contract-by-contract basis at the end of each reporting
period. Contract assets also include accounts receivable for amounts billed and currently due from customers, which are reported at their net estimated
realizable value. The Company maintains reserves against its accounts receivable for potential credit losses, which were immaterial for the years ended
December 31, 2023 and 2022, respectively. Other contract assets include accrued receivables which arise when revenue is recognized in advance of billing
for certain voyage contracts and hire paid to ship-owners in advance. Contract liabilities consist of deferred revenue which arises when amounts are billed to
or collected from customers in advance of revenue recognition and are recognized within twelve months of the balance sheet date.
In a stevedore service contract, the Company is paid to provide cargo handling services on a per unit basis for a specified quantity of cargo. The
consideration in such a contract is determined on the basis of a rate per unit of cargo handled. The contract may contain minimum quantities. Revenues from
stevedore service contracts are earned and recognized on a per unit basis as completed over the performance period.
As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance
obligations for our contracts that had an original expected duration of less than one year.
Deferred Revenue
Billings for services for which revenue is not recognized in the current period are recorded as deferred revenue. Deferred revenue recognized in the
accompanying consolidated balance sheets is expected to be realized within twelve months of the balance sheet date. All deferred revenue recorded on the
consolidated balance sheets as of December 31, 2022 and December 31, 2021 was recognized during 2023 and 2022, respectively.
Voyage Expenses
The Company incurs expenses for voyage charters that include bunkers (fuel), port charges, canal tolls, broker commissions and cargo handling operations,
which are expensed as incurred.
F-13
Charter Expenses
The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters
with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire
payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under
time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores.
Vessel Operating Expenses
Vessel operating expenses (“VOE”) represent the cost to operate the Company’s owned vessels. VOE include crew wages and related costs, the cost of
insurance, expenses relating to repairs and maintenance, the cost of spares and consumables, other miscellaneous expenses, and technical management fees.
Technical management services include day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society
compliance, arranging the hire of crew and purchasing stores, supplies and spare parts. These expenses are recognized as incurred.
Terminal & Stevedore Expenses
Terminal & Stevedore expenses represent the cost to provide the Company's cargo handling services. Terminal & Stevedore expenses include direct labor
and related costs, the cost of insurance, expenses relating to repairs and maintenance of shore based equipment, trucking, and other direct miscellaneous
expenses.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, trade receivables and derivative
instruments. The Company maintains its cash accounts with various high-quality financial institutions in the United States, Germany, and Bermuda. The
Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company does not believe that significant
concentration of credit risk exists with respect to these cash equivalents. Trade accounts receivable are recorded at the invoiced amount, and do not bear
interest. The Company performs ongoing credit evaluations of its customers’ financial condition, but does not require collateral. Historically, credit risk with
respect to trade accounts receivable has been considered minimal due to the long-standing relationships with significant customers, and their relative
financial stability. However, current economic conditions could impact the collectability of certain customers' trade receivables, which could have a material
effect on the Company's results of operations. Derivative instruments are recorded at fair value. The Company does not have any off-balance sheet credit
exposure related to its customers.
At December 31, 2023, two customers collectively represented 57% of the Company’s trade accounts receivable, one accounted for 35% and the other
accounted for 22%. At December 31, 2022, there were two customers that accounted for 37% of the Company’s trade accounts receivable, one accounted
for 21% and the other accounted for 16%.
At December 31, 2023, twenty-seven customers in the United States, and three customers in Canada, account for 70% of accounts receivable. At
December 31, 2022, fourteen customers in the United States, four customers in Canada, fifteen customers in Singapore, and one customer in Barbados
accounted for 68% of accounts receivable.
For the year ended December 31, 2023, the Company had three countries that accounted for at least 10% of revenue; the United States (thirty-nine
representing 29%), Canada (four representing 15%), and The United Kingdom (thirteen representing 12%). For the year ended December 31, 2022, the
Company had one country that accounted for at least 10% of revenue; the United States (twenty-seven representing 25%).
For the year ended December 31, 2023, two customers accounted for 10% or more of total revenue. For the year ended December 31, 2022, one customer
accounted for 10% or more of total revenue.
Cash and Cash Equivalents
Cash comprises cash on hand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject
to an insignificant risk of change in value, and have original maturities of three months or less.
Allowance for Credit Losses
F-14
The Company provides a specific reserve for significant outstanding accounts that are considered potentially uncollectible in whole or in part. In addition,
the Company’s policy based on experience is to establish a reserve equal to approximately 25% of accounts receivable balances that are 90-360 days past
due and approximately 50% of accounts receivable balances that are 360 or more days past due, and which are not otherwise reserved. The reserve estimates
are adjusted as additional information becomes available, or as payments are made. At December 31, 2023 and 2022, the Company has provided an
allowance for credit losses of $5,657,837 and $4,367,848 respectively, for amounts that are not expected to be fully collected. The provision for credit losses
was $2,938,879 in 2023 and $2,377,389 in 2022. In 2023, the Company had write-offs totaling $1,648,890 as these amounts were deemed uncollectible. In
contrast, there were no write-offs for the Company in 2022.
Bunker Inventory
Inventory is primarily comprised of fuel oil purchased and stored onboard a vessel. Inventory is measured at the lower of cost under the first-in, first-out
method or net realizable value.
Advance Hire, Prepaid Expenses and Other Current Assets
Advance hire represents payment to ship owners under time-charters for days subsequent to the balance sheet date. Hire is typically paid in advance for the
following fifteen days, but intervals vary by time-charter contract. Prepaid expenses include advance funding to the technical manager for vessel operating
expenses, lubricating oils and stores kept on board owned vessels, certain voyage expenses paid in advance and direct costs incurred to fulfill a COA
("Contract of Affreightment"). These specifically identified costs are used to satisfy the contract and are expected to be recovered over the term of the COA.
Such costs are amortized on a straight-line basis and charged equally to each of the voyages under the contract. Accrued receivables include accrued
demurrage and balance of freight receivable. Other assets include deposits held by counterparties to various derivative instruments and the fair value of
derivative instruments when it exceeds the settlement price of the instrument.
At December 31, advance hire, prepaid expenses and other current assets were comprised of the following:
Advance hire
Prepaid expenses
Accrued receivables
Cash margin on deposit
Derivative assets
Other current assets
Total
2023
2022
$
$
2,509,313 $
7,072,634
5,777,596
3,751,257
3,384,137
5,845,309
28,340,246 $
3,491,835
4,777,648
7,721,500
3,239,947
4,892,144
4,143,757
28,266,831
F-15
Other Non-current Assets
At December 31, other non-current assets were comprised of the following:
Name
Intangible Assets - Note 15: Acquisitions
Investment in Seamar Managements S.A.
Investment in Pangaea Logistics Solutions (US) LLC
Investment in Narragansett Bulk Carriers (US) Corp
Other investments
Total
Vessels and Depreciation
2023
2022
$
$
1,777,063 $
706,655
1,667,093
519,975
919,509
5,590,295 $
—
598,725
3,954,605
234,141
496,656
5,284,127
Vessels are stated at cost, which includes contract price and acquisition costs. Significant improvements to vessels are capitalized; maintenance and repairs
that do not improve or extend the lives of the vessels are expensed as incurred. Depreciation is provided using the straight-line method over the remaining
estimated useful lives of the vessels (excluding the time a vessel is in dry dock), based on cost less salvage value. Each vessel’s salvage value is equal to the
product of its lightweight tonnage and an estimated scrap rate of $300 per ton, which was determined by reference to quoted rates and is reviewed annually.
The Company estimates the useful life of its vessels to be 25 years to 30 years from the date of initial delivery from the shipyard. The remaining estimated
useful lives of the current fleet are 11 - 23 years. The Company does not incur depreciation expense when vessels are taken out of service for dry docking.
Vessels held for sale are carried at estimated fair value less cost to sell. No additional depreciation expense is recorded for vessels categorized as held for
sale.
Deferred Drydock Cost
Significant upgrades made to the vessels during dry docking are capitalized when incurred and amortized on a straight-line basis over the 5 year period until
the next dry docking for vessels younger than 15 years, and over the 2.5 year period until next dry docking for vessels older than 15 years at time of dry
docking. Costs capitalized as part of the dry docking include direct costs incurred to meet regulatory requirements that add economic life to the vessel, that
increase the vessel’s earnings capacity or which improve the vessel’s efficiency. Direct costs include the shipyard costs, parts, inspection fees, steel, blasting
and painting. These costs are recorded in Fixed assets, net or Finance lease right of use assets, net on the Consolidated Balance Sheets. Expenditures for
normal maintenance and repairs, whether incurred as part of the dry docking or not, are expensed as incurred. Unamortized dry-docking costs of vessels that
are sold are written off and included in the calculation of the resulting gain or loss on sale.
Long-lived Assets Impairment Considerations
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived
Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. If indicators of impairment are present, we perform
an analysis of the anticipated undiscounted future net cash flows to be derived from the related long-lived assets. Our assessment is made at the asset group
level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by
the Company are defined by vessel size and major characteristic or trade.
The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future time
charter equivalent "TCE" rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated
TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of
the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is
contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company
prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and
address commissions and assume no revenue on scheduled offhire
F-16
days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as
the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage
value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an
impairment charge would be calculated. Measurement of the impairment loss is based on the fair value of the asset as provided by third parties.
In both the first and fourth quarters of 2023, the Company identified triggering events associated with the sale of vessels, where the carrying value exceeded
their fair value. On January 18, 2023, the Company entered into a memorandum of agreement to sell the m/v Bulk Newport for $8.9 million in net
consideration after brokerage commissions, resulting in a recorded loss on sale of $1.2 million in the first quarter of 2023. Similarly, on October 17, 2023,
the Company signed a memorandum of agreement to sell the m/v Bulk Trident for $9.5 million in net consideration after brokerage commissions, resulting
in a loss on sale of $0.6 million in the fourth quarter of 2023.
The Company conducted an impairment analysis on each asset group and determined that the estimated undiscounted future cash flows exceeded their
carrying amounts. Therefore, no additional loss on impairment was recognized. Also the Company concluded that no other triggering event had occurred
during the remaining period of the 2023 which would require impairment testing.
During the first quarter of 2022, the Company determined that a triggering event occurred related to the sale of a vessel, as the carrying value exceeded its
fair value. On April 20, 2022, the Company signed a memorandum of agreement to sell the m/v Bulk Pangaea for a total net consideration of $8.6 million
after brokerage commissions. As a result, we recorded an impairment charge of $3.0 million in the first quarter of 2022. The impairment analysis did not
indicate any impairment on the remaining fleet. Also the Company concluded that no triggering event had occurred during the remaining period of the 2022
which would require impairment testing.
Financing Costs
Qualifying expenses associated with commercial financing and fees paid to financial institutions to obtain financing are carried as a reduction of the
outstanding debt and amortized over the term of the arrangement using the effective interest method. The unamortized portion is included as a reduction of
secured long-term debt on the consolidated balance sheets.
The components of net debt issuance costs and bank fees, which are included in secured long-term debt on the consolidated balance sheets are as follows:
Debt issuance costs and bank fees paid to financial institutions
Less: accumulated amortization
Unamortized debt issuance costs and bank fees
Amortization included in interest expense
Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses are as follows:
Accounts payable
Accrued expenses
Bunkers suppliers
Charter hire payable
Other accrued liabilities
Total
F-17
December 31,
2023
7,599,543 $
(4,109,086)
3,490,457 $
2022
7,627,351
(3,162,492)
4,464,859
946,593 $
1,005,487
December 31,
2023
2022
6,277,693 $
14,038,418
4,393,533
8,112,701
3,013,917
35,836,262 $
9,979,451
11,795,973
6,526,725
9,337,941
914,041
38,554,131
$
$
$
$
$
Taxation
Changes to Bermuda tax policies may impact our financial position. Under current Bermuda law, we are not subject to tax on income, profits, withholding,
capital gains or capital transfers. Furthermore, we obtained from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act
1966 (as amended) (the “EUTP Act”) an assurance that, in the event Bermuda enacts legislation imposing tax computed on profits, income, any capital
asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of the tax will not be applicable to us or our
operations or to our ordinary shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any
taxes payable by us in respect of real property owned or leased by us in Bermuda until March 31, 2035. As a result of changes made to the EUTP Act by the
CIT Act (as defined below), this assurance has been made subject to the application of any taxes pursuant to the CIT Act, as described further below.
