[_]
[X]
[_]
[_]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report: Not applicable
For the transition period from _______ to _______
Commission file number: 001-34848
SEANERGY MARITIME HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant's name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
16 Grigoriou Lambraki Street, 166 74 Glyfada, Athens, Greece
(Address of principal executive offices)
Stamatios Tsantanis, Chairman & Chief Executive Officer
Seanergy Maritime Holdings Corp.
16 Grigoriou Lambraki Street, 166 74 Glyfada, Athens, Greece
Telephone: +30 210 8913507, Fax: +30 210 9638404
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of class
Shares of common stock, par value $0.0001 per share
Class A Warrants
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Name of exchange on which registered
Nasdaq Capital Market
Nasdaq Capital Market
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As of December 31,
2017, there were 36,979,346 shares of the registrant's common stock, $0.0001 par value, outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [_] Yes [X] No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[_] Yes [X] 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 Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] 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). [X] Yes [_] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of "large
accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [_]
Accelerated filer [_]
Non-accelerated filer [X]
Emerging growth company [_]
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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. [_]
† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after
April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP [X]
International Financial Reporting Standards as issued by the International Accounting Standards
Board [_]
Other [_]
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
[_] Item 17
[_] Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[_] Yes
[X] No
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
PART II
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.
PART III
ITEM 17.
ITEM 18.
ITEM 18.1
ITEM 19.
TABLE OF CONTENTS
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
[RESERVED]
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE
MINE SAFETY DISCLOSURE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF SEANERGY MARITIME HOLDINGS CORP. (PARENT COMPANY ONLY)
EXHIBITS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains certain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements include, but are not limited to, statements regarding our or our management's expectations, hopes, beliefs, intentions or strategies regarding the future and other
statements that are other than statements of historical fact. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking statements. The words "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "might", "plan",
"possible", "potential", "predict", "project", "should", "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking.
The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation,
management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were
reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our
control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. As a result, you are cautioned not to rely on any forward-looking
statements.
In addition to these important factors, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements
include among other things:
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changes in shipping industry trends, including charter rates, vessel values and factors affecting vessel supply and demand;
changes in seaborne and other transportation patterns;
changes in the supply of or demand for drybulk commodities, including drybulk commodities carried by sea, generally or in particular regions;
changes in the number of newbuildings under construction in the drybulk shipping industry;
changes in the useful lives and the value of our vessels and the related impact on our compliance with loan covenants;
the aging of our fleet and increases in operating costs;
changes in our ability to complete future, pending or recent acquisitions or dispositions;
our ability to achieve successful utilization of our expanded fleet;
changes to our financial condition and liquidity, including our ability to pay amounts that we owe and obtain additional financing to fund capital expenditures,
acquisitions and other general corporate activities;
risks related to our business strategy, areas of possible expansion or expected capital spending or operating expenses;
changes in our ability to leverage the relationships and reputation in the drybulk shipping industry of our third-party managers, V.Ships Limited, or V.Ships, our
technical manager, and Fidelity Marine Inc., or Fidelity, our commercial manager;
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changes in the availability of crew, number of off-hire days, classification survey requirements and insurance costs for the vessels in our fleet;
changes in our relationships with our contract counterparties, including the failure of any of our contract counterparties to comply with their agreements with us;
loss of our customers, charters or vessels;
damage to our vessels;
potential liability from future litigation and incidents involving our vessels;
our future operating or financial results;
acts of terrorism and other hostilities;
changes in global and regional economic and political conditions;
changes in governmental rules and regulations or actions taken by regulatory authorities, particularly with respect to the drybulk shipping industry; and
other factors discussed in "Item 3.D. Risk Factors".
Should one or more of the foregoing risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those
projected in these forward looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or
developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects, on us. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such forward-looking statements.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required
under applicable laws. If one or more forward-looking statements are updated, no inference should be drawn that additional updates will be made with respect to those or other forward-
looking statements.
PART I
Unless the context otherwise requires, as used in this annual report, the terms "Company", "Seanergy", "we", "us", and "our" refer to Seanergy Maritime Holdings Corp.
and any or all of its subsidiaries, and "Seanergy Maritime Holdings Corp". refers only to Seanergy Maritime Holdings Corp. and not to its subsidiaries. References in this annual
report to "Seanergy Maritime" refer to our predecessor, Seanergy Maritime Corp.
We use the term deadweight tons, or "dwt", in describing the size of vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the
maximum weight of cargo and supplies that a vessel can carry. Unless otherwise indicated, all references to "U.S. dollars", "dollars", "U.S. $" and "$" in this annual report are to
the lawful currency of the United States of America. References in this annual report to our common shares are adjusted to reflect the consolidation of our common shares through a
one-for-five reverse stock split, which became effective as of January 8, 2016.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The following table sets forth our selected consolidated financial data. The selected consolidated financial data in the table as of December 31, 2017, 2016, 2015, 2014 and 2013
are derived from our audited consolidated financial statements and notes thereto which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S.
GAAP. The following data should be read in conjunction with "Item 5. Operating and Financial Review and Prospects" and the consolidated financial statements and related notes
included elsewhere in this annual report.
(Amounts in the tables below are in thousands of U.S. dollars, except for share and per share data.)