In the 2023 Budget, the Bermuda government announced the formation of an International Tax Working Group consisting of specialists in international tax
matters and representatives of various bodies whose members may be directly impacted by such to examine how Bermuda can appropriately implement the
Global Minimum Tax initiative. The Working Group reported its findings and provided recommendations to the Bermuda Government in July 2023. The
Bermuda Government subsequently issued three public consultation papers as part of its considerations on the introduction of a corporate income tax in
Bermuda, on August 8, 2023, October 5, 2023 and November 10, 2023. On December 15, 2023, the Bermuda House of Assembly passed the Corporate
Income Tax Act, 2023 (the “CIT Act”) which was also passed by the Senate on December 18, 2023 and will become fully operative with respect to the
imposition of corporate income tax on January 1, 2025.
Under the CIT Act, Bermuda corporate income tax will be chargeable in respect of fiscal years beginning on or after January 1, 2025 and will apply only to
Bermuda entities that are part of MNE groups with EUR 750 million or more in annual revenues in at least two of the four fiscal years immediately
preceding the fiscal year in question (“Bermuda Constituent Entity Group”). Where corporate income tax is chargeable to a Bermuda Constituent Entity
Group, the amount of corporate income tax chargeable for a fiscal year shall be (1) 15% of the net taxable income of the Bermuda Constituent Entity Group
less (2) tax credits applicable to the Bermuda Constituent Entity Group under Part 4 of the CIT Act, or as prescribed. The CIT Act introduces certain
“qualified refundable tax credits” which are set to be developed during 2024 to incentivize companies to support Bermuda residents through investments in
key areas such as education, healthcare, housing, and other projects to help develop Bermuda’s workforce. Bermuda will continue to monitor further
developments around the world as other jurisdictions address the OECD’s standards.
The imposition of a Bermuda corporate income tax could, if applicable to the Company (or any Bermuda incorporated subsidiary of the Company), have a
material adverse effect on the Company’s financial condition and results of operations.
Pangaea Denmark, a wholly-owned subsidiary of the Company, is subject to a Danish tonnage tax. Pangaea Denmark is not taxed on the basis of their actual
income derived from their business but on an alternative income determination based on the net tons carrying capability of their fleet. As the tax is not
determined based on taxable income, Pangaea Denmark’s tax expense of approximately $417,000 and $443,000 is included within voyage expenses in the
accompanying consolidated statements of income as of December 31, 2023 and 2022, respectively.
Shipping income derived from sources outside the United States is not subject to any Unites States federal income tax. U.S. sourced income from the
international operation of ships that is considered qualified income and earned by a qualified foreign corporation can also be considered exempt from U.S.
federal income taxation. The exemption requires a number of tests be met including qualifying income earned subject to an equivalent exemption in a
qualified country and a qualified foreign corporation meeting the qualified foreign country, qualified income, stock ownership tests and substantiation
requirements. The Company believes it meets all of the tests to qualify for an exemption from income under Internal Revenue Code section 883. To the
extent the Company is unable to qualify for the exemption, the Company would be subject to U.S. federal income taxation of 4% of its U.S. shipping
income on a gross basis without deductions. If certain other conditions are present, as defined in the Code, U.S. source shipping income, net of applicable
deductions, may be subject to federal income tax of up to 21% and a 30% branch profits tax. The company believes that none of its U.S. source shipping
income is effectively connected with the conduct of a U.S. trade or business.
The earnings from shipping operations of the Company are not subject to U.S. or foreign income taxation. However, due to the U.S. based terminal
acquisitions that occurred in June 2023, the company's operations within these terminals is subjected to U.S. income taxation from its US-based operations.
On June 1, 2023, the Company acquired two port terminal operations, one in Baltimore, Maryland and the other in Ft. Lauderdale, Florida. These
acquisitions expanded the Company's income that is subject to United States taxes on fully consolidated companies. Consequently, the Company continues
to record income tax benefit or expense and deferred tax assets or liabilities for the year ended December 31, 2023 and December 31, 2022, which were
immaterial for both periods.
F-18
Where required, the Company complies with income tax filings in its various jurisdictions of operations. As of December 31, 2023 and 2022, the Company
is not subject to U.S. federal or foreign examinations by tax authorities for years before 2018.
Restricted Common Share Awards
Compensation cost of restricted share awards is measured using the grant date fair value of the Company's common shares, as quoted on the Nasdaq Capital
Market, multiplied by the total number of shares granted with no forfeiture rate applied. Compensation cost is amortized according to the vesting period
indicated in the grant agreement. Total compensation cost recognized during the years ended December 31, 2023 and 2022 is $2,087,807 and $1,767,726,
respectively, which is included in general and administrative expenses in the consolidated statements of income.
Dividends
Dividends on common stock are recorded when declared by the Board of Directors. Refer to Note 14, "Stock Incentive Plans and Non-controlling interest"
for additional information related to common stock dividends.
Noncontrolling Interests
Noncontrolling interests represent ownership interests attributable to third parties in certain consolidated subsidiaries and VIEs. The portion of equity not
owned by us in such entities is reflected as Noncontrolling interests within the equity section of the Consolidated Balance Sheets and, in the case
of Redeemable noncontrolling interests, within the long-term liabilities section of the Consolidated Balance Sheets.
Earnings per Common Share
Basic earnings per share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares
outstanding during the period.
Diluted EPS is computed using the treasury stock method. Under this method, the amount of unrecognized compensation cost related to future services by
employees who were awarded restricted shares is assumed to be used to repurchase common stock at the average market price during the period. The
incremental shares (nonvested less repurchased) are considered to be outstanding for diluted EPS. The Company does not have any anti-Dilutive Securities.
Foreign Exchange
The Company conducts all of its business in U.S. dollars; the functional currency of the Company is the US dollar. Accordingly, transactions denominated
in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate in effect on the date of the
transactions. There are no foreign exchange transaction gains or losses reflected in the consolidated statements of income.
Derivatives and Hedging Activities
The Company accounts for derivatives in accordance with the provisions of ASC 815, Derivatives and Hedging. The Company uses interest rate swaps to
reduce market risks associated with its operations, principally changes in variable interest rates on its bank debt. Additionally, the Company uses forward
freight agreements to protect against changes in charter rates and bunker (fuel) swaps to protect against changes in fuel prices. The Company’s interest rate
swaps, forward freight agreements (FFAs) and bunker swaps have not qualified for hedge accounting treatment. As such, unrealized gains or losses are
recognized as a component of Other expense in the Consolidated Statements of Income. Derivative instruments are measured at fair value and are recorded
as assets or liabilities.
The Company is exposed to credit loss in the event of nonperformance by the counterparty to the interest rate swaps, forward freight agreements and bunker
hedges.
F-19
Segment Reporting
Operating segments are components of a business that are evaluated regularly by the chief operating decision maker ("CODM") for the purpose of assessing
performance and allocating resources. Based on the information that the CODM uses, including consideration of whether discrete financial information is
available for the business activities, the Company has identified multiple operating segments which have been aggregated based on considerations such as
the nature of its services, customers, operations and economic characteristics. The Company has determined that it operates under one reportable segment.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value due to the short-term
maturities of these instruments. The carrying amount of the Company’s floating rate long-term debt approximates its fair value due to the variable interest
rates associated with these related credit facilities.
At December 31, 2023, the Company has six fully fixed rate debt facilities. At December 31, 2022, the Company has five fully fixed rate debt facilities and
one facility which was fixed in part. The aggregate carrying amounts and fair values of the long-term debt associated with the fixed rate borrowing
arrangements are as follows:
Carrying amount of fixed rate long-term debt
Fair value of fixed rate long-term debt
December 31,
2023
100,251,477 $
92,792,065 $
$
$
2022
113,589,539
103,455,979
Fair values of these debt obligations were estimated based on quoted market prices for the same or similar issues of debt with the same remaining
maturities, which is considered Level 2 in the fair value hierarchy established by ASC 820.
Leases
During time charter agreements, the charterers have substantive decision-making rights to direct how and for what purpose the vessel is used. As such, the
Company had identified that time charter agreements contain a lease. Accordingly, the Company accounts for amounts earned under these agreements in
accordance with Topic 842. During time charter agreements, the Company is responsible for operating and maintaining the vessels. These costs are recorded
as vessel operating expense in the Consolidated Statements of Income.
At December 31, 2023, the Company had ten vessels chartered to customers under time charters that contain leases. These 10 leases varied in original
length from 21 days to 180 days. At December 31, 2023, lease payments due under these arrangements totaled approximately $12,525,000 and each of the
time charters were due to be completed in one hundred eighty days or less.
At December 31, 2022, the Company had four vessels chartered to customers under time charters that contain leases. These four leases varied in original
length from 20 days to 105 days. At December 31, 2022, lease payments due under these arrangements totaled approximately $2,789,000 and each of the
time charters were due to be completed in one hundred five days or less.
The Company does not have any sales-type or direct financing leases.
Adoption of the lessee provisions of this guidance did not have a material impact on the Company's consolidated financial statements because the Company
does not have any vessels chartered in (operating leases) for longer than one year and the practical expedient relating to leases with terms of 12 months or
less was elected. Furthermore, the Company's finance lease right of use assets and finance lease liabilities were referred to as "assets under finance lease"
and "obligations under finance leases" in prior period financial statements, but no other changes resulted from adoption of the standard. In addition, the
Company has four non-cancelable office leases and non-cancelable office equipment leases and the lease assets and liabilities are not material.
Recently issued accounting standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies.
Recently issued standards typically do not require adoption until a future effective date. Prior to
F-20
their effective date, the Company evaluates the pronouncements to determine the potential effects of adoption on our consolidated financial statements.
As of January 1, 2023, we adopted ASU No. 2016-13, "Financial Instruments—Credit Losses" ("ASU 2016-13"). ASU 2016-13 amends the current
financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain
types of financial instruments, including trade receivables. The adoption of the accounting standard did not have any material impact on our consolidated
financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting,” which provides optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging
relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January
2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which clarified that certain optional expedients and exceptions in
Topic 848 apply to derivatives that are affected by the discounting transition due to reference rate reform. In December 2022, the FASB issued ASU No.
2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31,
2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief under Topic 848. The Company is currently evaluating the
impact that adopting this new accounting standard will have on its consolidated financial statements and related disclosures.
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements to
Reportable Segment Disclosures (“ASU 2023-07”), which amends the existing segment reporting guidance (ASC Topic 280 — Segment Reporting (“ASC
280”)) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly
provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount for other
segment items by reportable segment and a description of its composition, the title and position of the CODM and an explanation of how the CODM uses
the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. In addition, companies with a
single reporting segment will have to provide all of the disclosures required by ASC 280, including the significant segment expense disclosures.
The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after
December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of our pending adoption of this standard on its financial
statement disclosures.
NOTE 4 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term deposits with an original maturity of less than three months. The following table provides a reconciliation of
cash and cash equivalents reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of
cash flows:
Money market accounts – cash equivalents
(1)
Time deposit accounts - cash equivalents
Cash
(2)
Total cash and cash equivalents
December 31, 2023
December 31, 2022
$
$
38,556,005 $
10,206,500
50,275,361
99,037,866 $
33,689,361
46,000,000
48,695,245
128,384,606
(1)
(2)
It consists of cash deposits at various major banks with interest rates ranging from 5.48% to 5.69%.
It consists of cash deposits at various major banks.
F-21
As of December 31, 2023 and December 31, 2022, we held cash and cash equivalents in the following subsidiaries:
(1)
Cash and cash equivalents
Pangaea
(2)
NBHC
NBP and Deck Barge
(3)
Total cash and cash equivalents
December 31, 2023
December 31, 2022
$
$
81,652,679 $
11,948,547
5,436,640
99,037,866 $
85,398,332
34,718,529
8,267,745
128,384,606
(1)
(2)
(3)
Held by 100% owned Pangaea consolidated subsidiaries
Held by a 67% owned Pangaea consolidated subsidiary
Held by a 50% owned Pangaea consolidated subsidiary
NOTE 5 - VARIABLE INTEREST ENTITIES
The Company has evaluated all of its wholly and partially-owned entities, as well as entities with common ownership or other relationships, pursuant to
ASC 810. A summary of the Company’s consolidation policy is provided in Note 3. The Company has concluded that Bulk Trident, Bulk Phoenix, Bulk
Freedom, Bulk Pride, Bulk PODS, Bulk Spirit, Bulk Independence, Bulk Friendship, Bulk Courageous, Bulk Valor, Bulk Promise, Phoenix Bulk 25, Bulk
Sachuest, Bulk Prudence, NBV, Long Wharf, NBHC, BVH, NBP, FVL, VBC, VNLN and Pangaea Logistics Solutions (US) LLC are the VIEs at
December 31, 2023. The Company has concluded that Bulk Pangaea, Bulk Trident, Bulk Phoenix, Bulk Freedom, Bulk Pride, Bulk PODS, Bulk Spirit,
Bulk Independence, Bulk Friendship, Bulk Courageous, Bulk Valor, Bulk Promise, Phoenix Bulk 25, Bulk Sachuest, NBV, Long Wharf, NBHC, BVH,
NBP, FVL, VBC, and VNLN are the VIEs at December 31, 2022. We consolidate a VIE when we have a variable interest in an entity for which we are the
primary beneficiary such that we have (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and
(ii) the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. The results of operations
and financial position of these VIEs are included in our consolidated financial statements.
The aggregate carrying values of the VIEs’ assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated
balance sheets were as follows:
(Dollars in millions, figures may not foot due to
rounding)
Total assets
Total liabilities
Total stockholders' (deficit)/equity
Non-controlling interest
(2)
December 31, 2023
Ship-owning
(1)
$
$
$
$
100.3 $
101.6 $
(1.3) $
— $
NBHC
NBV
Long Wharf
VLNL
NBP
PANL US
96.5 $
50.4 $
46.2 $
45.3 $
53.3 $
22.9 $
30.3 $
— $
1.9 $
1.9 $
— $
— $
0.6 $
0.1 $
0.6 $
1.1 $
144.1 $
135.6 $
8.5 $
— $
3.2
1.1
2.2
—
(Dollars in millions, figures may not foot due to
rounding)
Total assets
Total liabilities
Total stockholders' (deficit)/equity
Non-controlling interest
(2)
Ship-owning
(1)
$
$
$
$
116.6 $
123.4 $
(6.8) $
— $
NBHC
NBV
Long Wharf
VLNL
NBP
PANL US
128.1 $
57.8 $
70.3 $
53.3 $
62.3 $
30.2 $
32.1 $
— $
1.9 $
1.9 $
— $
— $
0.5 $
— $
0.5 $
1.2 $
152.0 $
143.9 $
8.1 $
— $
—
—
—
—
December 31, 2022
(1)
(2)
Includes all wholly-owned subsidiaries, refer to Note 2 "Nature of Organization" for additional information.
Non-controlling interest is held by third parties.
F-22
NOTE 6 - FIXED ASSETS
At December 31, fixed assets consisted of the following:
Vessels and vessel upgrades
Capitalized dry docking
Accumulated depreciation and amortization
Vessels, vessel upgrades and capitalized dry docking, net
Land and building
Computers, equipment and internal use software
Other fixed assets
Accumulated depreciation
Other fixed assets, net
$
2023
576,153,211 $
18,408,282
594,561,493
(124,477,977)
470,083,516
2,571,585
4,147,346
6,718,931
(2,537,276)
4,181,655
2022
565,107,408
15,409,851
580,517,259
(106,652,852)
473,864,407
2,541,085
2,311,076
4,852,161
(2,191,816)
2,660,345
Total fixed assets, net
$
474,265,171 $
476,524,752
At December 31, vessels under finance leases consisted of the following:
Vessels under finance lease
Accumulated depreciation and amortization
Vessels under finance lease, net
2023
40,933,207
(10,539,384)
2022
56,061,223
(12,139,654)
30,393,823 $
43,921,569
$
$
F-23
The net carrying value of the Company’s fleet consists of the following:
Owned vessels
(2) (4)
(2) (4)
(1)
(1)
(1)
(1)
(1)
(1)
(2) (4)
m/v NORDIC ODYSSEY
m/v NORDIC ORION
m/v NORDIC OSHIMA
m/v NORDIC OLYMPIC
m/v NORDIC ODIN
m/v NORDIC OASIS
m/v NORDIC NULUUJAAK
(2) (4)
m/v NORDIC QINNGUA
m/v NORDIC SANNGIJUQ
m/v NORDIC SIKU
m/v BULK ENDURANCE
m/v BULK PRUDENCE
m/v BULK COURAGEOUS
m/v BULK CONCORD
m/v BULK NEWPORT
m/v BULK FREEDOM
m/v BULK PRIDE
m/v BULK SPIRIT
m/v BULK SACHUEST
m/v BULK INDEPENDENCE
m/v BULK FRIENDSHIP
m/v BULK VALOR
m/v BULK PROMISE
MISS NORA G. PEARL
(4)
(4)
(4)
(3)
(4)
Other fixed assets, net
Total fixed assets, net
m/v BULK XAYMACA
m/v BULK DESTINY
m/v BULK TRIDENT
Vessels under finance lease
(4)
December 31,
2023
2022
18,949,524
19,789,942
22,938,264
23,306,330
23,411,836
24,853,935
36,088,312
36,018,502
35,623,004
36,009,984
21,859,034
26,533,530
15,145,246
18,965,726
—
8,150,075
11,194,335
12,970,111
16,487,253
13,752,517
12,810,712
16,434,083
16,970,026
1,821,235
470,083,516 $
4,181,655
474,265,171 $
20,685,092
21,406,429
24,292,108
24,627,857
24,726,033
26,232,723
37,518,857
37,428,322
37,000,230
37,393,171
23,106,438
—
15,755,839
19,394,966
10,211,578
7,464,118
12,174,942
11,703,170
17,188,278
14,879,681
13,680,578
17,106,444
17,619,467
2,268,086
473,864,407
2,660,345
476,524,752
11,623,719
18,770,104 $
—
30,393,823 $
13,082,596
19,814,777
11,024,196
43,921,569
$
$
$
$
(1)
2022.
(2)
(3)
(4)
Vessels are owned by NBHC, a consolidated joint venture in which the Company has a two-third ownership interest at December 31, 2023 and December 31,
Vessels are owned by NBP, a consolidated joint venture in which the Company has a 50% ownership interest at December 31, 2023 and 2021.
Barge is owned by a 50% owned consolidated subsidiary.
Refer to Note 10, "Finance Leases," of our Financial Statements for additional information related to the vessels under finance lease.
F-24
The Company capitalized dry-docking costs on three vessels in 2023 and four vessels in 2022. The amortization period of the capitalized dry docking costs
is within the remaining useful life of these vessels and is amortized over the estimated period to next drydocking. The Company capitalized drydocking
costs totaling $4.2 million and $6.0 million in the twelve months ended December 31, 2023 and 2022, respectively. These costs are recorded in Fixed assets,
net or Finance lease right of use assets, net in the Consolidated Balance Sheets.
F-25
NOTE 7 - MARGIN ACCOUNTS, DERIVATIVES AND FAIR VALUE MEASURES
Margin Accounts
During December 31, 2023 and 2022, the Company was party to forward freight agreements and fuel swap contracts in order to mitigate the risk associated
with volatile freight rates and fuel prices. Under the terms of these contracts, the Company is required to deposit funds in margin accounts if the market
value of the hedged item declines. The funds are required to remain in margin accounts as collateral until the market value of the items being hedged return
to preset limits. The margin accounts are included in advance hire, prepaid expenses and other current assets in the consolidated balance sheets at
December 31, 2023 and 2022.
Forward Freight Agreements
The Company assesses risk associated with fluctuating future freight rates and, when appropriate, hedges identified economic risk with appropriate
derivative instruments, specifically FFAs. These economic hedges do not usually qualify for hedge accounting under ASC 815 and as such, the usage of
such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis.
Fuel Swap Contracts
The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker
hedging program. The Company enters into fuel swap contracts that are not designated for hedge accounting under ASC 815 and as such, the usage of such
derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis.
Interest rate cap
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To
accomplish these objectives, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.
Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the
contract. In January 2020, the Company entered into four interest rate cap contracts with total notional amount of $115.04 million as of December 31, 2023
at a cost of $628,000 to mitigate the risk associated with increases in interest rates on our sale and lease back financing arrangements of the four new-
building vessels. In the event that the three-month SOFR rate rises above the applicable strike rate of 3.51%, the Company would receive quarterly
payments related to the spread difference. These interest rate cap agreements do not qualify for hedge accounting treatment.
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent
third-party valuation specialist based on published indices. Such quotes represent the estimated amounts the Company would receive or pay to terminate the
contracts. The interest rate caps contracts are valued using analysis obtained from independent third party valuation specialists based on market observable
inputs, representing Level 2 assets.
The following table summarizes assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and December 31, 2022:
Asset Derivative
Liability Derivative
Derivative instruments
Balance Sheet
Location
Margin accounts
(1)
Other current assets
Forward freight agreements
(2)
Other current assets
Fuel swap contracts
(2)
Other current assets
Interest rate cap
(2)
Other current assets
$
$
$
$
12/31/2023
12/31/2022
3,751,257 $
3,239,947
— $
— $
—
—
3,384,137 $
4,892,144
Balance Sheet
Location
Other current
liabilities
Other current
liabilities
Other current
liabilities
Other current
liabilities
12/31/2023
12/31/2022
— $
—
1,217,820 $
164,787
523,233 $
158,926
— $
—
$
$
$
$
F-26
(1)
(2)
The fair value measurements were all categorized within Level 1 of the fair value hierarchy.
These fair value measurements were all categorized within Level 2 of the fair value hierarchy.
The three levels of the fair value hierarchy established by ASC 820, Fair Value Measurements and Disclosures, in order of priority are as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 fair value measurements include cash, money-market accounts and
time deposit accounts.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions).
The following table presents the effect of our derivative financial instruments on the consolidated statements of operations for the twelve months ended
December 31, 2023 and 2022:
Derivative instruments
Forward freight agreements
Fuel Swap Contracts
Interest rate cap
Unrealized gain (loss) on derivative instruments
For the year ended December 31,
2023
2022
$
$
$
(1,053,033) $
(364,307) $
(1,508,007) $
(2,284,368)
(1,206,679)
4,173,370
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent
third-party valuation specialist. Such quotes represent the estimated amounts the Company would receive to terminate the contracts.
F-27
NOTE 8 - RELATED PARTY TRANSACTIONS
Amounts and notes payable to related parties consist of the following:
Included in accounts payable and accrued expenses on the consolidated
balance sheets:
Trade payables due to Seamar
(i)
$
1,643,806 $
(153,746) $
1,490,060
December 31, 2022
Activity
December 31, 2023
i.
Seamar Management S.A. ("Seamar") Seamar Management S.A. ("Seamar") is a joint venture of which the Company owns 51% at December 31, 2023 and 2022.
Under the terms of a technical management agreement between the Company and Seamar Management S.A. (Seamar), an equity method investee, Seamar
is responsible for the day-to-day operation of some of the Company’s owned vessels. During the years ended December 31, 2023 and 2022, the Company
incurred technical management fees of $3,328,800 and $3,280,920 under this arrangement, which is included in vessel operating expenses in the
consolidated statements of income. The total amounts payable to Seamar at December 31, 2023 and 2022, (including amounts due for vessel operating
expenses), were $1,490,060 and $1,643,806, respectively.
F-28
NOTE 9 - SECURED LONG-TERM DEBT
Long-term debt consists of the following:
(2) (3)
Bulk Nordic Odyssey (MI) Corp., Bulk Nordic Orion (MI) Corp.
Senior Secured Term Loan Facility
Bulk Nordic Oshima (MI) Corp., Bulk Nordic Odin (MI) Corp., Bulk
Nordic Olympic (MI) Corp., Bulk Nordic Oasis (MI) Corp. Secured
Term Loan Facility
The Amended Senior Facility - Dated May 13, 2019 (formerly The
Amended Senior Facility - Dated December 21, 2017)
(2) (3)
(4)
December 31,
2023
December 31,
2022
Interest Rate (%)
(1)
Maturity Date
$
12,512,080 $
14,395,409
2.95 %
December 2027
39,800,000
44,600,000
3.38 %
June 2027
– Bulk Nordic Six Ltd. - Tranche A
(2)
9,033,325
10,099,993
– Bulk Nordic Six Ltd. - Tranche B
– Bulk Pride - Tranche C
– Bulk Independence - Tranche E
(2)
(2)
Bulk Valor Corp. Loan and Security Agreement
Bulk Promise Corp.
Bulk Sachuest
(2)
(2)
(2)
109 Long Wharf Commercial Term Loan
Total
Less: unamortized bank fees
(5)
Less: current portion
Secured long-term debt, net
—
1,900,000
9,500,000
10,087,642
9,685,334
7,733,094
—
100,251,475 $
(1,053,440)
99,198,035 $
(30,751,726)
68,446,309 $
$
$
$
2,070,000
3,000,000
10,500,000
11,424,507
11,069,630
8,500,000
374,466
116,034,005
(1,431,736)
114,602,269
(15,782,530)
98,819,739
4.39 %
— %
5.39 %
3.54 %
3.29 %
5.45 %
6.19 %
— %
May 2024
Paid in full in
January 10, 2023
May 2024
May 2024
June 2028
October 2027
October 2029
Paid in full in
January 24, 2023
(1)
(2)
(3)
(4)
(5)
As of December 31, 2023.
Interest rates on the loan facilities are fixed.
The borrowers under this facility are owned by NBHC. The Company has two-third's ownership interest and STST has one-third ownership interest in NBHC.
NBHC is consolidated in accordance with ASC 810-10 and as such, amounts pertaining to the non-controlling ownership held by the third parties in the financial
position of NBHC are reported as non-controlling interest in the accompanying balance sheets.
This facility is cross-collateralized by the vessels m/v Bulk Endurance, m/v Bulk Pride, and m/v Bulk Independence and is guaranteed by the Company.
A portion of unamortized debt issuance costs were reclassified as a reduction of the finance leases liabilities. Refer to Note 10 "Finance Leases" for additional
information.
The Bulk Nordic Odyssey (MI) Corp., Bulk Nordic Orion (MI) Corp. Senior Secured Term Loan Facility - Dated December 23, 2020.
The agreement advanced $18,000,000 in respect of the m/v Nordic Odyssey and m/v Nordic Orion. The agreement requires repayment of the
advance in 28 equal quarterly principal and interest installments of $571,821 beginning on March 23, 2021 and a balloon payment of $4,400,000
due with the final installment in December 2027. Interest on this advance is fixed at 2.95%.
The loan is secured by a first preferred mortgage on the m/v Nordic Odyssey and m/v Nordic Orion, the assignment of earnings, insurances and
requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio
clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain
above defined ratios. As of December 31, 2023 and 2022 the Company was in compliance with its financial covenants.
F-29
Bulk Nordic Oshima (MI) Corp., Bulk Nordic Odin (MI) Corp., Bulk Nordic Olympic (MI) Corp., and Bulk Nordic Oasis (MI) Corp. Facility Agreement
dated April 26, 2021
On April 26, 2021, NBHC entered into a new Senior Secured Term Loan Facility with two new lenders. The agreement advanced $53.0 million in
respect of the m/v Nordic Oshima, m/v Nordic Olympic, m/v Nordic Odin and m/v Nordic Oasis. The agreement requires repayment of the
advance in 24 equal quarterly principal installments of $1,200,000 beginning on June 15, 2021 and a balloon payment of $24,200,000 due in
March 2027. Interest on this advance is fixed at 3.38% effective May 5, 2021. The Loan is secured by a first lien on m/v Nordic Bulk Oshima, m/v
Nordic Bulk Odin, m/v Nordic Bulk Olympic and m/v Nordic Bulk Oasis. The Company used a portion of the proceeds of the loan to repay the
outstanding balance of $51.5 million for the Nordic Oshima, Nordic Odin, Nordic Olympic and Nordic Oasis loan facilities which was set to
mature on October 1, 2021. As of December 31, 2023 and 2022 the Company was in compliance with its financial covenants.
The Amended Senior Facility - Dated May 13, 2019 (previously identified as The Amended Senior Facility - Dated December 21, 2017)
On May 13, 2019, the Company, through its wholly owned subsidiaries, Bulk Endurance, Bulk Pride and Bulk Independence entered into the
Second Amendatory Agreement, (the "Second Amendment"), amending and supplementing the First Amendatory Agreement dated December 17,
2017. The Second Amendment advanced $14,000,000 under Tranche E in respect to the m/v Bulk Independence, extended maturity dates on
Tranche A, B, and C to May 2024, and reduced applicable interest rate margin on Tranche A, B, and C to 1.70% for the first eight quarters
following the drawdown of Tranche E, and 2.40% thereafter.
Bulk Endurance Tranche A and B
The amended agreement advanced $19,500,000 in respect of the m/v Bulk Endurance on January 7, 2017, in two tranches. The agreement
requires repayment of Tranche A, totaling $16,000,000, in three equal quarterly installments of $100,000 beginning on April 7, 2017 and
27 equal quarterly installments of $266,667. A balloon payment of $8,766,658 is due with the final installment in May 2024, resulting in
its reclassification to the current portion of long-term debt. Interest on this advance was fixed at 3.69% through March 2021, fixed at
4.39% through December 2021, and fixed at 3.46% thereafter. The agreement also advanced $3,500,000 under Tranche B, which is
payable in 28 equal quarterly installments of $65,000 beginning on September 27, 2017, and a balloon payment of $1,745,000 due with
the final installment in May 2024. Interest on this advance is floating at LIBOR plus 1.70% (3.63% at December 31, 2022) through March
2021, and thereafter at LIBOR plus 2.4%. The loan was repaid in full on January 10, 2023.
Bulk Pride Tranche C and D
The amended agreement advanced $10,000,000 in respect of the m/v Bulk Pride on December 21, 2017, in two tranches. The agreement
requires repayment of Tranche C, totaling $8,500,000, in 26 equal quarterly installments of $275,000 beginning in March 2018 and a
balloon payment of $1,350,000 due with the final installment in May 2024, resulting in its reclassification to the current portion of long-
term debt. Interest on this advance was fixed at 4.69% through March 2021, fixed at 5.39% through December 2021, and fixed at 3.6%
thereafter. The agreement also advanced $1,500,000 under Tranche D, which is payable in 4 equal quarterly installments of $375,000
beginning in September 2018. Tranche D was fully repaid in June 2019.
Bulk Independence Tranche E
The amended agreement advanced $14,000,000 under Tranche E in respect of the m/v Bulk Independence on May 13, 2019, which
requires repayment of 20 equal quarterly installments of $250,000 beginning in September 2019 and a balloon payment of $9,000,000 due
with the final installment in May 2024, resulting in its reclassification to the current portion of long-term debt. Interest on this advance
was fixed at 3.48% through March 31, 2020, fixed at 2.84% through December 31, 2021 and fixed at 3.54% thereafter.
The loan is secured by first preferred mortgages on the m/v Bulk Endurance, the m/v Bulk Pride and the m/v Bulk Independence, the
assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the
agreement contains a minimum liquidity requirement, positive working capital of the borrower and a collateral maintenance ratio clause
which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to
F-30
remain above defined ratios. At December 31, 2023 and 2022, the Company was in compliance with these covenants.
The Bulk Freedom Corp. Loan Agreement -- Dated June 14, 2017
The agreement advanced $5,500,000 in respect of the m/v Bulk Freedom on June 14, 2017. The agreement requires repayment of the loan in 8
quarterly installments of $175,000 and 12 quarterly installments of $150,000 beginning on September 14, 2017. A balloon payment of $2,300,000
is due on June 14, 2022 with the final installment. The loan was repaid in full on June 13, 2022.
109 Long Wharf Commercial Term Loan
Initial amount of $1,096,000 entered into on May 27, 2016. The Long Wharf Construction to Term Loan was repaid from the proceeds of this new
facility. The loan is payable in 120 equal monthly installments of $9,133. Interest is floating at the 30 day LIBOR plus 2.00%. The loan is
collateralized by all real estate located at 109 Long Wharf, Newport, RI, and a corporate guarantee of the Company. The loan contains a maximum
loan to value covenant and a debt service coverage ratio. The loan was repaid in full on January 25, 2023. At December 31, 2022, the Company
was in compliance with these covenants.
The Bulk Valor Corp. Loan Agreement -- Dated June 17, 2021
The agreement advanced $13,350,000 in respect of the m/v Bulk Valor on June 17, 2021. The agreement requires repayment of the loan in 28
quarterly installments commencing on September 17, 2021. A balloon payment of $3,500,000 is due on June 17, 2028. Interest on this advance is
fixed at 3.29%. The loan is secured by a first preferred mortgage on the m/v Bulk Valor, the assignment of earnings, insurances and requisite
compensation of the entity, and by guarantees of its shareholders. As of December 31, 2023 and 2022 the Company was in compliance with its
financial covenants.
The Bulk Promise Corp. Loan Agreement -- Dated July 12, 2021
The agreement advanced $12,800,000 in respect of the m/v Bulk Promise on July 7, 2021. The agreement requires repayment of the loan in 24
quarterly installments of $346,074 commencing on October 15, 2021. A balloon payment of $4,494,224 is due on October 15, 2027. Interest on
this advance was fixed at 5.45% on July 15, 2022 through maturity. Interest on this advance was floating at three-month LIBOR plus 2.30% prior
to July 15, 2022. The loan is secured by a first preferred mortgage on the m/v Bulk Promise, the assignment of earnings, insurances and requisite
compensation of the entity, and by guarantees of its shareholders. As of December 31, 2023 and 2022 the Company was in compliance with its
financial covenants.
The Bulk Sachuest Corp. Loan Agreement -- Dated October 13, 2022
The agreement advanced $8,500,000 in respect of the m/v Bulk Sachuest on October 13, 2022. The agreement requires repayment of the loan in 27
quarterly installments commencing on January 13, 2023. A balloon payment is due on October 13, 2029. Interest on this advance is fixed at 6.19%.
The loan is secured by a first preferred mortgage on the m/v Bulk Sachuest, the assignment of earnings, insurances and requisite compensation of
the entity, and by guarantees of its shareholders. As of December 31, 2023 and 2022 the Company was in compliance with its financial covenants.
F-31
The future minimum annual payments under the debt agreements are as follows:
2024
2025
2026
2027
2028
Thereafter
NOTE 10 - FINANCE LEASES
Years ending December 31,
30,751,726
$
10,476,019
10,638,024
39,955,014
5,322,454
3,108,240
100,251,477
$
At December 31, 2023, the Company's fleet includes three vessels (Bulk Xaymaca, Bulk Destiny, and Bulk Trident) financed under sale and leaseback
financing arrangements accounted for as finance leases in accordance with ASC 840, prior to adoption of ASC 842 on January 1, 2019. Bulk Spirit, Bulk
Friendship, Bulk Courageous, Bulk Concord, Nordic Nuluujaak, Nordic Qinngua, Nordic Sanngijuq and Nordic Siku are under finance leases in accordance
with ASC 842. These leases are secured by the assignment of earnings and insurances and by guarantees of the Company. The Company will own these
vessels at the end of lease term.
Bulk Trident Bareboat Charter Agreement dated June 7, 2018
The selling price of the m/v Bulk Trident was $13.0 million and the fair value was estimated to be the same. The Company simultaneously leased the vessel
back from the buyer. The minimum lease payments fluctuate based on three-month LIBOR and are payable monthly over the eight-year lease term. The
lessor has transitioned from 3-month LIBOR to 3-month SOFR starting from July 1, 2023. The Company has the option to purchase the vessel at the end of
the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. The Company will own this vessel at the end
of the lease term. On October 6, 2023, the Company exercised its purchase option on the m/v Bulk Trident lease for approximately $4.6 million, and the
transaction was completed on November 14, 2023.
Bulk PODS Bareboat Charter Agreement dated August 1, 2018
The selling price of the m/v Bulk PODS was $14.8 million and the fair value was estimated to be the same. The Company simultaneously leased the vessel
back from the buyer. The minimum lease payments fluctuate based on three-month LIBOR and are payable monthly over the eight-year lease term. The
lessor has transitioned from 3-month LIBOR to 3-month SOFR starting from July 1, 2023. The Company has the option to purchase the vessel at the end of
the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. Interest is floating at SOFR plus 1.96%
(7.33% including the margin, at December 31, 2023). The Company will own this vessel at the end of the lease term. The m/v Bulk Pods was renamed to
m/v Bulk Xaymaca in February of 2022.
Bulk Spirit Bareboat Charter Agreement dated March 7, 2019
In February 2019, the Company acquired the m/v Bulk Spirit for $13.0 million, which is the estimated fair value and simultaneously entered into a failed
sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because
control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease transfers
ownership of the vessel to the Company by the end of the lease term. The minimum lease payments include interest at 5.10% for the first five years. Interest
fluctuates based on the three-month LIBOR for the remaining three years of the eight-year lease term. The Company has the option to purchase the vessel at
the end of the second year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. The Company is obligated to
repurchase the vessel at the end of the lease term. A balloon payment of $3.9 million is due with the final lease payment in March 2027. This lease is
secured by the assignment of earnings and insurances and by a guarantee of the Company.
Bulk Friendship Bareboat Charter Agreement dated May 14, 2019
F-32
In September 2019, the Company acquired the m/v Bulk Friendship for $14.1 million, which is the estimated fair value and simultaneously entered into a
failed sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606,
because control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease
includes a fixed price purchase option, which the Company expects to exercise at the end of the lease term. The minimum lease payments include imputed
interest at 5.29%. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the
lessor, at any time during the lease term. In the event the Company has not exercised any of the purchase options during the term of the charter then the
Company shall have a final purchase option to purchase the vessel at the end of the fifth year at a fixed price of $7.8 million. This lease is secured by the
assignment of earnings and insurances and by a guarantee of the Company.
Bulk Nordic Five Ltd. Amendment and Restatement of Bareboat Charter Agreement dated July 1, 2021
On July 6, 2021, the Company, through its wholly owned subsidiary, Bulk Nordic Five Ltd., and the existing lender agreed to amend and restate the original
Bareboat Charter dated October 27, 2016. The amended agreement extends the lease maturity date to April 2028 with a purchase obligation of
$6.95 million. The Company also fixed the interest rate through maturity at 3.97%. The bareboat charter party is secured by a first preferred mortgage on
the m/v Bulk Destiny, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. The Company
will own this vessel at the end of the lease term. The lease contains a minimum liquidity requirement, positive working capital of the lessee and a collateral
maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to
remain above defined ratios. At December 31, 2023 and 2022, the Company was in compliance with these covenants.
Bulk Courageous Corp Bareboat Charter Agreement dated April 8, 2021
In April 2021, the Company took delivery of the m/v Bulk Courageous for $16.5 million and simultaneously entered into a failed sale and leaseback of the
vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because control of the vessel was
not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease includes a fixed price purchase obligation
at the end of the lease term. The minimum lease payments fluctuate based on three-month LIBOR and are payable quarterly over the seven-year lease term.
Interest is floating at three-month LIBOR plus 2.75%. On July 8th, 2021, the company fixed interest on the lease at 3.93%. The Company has the option to
purchase the vessel in the case of default by the lessor, at any time during the lease term. The purchase obligation at the end of the lease term is at a fixed
price of $3.6 million. This lease is secured by the assignment of earnings and insurances and by a guarantee of the Company.
Bulk Concord Bareboat Charter Agreement dated January 27, 2022
In February 2022, the Company acquired the m/v Bulk Concord for $19.9 million, which is the estimated fair value, and simultaneously entered into a failed
sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because
control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease includes a fixed
price purchase option, which the Company expects to exercise at the end of the lease term. The minimum lease payments include imputed interest at 4.67%.
The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time
during the lease term. In the event the Company has not exercised any of the purchase options during the term of the charter then the Company shall have a
final purchase option to purchase the vessel at the end of the seventh year at a fixed price of $3.0 million. This lease is secured by the assignment of
earnings and insurances and by a guarantee of the Company.
Bulk Nordic Seven LLC, Bulk Nordic Eight LLC, Bulk Nordic Nine LLC and Bulk Nordic Ten LLC Bareboat Charter Agreements dated September 27, 2019
During 2021, the Company took delivery of four new post-Panamax dry bulk vessels and simultaneously entered into the failed sale and leasebacks of the
vessels. These vessels are: 1) m/v Nordic Nuluujaak delivered on May of 2021 with a purchase price of $38.4 million, 2) m/v Nordic Qinngua delivered on
June of 2021 with a purchase price of $38.4 million, 3) m/v Nordic Sanngijuq delivered on September of 2021 with a purchase price of $37.9 million, and
4) m/v Nordic Siku delivered on November of 2021 with a purchase price of $37.9 million. The Company determined that the transfers of these vessels to
the lessor were not sales in accordance with ASC 606, because control of the vessels were not transferred to the lessor. These leases are classified as finance
leases in accordance with ASC 842, because these leases include a fixed price purchase obligation at the end of the lease term.
F-33
The lease agreements obligate the Company to sell the vessels upon completion of construction at the lesser of approximately $32 million or 85% of fair
market value at closing. Following the sales, the Company was obligated to charter the vessels from the buyer under a bareboat charter for a period of 15
years from the date of delivery with a fixed purchase price of $2.5 million each at the end of lease term. The minimum lease payments fluctuate based on
three-month LIBOR and are payable monthly over the fifteen-year lease term. The lessor has transitioned from 3-month LIBOR to 3-month SOFR starting
from July 1, 2023. Interest is floating at three-month SOFR plus 3.81% (9.16% including the margin, at December 31, 2023). The Company has the option
to purchase these vessels starting in year 5 at 101% of then outstanding principal. These leases are secured by the assignment of earnings and insurances and
by a guarantee of the Company.
Finance lease consists of the following as of December 31, 2023:
December 31, 2023 December 31, 2022
(unaudited)
Interest Rate
(%)
(1)
Maturity Date
Bulk PODS Ltd.
$
4,763,020 $
6,606,770
7.33 %
(4)
(2)
(3)
(2)
Bulk Trident Ltd.
Bulk Spirit Ltd.
Bulk Nordic Five Ltd.
Bulk Friendship Corp.
Bulk Nordic Seven LLC
(3)
Bulk Nordic Eight LLC
Bulk Nordic Nine LLC
(3)
Bulk Nordic Ten LLC
Bulk Courageous Corp.
Phoenix Bulk 25 Corp.
Total
Less: unamortized issuance costs, net
(2)
(2)
(3)
Less: current portion
Secured long-term debt, net
—
7,486,979
11,595,861
8,471,002
28,482,063
28,473,392
28,591,644
28,712,632
9,000,000
12,097,410
167,674,003 $
(2,437,012)
165,236,991 $
(21,970,124)
143,266,867 $
5,551,836
8,627,604
13,142,885
9,507,875
30,100,318
30,088,514
30,163,750
30,276,595
10,200,000
13,645,990
187,912,137
(3,033,123)
184,879,014
(16,365,075)
168,513,939
$
$
$
December 2027
Paid in full in
November 14, 2023
February 2027
April 2028
5.10 %
3.97 %
5.29 % September 2024
7.06 %
7.06 %
7.06 % September 2036
7.06 % November 2036
3.93 %
4.67 %
April 2028
February 2029
May 2036
June 2036
(1)
(2)
(3)
(4)
As of December 31, 2023 including the effect of interest rate cap if any.
Interest rates on the loan facilities are fixed.
The Company entered into an interest rate cap through Q2 of 2026 and Q4 2026 which caps the LIBOR rate at 3.25%. On July 31, 2023, the Company transitioned
from the LIBOR rate to secured overnight financing rate ("SOFR").
On October 6, 2023, the Company exercised its purchase option on the m/v Bulk Trident lease for approximately $4.6 million, and the transaction was completed
on November 14, 2023.
F-34
Future minimum lease payments under finance leases with initial or remaining terms in excess of one year at December 31, 2023 were:
2024
2025
2026
2027
2027
Thereafter
Total minimum lease payments
Less amount representing interest
Present value of minimum lease payments
Less current portion
Less issuance costs
Long-term portion
NOTE 11 - OTHER LONG-TERM LIABILITIES
Year ending December 31,
34,985,770
$
25,366,510
23,877,184
24,796,131
29,434,485
114,985,465
253,445,545
85,771,542
167,674,003
(21,970,124)
(2,437,012)
143,266,867
$
$
$
In September 2019, the Company entered into an LLC agreement for the formation of NBP, that, at inception is owned 75% by the Company and 25% by an
independent third party. NBP was established for the purpose of constructing and owning four new-build ice class post Panamax vessels. The third party has
committed to contribute additional funding during the construction phase, which increased their ownership of NBP to 50% at the time of delivery of the
new-build ice class post Panamax vessels. The agreement contains both put and call option provisions. Accordingly, the Company may be obligated,
pursuant to the put option, or entitled to, pursuant to the call option, to purchase the third party's interest in NBP beginning anytime after September 2026.
The put option and call option are at fixed prices which are not significantly different from each other, starting at $4.0 million per vessel on the fourth
anniversary from completion and delivery of each vessel and declining to $3.7 million per vessel on or after the seventh anniversary from completion and
delivery of each vessel. If neither put nor call option is exercised, the Company is obligated to purchase the vessels from NBP at a fixed price. Pursuant to
ASC 480, Distinguishing Liabilities from Equity, the Company has recorded the third party's interest in NBP as a Long term liabilities - Other. The
Company took delivery of Nordic Nuluujaak, Nordic Qinngua, Nordic Sanngijuq and Nordic Siku during the second quarter through fourth quarters of
2021, the independent third party made additional contribution of $9.2 million which increased their ownership interest in NBP to 50% at December 31,
2021. As of December 31, 2023, the independent third party retains a 50% ownership interest in NBP. Earnings attributable to the third party’s interest in
NBP are recorded in Interest expense, non-controlling interest.
On September 28, 2020, the Company acquired an additional one-third equity interest in its partially-owned consolidated subsidiary NBHC from its
shareholders. The Company owned a one-third of equity interest of NBHC, a joint-venture formed in October 2012 for the purpose of owning Bulk Nordic
Odyssey Ltd. (“Bulk Odyssey”) and Bulk Nordic Orion Ltd. (“Bulk Orion”) and to invest in additional vessels through its wholly-owned subsidiaries. The
acquisition increases the Company’s equity interest in NBHC to 66.7%. The purchase price of the equity interest was $22.5 million, including a
$15.0 million cash payment upon closing and $7.5 million of deferred consideration, at a six-month LIBOR plus 3.5%, in three equal installments of
$2.5 million due on the first, second, and third anniversaries of September 28, 2020. The Company made the first installment of $2.5 million in September
2021 and paid off the note payable of $5.0 million in September of 2022. NBHC will continue to be a consolidated entity in the Company’s consolidated
financial statements pursuant to ASC 810-10. The portion of NBHC not owned by the Company will continue to be recognized as non-controlling interest in
the Company’s consolidated financial statements.
F-35
The components of Other Long-term Liabilities are as follows:
Beginning Balance
Payments to non-controlling interest recorded as long-term liability
Earnings attributable to non-controlling interest recorded as interest expense
Reclassification of deferred consideration related to acquisition of non-controlling interest
Payments on other long-term liability
Ending balance
NOTE 12 - COMMITMENTS AND CONTINGENCIES
$
$
12/31/2023
19,974,390 $
(2,500,000)
462,150
—
—
17,936,540 $
12/31/2022
17,806,976
(2,050,000)
6,717,414
2,500,000
(5,000,000)
19,974,390
The Company has also entered into a LLC agreement with the non-controlling interest holder of NBP which includes certain obligations as described in
Note 11.
Long-term Contracts Accounted for as Operating Leases
The Company leases office space for its Copenhagen operations. The lease expires in December 2025, at which time the lease continues on a month to
month basis with a non-cancelable period of six months.
The Company leases office space for its Singapore operations. In July 2023, the Company renewed its lease for a two year period. At December 31, 2023,
the remaining lease term is twenty months.
For the twelve months ended December 31, 2023 and 2022, the Company recognized approximately $0.2 million as lease expense for office leases in
General and Administrative Expenses.
Legal Proceedings and Claims
The Company is subject to certain asserted claims arising in the ordinary course of business. The Company intends to vigorously assert its rights and defend
itself in any litigation that may arise from such claims. While the ultimate outcome of these matters could affect the results of operations of any one year,
and while there can be no assurance with respect thereto, management believes that after final disposition, any financial impact to the Company would not
be material to its consolidated financial position, results of operations, or cash flows.
NOTE 13 - NET INCOME PER COMMON SHARE
The computation of basic net income per share is based on the weighted average number of common stock outstanding for the year ended December 31,
2023 and 2022. Diluted net income per share gives effect to restricted stock awards.
The following table summarizes the calculation of basic and diluted income per share:
Net income
Weighted Average Shares - Basic
Dilutive effect of restricted stock awards
Weighted Average Shares - Diluted
Basic net income per share
Diluted net income per share
For the Years Ended
December 31, 2023
December 31, 2022
$
$
$
26,323,300 $
44,773,899
701,554
45,475,453
0.59 $
0.58 $
79,491,413
44,398,987
660,600
45,059,587
1.79
1.76
F-36
NOTE 14 - STOCK INCENTIVE PLANS AND NON-CONTROLLING INTEREST
Common stock
The Company has 100,000,000 shares of common stock ($0.0001 par value) authorized, of which 46,466,622 were issued as of December 31, 2023.
Restricted Securities
On August 5, 2022, the Company's shareholders approved an amendment and restatement of the 2014 Plan that was adopted by the Board on May 6, 2022.
The PANGAEA LOGISTICS SOLUTIONS LTD. 2014 SHARE INCENTIVE PLAN (as amended and restated by the Board of Directors on May 6, 2022),
(the "Amended Plan"), increased the aggregate number of common shares with respect to which awards may be granted under the Amended Plan, such that
the total number of shares made available for grant is 6,200,000. As of December 31, 2023, there were 1,362,000 common shares available for grants of
awards under the 2014 Incentive Plan.
At December 31, 2023, shares issued to employees under the Amended Plan totaled 3,579,569 after forfeitures. These restricted shares vest at the rate of
one-third of the total granted on each of the third, fourth and fifth anniversaries of the vesting commencement date.
Total non-cash compensation cost recognized during the years ended December 31, 2023 and 2022 is $2,087,807 and $1,767,726, respectively, which is
included in general and administrative expenses in the consolidated statements of operations.
A summary of activity related to outstanding restricted securities for fiscal years 2023 and 2022 is presented in the table below:
Unvested shares at December 31, 2021
Granted
Vested
Forfeited
Unvested shares at December 31, 2022
Granted
Vested
Forfeited
Unvested shares at December 31, 2023
Fair value of restricted shares vested
Unrecognized compensation cost for restricted shares
Weighted average remaining period to expense restricted shares (years)
F-37
Restricted Shares
Weighted-Average
Grant-Date Fair Value
Per Share
1,612,859 $
460,045 $
(624,573) $
(81,021) $
1,367,310 $
607,111 $
(536,593) $
(14,168) $
1,423,660 $
2.91
4.09
3.42
3.03
3.07
5.53
3.45
3.04
3.97
Fiscal Years Ended December 31,
2022
2023
$
$
3,014,568 $
3,685,460 $
3.33
2,690,011
2,585,307
2.92
Dividends
Dividends payable consist of the following:
Balance at December 31, 2021
Accrued dividend
Paid in cash
Balance at December 31, 2022
Accrued dividend
Paid in cash
Balance at December 31, 2023
Dividends payable
(1)
213,765
481,693
(69,280)
626,178
668,536
(148,393)
1,146,321
$
$
(1)
Accrued dividends on unvested restricted shares under the Company's incentive compensation plan.
Noncontrolling Interests
Amounts pertaining to the non-controlling ownership interest held by third parties in the financial position and operating results of the Company’s
subsidiaries and/or consolidated VIEs are reported as non-controlling interest in the accompanying consolidated balance sheets. The non-controlling
ownership interest attributable to NBHC and its wholly-owned shipowning subsidiaries amounts to approximately $45,252,000 and $53,292,000 at
December 31, 2023 and 2022, respectively.
Non-controlling interest attributable to VLNL was approximately $1,058,000 and $1,203,000 at December 31, 2023 and 2022, respectively.
NOTE 15 - ACQUISITIONS
On March 24, 2023, the Company signed a Members Interest Purchase Agreement for the acquisition of marine port terminal operations for a purchase
price of $7.2 million. On June 1, 2023, the Company completed the acquisition for a total purchase price of $9.3 million including acquired net working
capital. Under the terms of the agreement, Pangaea acquired all onshore assets, licenses and business operations related to the sellers terminal operation.
This acquisition aims to enhance our logistics capabilities and aligns with our strategic objective of catering to customers beyond the realm of maritime
transportation.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
Net working capital, excluding cash
Property, plant and equipment
Goodwill
Other intangible assets
Fair value of net assets acquired, excluding cash and cash equivalents
Cash and cash equivalents
Fair value of net assets acquired
$
$
1,772,889
1,844,100
3,104,800
2,251,100
8,972,889
326,888
9,299,777
F-38
NOTE 16 - UNAUDITED QUARTERLY DATA
(Dollars in millions, except share and per share amounts. Figures may
not foot due to rounding)
Revenues:
Voyage revenue
Charter revenue
Terminal & stevedore revenue
Expenses:
Voyage expense
Charter hire expense
Vessel operating expenses
Terminal & Stevedore Expenses
General and administrative
Depreciation and amortization
Loss on impairment of vessels
Loss on sale of vessel
Total expenses
Income from operations
Other income (expense):
Interest expense
Interest income
Income attributable to Non-controlling interest recorded as long-term
liability interest expense
Unrealized gain (loss) on derivative instruments
Other (expense) income
Total other income (expense), net
Net income
Income attributable to noncontrolling interests
Net income attributable to Pangaea Logistics Solutions Ltd.
Earnings (loss) per common share:
Basic
Diluted
Weighted average shares used to compute earnings per common share
$
$
$
2023
2022
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
$
108.0 $
5.7
—
113.7
110.5 $
7.1
0.5
118.1
127.9 $
3.8
3.9
135.6
122.3 $
7.1
2.5
131.9
176.3 $
15.4
—
191.7
173.2 $
22.4
—
195.6
173.2 $
11.3
—
184.5
56.8
22.6
13.6
—
5.7
7.3
—
1.2
107.2
6.5
(4.3)
1.0
0.1
(0.4)
0.4
(3.1)
54.5
29.1
13.2
0.4
5.9
7.1
—
—
110.2
7.9
(4.1)
1.0
(0.9)
(1.3)
0.2
(5.1)
59.1
25.5
14.3
3.5
5.5
8.1
—
—
115.9
19.7
(4.3)
0.8
(0.3)
4.5
(0.2)
0.5
57.1
33.9
14.7
1.9
5.7
7.5
—
0.6
121.3
10.6
(4.3)
0.7
0.6
(5.7)
0.3
(8.4)
65.3
77.7
13.2
—
5.3
7.3
3.0
—
171.8
19.9
(3.4)
—
(1.8)
7.5
0.1
2.4
67.9
65.7
12.9
—
5.1
7.3
—
0.3
159.2
36.4
(3.7)
—
(1.7)
(3.5)
0.1
(8.7)
74.7
50.8
15.4
—
5.8
7.4
—
—
154.1
30.4
(4.4)
0.3
(2.4)
(4.5)
0.3
(10.7)
3.4
0.1
3.5 $
2.8
0.1
2.8 $
20.2
(1.3)
18.9 $
2.2
(1.0)
1.1 $
22.3
(2.3)
20.0 $
27.7
(2.5)
25.2 $
19.6
(1.0)
18.7 $
117.3
10.6
—
127.9
54.2
28.2
15.4
—
3.9
7.5
—
—
109.2
18.7
(4.3)
0.6
(0.8)
1.2
0.3
(2.9)
15.8
(0.3)
15.5
0.08 $
0.08 $
0.06 $
0.06 $
0.42 $
0.42 $
0.03 $
0.03 $
0.45 $
0.45 $
0.56 $
0.56 $
0.42 $
0.42 $
0.35
0.34
Basic
Diluted
44,712,290 44,775,438 44,775,438 44,815,282 44,388,960 44,430,487 44,415,575 44,435,664
45,116,719 45,127,972 45,081,668 45,392,225 45,192,983 45,070,533 44,640,278 44,985,969
F-39
NOTE 17 - SUBSEQUENT EVENTS
On February 15, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.10 per common share, to be paid on March 15, 2024, to
all shareholders of record as of March 1, 2024.
F-40
Pursuant to the requirements of the Section 13 or 15 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 on March 14, 2024.
SIGNATURES
PANGAEA LOGISTICS SOLUTIONS LTD.
/s/ Mark L. Filanowski
By:
Mark L. Filanowski
Chief Executive Officer
(Principal Executive Officer)
/s/ Gianni Del Signore
By:
Gianni Del Signore
Chief Financial Officer
(Principal Financial and Accounting Officer)
1
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mark L. Filanowski and Gianni DelSignore and each of them, as attorney-in-fact with
full power of substitution and re-substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments
to this annual report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this annual report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.
Signature
Title
/s/ Mark L. Filanowski
Mark L. Filanowski
/s/ Gianni DelSignore
Gianni DelSignore
/s/ Carl Claus Boggild
Carl Claus Boggild
/s/ Richard T. du Moulin
Richard T. du Moulin
/s/ Anthony Laura
Anthony Laura
/s/ Eric S. Rosenfeld
Eric S. Rosenfeld
/s/ David D. Sgro
David D. Sgro
/s/ Karen H. Beachy
Karen H. Beachy
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer, Principal
Financial and Accounting Officer
Date
March 14, 2024
March 14, 2024
Director
March 14, 2024
Chairman of the Board, Director
March 14, 2024
March 14, 2024
March 14, 2024
March 14, 2024
March 14, 2024
Director
Director
Director
Director
2
Exhibit no.
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
23.1
31.1
31.2
32.1
32.2
97.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Description
Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form S-1 filed
on February 4, 2015).
Bye-laws of Company (incorporated by reference to Exhibit 3.2 of the Registrant's Current Report on Form S-1 filed on February 4, 2015.)
Purchase Agreement by and between Bulk Nordic Five Ltd. and Nicole Navigation S.A. dated October 27, 2016 (incorporated by reference to Exhibit
10.30 of the Registrant's Current Report on Form 10-K filed on March 22, 2017).
Nordic Bulk Six Ltd. Loan Agreement (incorporated by reference to Exhibit 10.32 of the Registrant's Current Report on Form 10-K filed on March 22,
2017).
Purchase Agreement Addendum by and between Bulk Nordic Five Ltd. and Nicole Navigation S.A. dated October 27, 2016 (incorporated by reference
to Exhibit 10.34 of the Registrant's Current Report on Form 10-K filed on March 22, 2017).
Bareboat Charter Party Dated May 23, 2018 (incorporated by reference to Exhibit 10.43 of the Registrant's Current Report on Form 10-Q filed on
August 7, 2018).
Bareboat Charter Party Dated August 2, 2018 (incorporated by reference to Exhibit 10.43 of the Registrant's Current Report on Form 10-Q filed on
November 8, 2018).
Bareboat Charter Party Dated February 21, 2019 (incorporated by reference to Exhibit 10.44 of the Registrant's Current Report on Form 10-Q filed on
May 15, 2019).
The Amended Senior Facility - Dated May 13, 2019 (incorporated by reference to Exhibit 10.45 of the Registrant's Current Report on Form 10-Q filed
on August 12, 2019).
Bulk Friendship Bareboat Charter Party Dated September 10th 2019 (incorporated by reference to Exhibit 10.46 of the Registrant's Current Report on
Form 10-Q filed on November 7, 2019).
Limited Liability Company Agreement of Nordic Bulk Partners LLC. (incorporated by reference to Exhibit 10.18 of the Registrant's Current Report on
Form 10-K filed on March 23, 2020).
Bareboat Charter Party Dated September 27, 2019 (incorporated by reference to Exhibit 10.19 of Registrant's Current Report on Form 10-K filed on
March 23, 2020).
Bulk Nordic Odyssey (MI) Corp., Bulk Nordic Orion (MI) Corp. Senior Secured Term Loan Facility (incorporated by reference to Exhibit 10.19 of
Registrant's Current Report on Form 10-K filed on March 23, 2020).
Bulk Courageous Bareboat Charter dated March 27, 2021 (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 10-Q filed
on August 10, 2021).
Bulk Valor Corp. Loan and Security Agreement dated as of June 17, 2021 (incorporated by reference to Exhibit 10.2 of Registrant's Current Report on
Form 10-Q filed on August 10, 2021).
Bulk Nordic Five Ltd. Amendment and Restatement Agreement of Bareboat Charter dated July 1, 2021 (incorporated by reference to Exhibit 10.1 of
Registrant's Current Report on Form 10-Q filed on November 9, 2021).
Bulk Promise Corp. Loan and Security Agreement dated as of July 7, 2021 (incorporated by reference to Exhibit 10.2 of Registrant's Current Report on
Form 10-Q filed on November 9, 2021).
Bareboat Charter Party by and between Phoenix Bulk 25 Corp. and Delta Partner Ltd Dated January 27, 2022 (incorporated by reference to Exhibit
10.1of Registrant's Current Report on Form 10-Q filed on May 10, 2022).
Bulk Sachuest Corp. Loan and Security Agreement dated as of October 13, 2022 (incorporated by reference to Exhibit 10.17 of Registrant's Current
Report on Form 10-K dated March 15, 2022).
Consent of Grant Thornton LLP. *
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Policy Relating to Recovery of Erroneously Awarded Compensation*
XBRL Instance Document*
XBRL Taxonomy Extension Schema*
XBRL Taxonomy Extension Calculation Linkbase*
XBRL Taxonomy Extension Definition Linkbase*
XBRL Taxonomy Extension Label Linkbase*
XBRL Taxonomy Extension Presentation Linkbase*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith
3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 14, 2024, with respect to the consolidated financial statements and internal control over financial
reporting included in the Annual Report of Pangaea Logistics Solutions Ltd. on Form 10-K for the year ended December 31, 2023. We
consent to the incorporation by reference of said reports in the Registration Statements of Pangaea Logistics Solutions Ltd. on Forms S-8 (File
No. 333-267582).
Exhibit 23.1
/s/ GRANT THORNTON LLP
Boston, Massachusetts
March 14, 2024
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark L. Filanowski, certify that:
1
2
3
4
I have reviewed this annual report on Form 10-K for the year ended December 31, 2023, of Pangaea Logistics Solutions Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 14, 2024
/s/ Mark L. Filanowski
Mark L. Filanowski
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gianni DelSignore, certify that:
1
2
3
4
I have reviewed this annual report on Form 10-K for the year ended December 31, 2021, of Pangaea Logistics Solutions Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 14, 2024
/s/ Gianni DelSignore
Gianni DelSignore
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Pangaea Logistics Solutions Ltd. (the “Company”) on Form 10-K for the year ended December 31, 2023, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark L. Filanowski, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 14, 2024
/s/ Mark L. Filanowski
Mark L. Filanowski
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Pangaea Logistics Solutions Ltd. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gianni DelSignore, Chief Financial Officer, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
1
2
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 14, 2024
/s/ Gianni DelSignore
Gianni DelSignore
Chief Financial Officer
(Principal Financial Officer)
POLICY REGARDING THE RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
PANGAEA LOGISTICS SOLUTIONS LTD.
I.
Introduction
The Board of Pangaea Logistics Solutions Ltd., a Bermuda exempted corporation incorporated under the laws of Bermuda (the “Company”), is dedicated to
maintaining and enhancing a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation
philosophy. In accordance with the applicable rules of The Nasdaq Stock Market (the “Exchange Rules”), and Section 10D and Rule 10D-1 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), the Board has therefore adopted this Policy, which provides for the recoupment, otherwise
referred to as “clawback”, of certain erroneously awarded Incentive-Based Compensation from Executive Officers in the event of an Accounting
Restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws, and which is intended to comply
with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. All capitalized terms used and not otherwise defined herein shall
have the meanings set forth in Section II.
II.
Definitions
(1) “Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting
requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements
that is material to the previously issued financial statements (a “Big R” or reissuance restatement), or that would result in a material misstatement if
the error were corrected in the current period or left uncorrected in the current period (a “little r” or revision restatement). For the avoidance of
doubt, in no event will a restatement of the Company’s financial statements that is not due in whole or in part to the Company’s material
noncompliance with any financial reporting requirement under applicable law (including any rule or regulation promulgated thereunder) be
considered an Accounting Restatement under this Policy. For example, a restatement due exclusively to a retrospective application of any one or
more of the following will not be considered an Accounting Restatement under this Policy: (i) a change in accounting principles; (ii) revision to
reportable segment information due to a change in the structure of the Company’s internal organization; (iii) reclassification due to a discontinued
operation; (iv) application of a change in reporting entity, such as from a reorganization of entities under common control; and (v) revision for
stock splits, reverse stock splits, stock dividends or other changes in capital structure.
(2) “Board” means the Board of Directors of the Company.
(3) “Clawback Eligible Incentive Compensation” means all Incentive-Based Compensation Received by an Executive Officer (i) on or after the
effective date of the applicable Exchange rules adopted in order to comply with Rule 10D-1, (ii) after beginning service as an Executive Officer,
(iii) who served as an Executive Officer at any time during the applicable performance period relating to the applicable Incentive-Based
Compensation (whether or not such Executive Officer is serving as such at the time the Erroneously Awarded Compensation is required to be
repaid to the Company), (iv) while the Company has a class of securities listed on a national securities exchange or a national securities
association, and (v) during the applicable Clawback Period (as defined below).
(4) “Clawback Period” means, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately preceding
the Restatement Date (as defined below), and if the Company changes its fiscal year, any transition period of less than nine months within or
immediately following those three completed fiscal years.
(5) “Committee” means the Compensation Committee of the Company (if composed entirely of independent directors, or in the absence of such a
committee, a majority of independent directors serving on the Board).
(6) “Erroneously Awarded Compensation” means, with respect to each Executive Officer in connection with an Accounting Restatement, the amount
of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-Based Compensation that otherwise would have been Received
had it been determined based on the restated amounts, computed without regard to any taxes paid.
(7) “Exchange” means the Nasdaq Stock Market.
(8) “Executive Officer” means each individual who is (a) a current or former executive officer, as determined by the Committee (as defined below) in
accordance with Section 10D and Rule 10D-1 of the Exchange Act and the listing standards of the Exchange, (b) a current or former employee who
is classified by the Committee as an executive officer of the Company, which includes without limitation any of the
#10855402v1 - Pangaea Logis cs Solu ons Ltd. Clawback Policy
Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), vice
president in charge of a principal business unit, division or function (such as sales, administration or finance), and any other person who performs
policy-making functions for the Company (including executive officers of a parent or subsidiary if they perform policy-making functions for the
Company), and (3) an employee who may from time to time be deemed subject to the Policy by the Committee. For the avoidance of doubt, the
identification of an executive officer for purposes of this Policy shall include each executive officer who is or was identified pursuant to Item
401(b) of Regulation S-K.
(9) “Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting principles used in
preparing the Company’s financial statements, and all other measures that are derived wholly or in part from such measures. Stock price and total
shareholder return (and any measures that are derived wholly or in part from stock price or total shareholder return) shall, for purposes of this
Policy, be considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented in the
Company’s financial statements or included in a filing with the SEC.
(10)“Incentive-Based Compensation” shall have the meaning set forth in Section III below.
(11)“Exchange Effective Date” means October 2, 2023.
(12)“Policy” means this Clawback Policy, as the same may be amended and/or restated from time to time.
(13)Incentive-Based Compensation will be deemed “Received” in the Company’s fiscal period during which the Financial Reporting Measure specified
in the Incentive-Based Compensation documentation is attained, even if (a) the payment or grant of the Incentive-Based Compensation to the
Executive Officer occurs after the end of that period or (b) the Incentive-Based Compensation remains contingent and subject to further conditions
thereafter, such as time-based vesting.
(14)“Restatement Date” means the earlier to occur of (i) the date the Board, a committee of the Board, or the officer(s) of the Company authorized to
take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an
Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting
Restatement.
(15)“SARs” means shareholder appreciate rights.
(16)“SEC” means the U.S. Securities and Exchange Commission.
III.
Incentive-Based Compensation
“Incentive-Based Compensation” shall mean any compensation that is granted, earned or vested wholly or in part upon the attainment of a Financial
Reporting Measure.
For purposes of this Policy, specific examples of Incentive-Based Compensation include, but are not limited to:
• Non-equity incentive plan awards that are earned based, wholly or in part, on satisfaction of a Financial Reporting Measure performance goal;
•
Bonuses paid from a “bonus pool,” the size of which is determined, wholly or in part, based on satisfaction of a Financial Reporting Measure
performance goal;
• Other cash awards based on satisfaction of a Financial Reporting Measure performance goal;
•
Restricted stock, restricted stock units, performance share units, stock options and SARs that are granted or become vested, wholly or in part, on
satisfaction of a Financial Reporting Measure performance goal; and
Proceeds received upon the sale of shares acquired through an incentive plan that were granted or vested based, wholly or in part, on satisfaction of
a Financial Reporting Measure performance goal.
•
For purposes of this Policy, Incentive-Based Compensation excludes:
• Any base salaries (except with respect to any salary increases earned, wholly or in part, based on satisfaction of a Financial Reporting Measure
•
performance goal);
Bonuses paid solely at the discretion of the Committee or Board that are not paid from a “bonus pool” that is determined by satisfying a Financial
Reporting Measure performance goal;
Bonuses paid solely upon satisfying one or more subjective standards and/or completion of a specified employment period;
•
• Non-equity incentive plan awards earned solely upon satisfying one or more strategic measures (e.g., consummating a merger or divestiture) or
operational measures (e.g., completion of a project, acquiring a specified number of vessels, attainment of a certain market share); and
2
•
Equity awards that vest solely based on the passage of time and/or satisfaction of one or more non-Financial Reporting Measures (e.g., a time-
vested award, including time-vesting stock options or restricted share rights).
IV.
Administration and Interpretation
This Policy shall be administered by the Committee and/or the Board, and any determinations made by the Committee and/or the Board shall be final and
binding on all affected individuals. The Committee and/or the Board shall determine the amount of any Erroneously Awarded Compensation Received by
each Executive Officer and shall promptly deliver written notice to each Executive Officer containing the amount of any Erroneously Awarded
Compensation and a demand for repayment or return of such compensation, as applicable. For the avoidance of doubt, recovery of Erroneously Awarded
Compensation is on a “no fault” basis, meaning that it will occur regardless of whether the Executive Officer engaged in misconduct or was otherwise
directly or indirectly responsible, in whole or in part, for the Accounting Restatement.
The Committee is authorized to interpret and construe this Policy and to make all determinations and to take such actions as may be necessary, appropriate,
or advisable for the administration of this Policy and for the Company’s compliance with the Exchange Rules, Section 10D, Rule 10D-1 and any other
applicable law, regulation, rule or interpretation of the SEC or the Exchange promulgated or issued in connection therewith.
V.
Recovery of Erroneously Awarded Compensation
(1) In the event of an Accounting Restatement, the Committee shall promptly determine in good faith the amount of any Erroneously Awarded
Compensation Received in accordance with the Exchange Rules and Rule 10D-1 for each Executive Officer in connection with such Accounting
Restatement and shall promptly thereafter provide each Executive Officer with a written notice containing the amount of Erroneously Awarded
Compensation (without regard to any taxes paid thereon by the Executive Officer) and a demand for repayment or return, as applicable.
a. Cash Awards. With respect to cash awards, the Erroneously Awarded Compensation is the difference between the amount of the cash
award (whether payable as a lump sum or over time) that was Received and the amount that should have been received applying the
restated Financial Reporting Measure.
b. Cash Awards Paid from Bonus Pools. With respect to cash awards paid from bonus pools, the Erroneously Awarded Compensation is the
pro rata portion of any deficiency that results from the aggregate bonus pool that is reduced based on applying the restated Financial
Reporting Measure.
c. Equity Awards. With respect to equity awards, if the shares, options or SARs are still held at the time of recovery, the Erroneously
Awarded Compensation is the number of such securities Received in excess of the number that should been received applying the restated
Financial Reporting Measure (or the value in excess of that number). If the options or SARs have been exercised, but the underlying
shares have not been sold, the Erroneously Awarded Compensation is the number of shares underlying the excess options or SARs (or the
value thereof). If the underlying shares have already been sold, then the Committee and/or Board shall determine the amount which most
reasonably estimates the Erroneously Awarded Compensation.
d. Compensation Based on Stock Price or Total Shareholder Return. For Incentive-Based Compensation based on (or derived from) stock
price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation
directly from the information in the applicable Accounting Restatement, (i) the amount shall be determined by the Committee and/or
Board based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or total shareholder return upon
which the Incentive-Based Compensation was Received; and (ii) the Committee and/or Board shall maintain documentation of such
determination of that reasonable estimate and provide such documentation to the Exchange in accordance with applicable listing
standards.
(2) The Committee shall have discretion to determine the appropriate means of recovering Erroneously Awarded Compensation based on the
particular facts and circumstances. Notwithstanding the
3
foregoing, except as set forth in Section VI below, in no event may the Company accept an amount that is less than the amount of
Erroneously Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder.
(3) To the extent that the Executive Officer has already reimbursed the Company for any Erroneously Awarded Compensation Received under
any duplicative recovery obligations established by the Company or applicable law, it shall be appropriate for any such reimbursed amount to
be credited to the amount of Erroneously Awarded Compensation that is subject to recovery under this Policy. To the extent that the
Erroneously Awarded Compensation is recovered under a foreign recovery regime, the recovery would meet the obligations of Rule 10D-1.
(4) To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company when due, the Company shall
take all actions reasonable and appropriate to recover such Erroneously Awarded Compensation from the applicable Executive Officer. The
applicable Executive Officer shall be required to reimburse the Company for any and all expenses reasonably incurred (including legal and
other collection related fees) by the Company in recovering such Erroneously Awarded Compensation.
VI.
Discretionary Recovery
Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by Section V above if the Committee
determines that recovery would be impracticable and any of the following three conditions are met.
(1) The Committee has determined that the direct expenses, such as reasonable legal expenses and consulting fees, paid to a third party to assist in
enforcing the Policy would exceed the amount to be recovered. In order for the Committee to make this determination, the Company must make a
reasonable attempt to recover the Erroneously Awarded Compensation, document such attempt(s) to recover, and provide such documentation to
the Exchange;
(2) Recovery would violate home country law where that law was adopted prior to November 28, 2022, provided that, before determining that it would
be impracticable to recover any amount of Erroneously Awarded Compensation based on violation of home country law, the Company has
obtained an opinion of home country counsel, acceptable to the Exchange, that recovery would result in such a violation and a copy of the opinion
is provided to Exchange;
(3) Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company,
to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and regulations
thereunder.
VII.
Recoupment Period Covered and Amount
If an Accounting Restatement occurs, the Committee shall review all Incentive-Based Compensation that was granted, vested or earned on the basis of
having met or exceeded Financial Reporting Measures and that was Received by an Executive Officer during the Clawback Period. With respect to each
Executive Officer, the Committee shall, as provided under this Policy, seek to require the forfeiture or repayment of (1) the Erroneously Awarded
Compensation, whether vested or unvested and including proceeds received upon the sale of shares acquired through an incentive plan that were granted or
vested based wholly or in part on satisfying a Financial Reporting Measure, Received during the Clawback Period in the event of an Accounting
Restatement, and (2) to the extent the Executive Officer engages in Detrimental Conduct, applicable Incentive-Based Compensation received thereafter.
Compensation shall be deemed to have been Received in the fiscal period in which the Financial Reporting Measure is attained, even if the Incentive-Based
Compensation is not actually paid until a later date or where the compensation is subject to additional service-based or non-financial goal-based vesting
conditions after the period ends. The amount to be recovered will be as provided for in this Policy.
VIII. Method of Recovery of Erroneously Awarded Compensation
The Committee will determine, in its sole discretion, the method for recovering Erroneously Awarded Compensation hereunder, which may include, without
limitation:
(1) Requiring reimbursement of cash Incentive-Based Compensation previously paid;
(2) Seeking recovery of any gain realized on the granting, vesting, exercise, settlement, sale, transfer or other disposition of any equity or equity-based
awards;
4
(3) Offsetting the recouped amount from any compensation otherwise owed by the Company or its affiliates to the Executive Officer;
(4) Cancelling outstanding vested or unvested equity or equity-based awards and/or reducing outstanding future payments due or possibly due in
respect of amounts already Received; and/or
(5) Taking any other remedial and recovery action permitted by law, as determined by the Committee.
IX.
Disclosure Requirements
The Company shall file all disclosures with respect to this Policy in accordance with the requirements of the federal securities laws, including the disclosure
required by the rules and applicable filings required to be made with the SEC.
X.
No Indemnification
The Company shall not be permitted to insure or indemnify any Executive Officer against (i) the loss of any Erroneously Awarded Compensation that is
repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the Company’s enforcement of its rights under this Policy.
Further, the Company shall not enter into any agreement that exempts any Incentive-Based Compensation that is granted, paid or awarded to an Executive
Officer from the application of this Policy or that waives the Company’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall
supersede any such agreement (whether entered into before, on or after the Effective Date of this Policy). While an Executive Officer may purchase a third-
party insurance policy to fund potential recovery obligations under this Policy, the Company may not pay or reimburse the Executive Officer for premiums
for such an insurance policy.
XI.
Effective Date
This Policy shall be effective as of the Exchange Effective Date.
XII.
Amendment; Termination
The Committee and thereafter, the Board, may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to
comply with the requirements of any federal securities laws, SEC rule or the rules of any national securities exchange or national securities association on
which the Company’s securities are then listed. Notwithstanding anything in this Section XII to the contrary, no amendment or termination of this Policy
shall be effective if such amendment or termination would (after taking into account any actions taken by the Company contemporaneously with such
amendment or termination) cause the Company to violate any federal securities laws, SEC rule, or the rules of any national securities exchange or national
securities association on which the Company’s securities are then listed.
XIII. Other Recovery Rights
This Policy will be applied to the fullest extent of the law. The Board and/or the Committee may, to the fullest extent of the law, require that any
employment agreement, equity award agreement, or other plan, agreement or arrangement providing for incentive compensation shall, as a condition to the
grant, receipt or vesting of any benefit thereunder, require an Executive Officer to agree to abide by the terms of this Policy, including requiring the
execution of the attestation and acknowledgement set forth in Exhibit A to this Policy. Any right of recoupment under this Policy is in addition to, and not in
lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment
agreement, equity or equity-based plan or award agreement, or other plan, agreement or arrangement providing for incentive compensation and any other
legal remedies available to the Company. However, this Policy shall not provide for recovery of Incentive-Based Compensation that the Company has
already recovered pursuant to Section 304 of the Sarbanes-Oxley Act or other recovery obligations.
XIV.
Successors
This Policy shall be binding and enforceable against all Executive Officers and their beneficiaries, executors, administrators, permitted transferees,
permitted assignees or other legal representatives, and shall inure to the benefit of any successor or assignee of the Company.
5
Exhibit A
ATTESTATION AND ACKNOWLEDGEMENT OF POLICY REGARDING THE RECOVERY OF ERRONEOUSLY AWARDED
COMPENSATION
By my signature below, I acknowledge and agree that:
•
•
I have received and read the attached Policy Regarding the Recovery of Erroneously Awarded Compensation (this “Policy”).
I hereby agree to abide by all of the terms of this Policy both during and after my employment with the Company, including, without limitation,
by promptly repaying or returning any Erroneously Awarded Compensation to the Company as determined in accordance with this Policy.
Signature:_____________________
Printed Name:_________________
Date:________________________
6