2017
2016
Year Ended December 31,
2015
2014
2013
Statement of Income Data:
Vessel revenue, net
Direct voyage expenses
Vessel operating expenses
Voyage expenses - related party
Management fees - related party
Management fees
General and administration expenses
General and administration expenses - related party
Loss on bad debts
Amortization of deferred dry-docking costs
Depreciation
Impairment loss for vessels and deferred charges
Gain on disposal of subsidiaries
Gain on restructuring
Operating income / (loss)
Interest and finance costs
Interest and finance costs - related party
Gain on debt refinancing
Interest income
Loss on interest rate swaps
Foreign currency exchange (losses) gains, net
Total other expenses, net
Net (loss) / income before taxes
Income tax (expense) / benefit
Net (loss) / income
Net (loss) / income per common share
Basic and diluted
Weighted average common shares outstanding
Basic
Diluted
74,834
(34,949)
(19,598)
-
-
(1,016)
(5,081)
-
-
(870)
(10,518)
-
-
-
2,802
(12,277)
(5,122)
11,392
47
-
(77)
(6,037)
(3,235)
-
(3,235)
(0.09)
34,662
(21,008)
(14,251)
-
-
(895)
(4,134)
-
-
(556)
(8,531)
-
-
-
(14,713)
(7,235)
(2,616)
-
20
-
(45)
(9,876)
(24,589)
(34)
(24,623)
(1.20)
11,223
(7,496)
(5,639)
-
-
(336)
(2,804)
(70)
(30)
(38)
(1,865)
-
-
-
(7,055)
(1,460)
(399)
-
-
-
(42)
(1,901)
(8,956)
-
(8,956)
(0.83)
2,010
(1,274)
(1,006)
(24)
(122)
-
(2,987)
(309)
(38)
-
(3)
-
-
85,563
81,810
(1,463)
-
-
14
-
(13)
(1,462)
80,348
-
80,348
30.06
23,079
(8,035)
(11,086)
(313)
(743)
(194)
(3,966)
(412)
-
(232)
(982)
(3,564)
25,719
-
19,271
(8,389)
-
-
13
(8)
19
(8,365)
10,906
1
10,907
4.56
35,845,890
35,845,890
20,553,007
20,553,007
10,773,404
10,773,404
2,672,945
2,672,950
2,391,628
2,391,885
1
Balance Sheet Data:
Total current assets
Vessels, net
Total assets
Total current liabilities, including current portion of long-term debt
Total liabilities
Common stock
Total equity / (deficit)
Shares issued and outstanding as at December 31,
Cash Flow Data:
Net cash provided by (used in) operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities*
2017
2016
As of December 31,
2015
2014
2013
19,498
254,730
275,705
34,460
234,392
3
41,313
36,979,346
22,329
232,109
257,534
21,230
226,702
3
30,832
34,072,210
8,278
199,840
209,352
9,250
186,068
2
23,284
19,522,413
3,207
-
3,268
592
-
-
2,676
3,977,854
66,350
-
66,350
157,045
-
-
(90,695)
2,391,854
2017
2016
Year Ended December 31,
2015
2014
2013
2,782
(32,992)
25,341
(15,339)
(40,779)
68,672
(4,737)
(201,684)
206,902
(14,858)
105,895
(91,239)
1,030
993
(5,246)
* Comparative amounts have been reclassified due to current presentation of restricted cash following the early adoption of Accounting Standards Update No. 2016-18 Statement of
Cash Flows – Restricted Cash.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Some of the following risks relate principally to the industry in which we operate and others relate to our business in general or our common stock. If any of the following risks
occur, our business, financial condition, operating results and cash flows could be materially adversely affected and the trading price of our securities could decline.
Risks Relating to Our Industry
The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or trigger certain financial covenants under our loan agreements, and
we may incur an impairment or, if we sell vessels following a decline in their market value, a loss.
The fair market values of our vessels are related to prevailing freight charter rates. While the fair market value of vessels and the freight charter market have a very close
relationship as the charter market moves from trough to peak, the time lag between the effect of charter rates on market values of ships can vary. A decrease in the market value of our
vessels could require us to raise additional capital in order to remain compliant with our loan covenants, and could result in the loss of our vessels and adversely affect our earnings and
financial condition.
2
The fair market value of our vessels may increase or decrease, and we expect the market values to fluctuate depending on a number of factors including:
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prevailing level of charter rates;
general economic and market conditions affecting the shipping industry;
types and sizes of vessels;
supply and demand for vessels;
other modes of transportation;
cost of newbuildings;
governmental and other regulations; and
technological advances;
In addition, as vessels grow older, they generally decline in value. If the fair market value of our vessels declines, we may not be in compliance with certain covenants in our
loan agreements, and our lenders could accelerate our indebtedness or require us to pay down our indebtedness to a level where we are again in compliance with our loan covenants. If
any of our loans are accelerated, we may not be able to refinance our debt or obtain additional funding. We expect that we will enter into more loan agreements in connection with our
future acquisitions of vessels. For more information regarding our current loan facilities, please see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital
Resources – Loan Arrangements – Credit Facilities".
In addition, if vessel values decline, we may have to record an impairment adjustment in our financial statements, which could adversely affect our financial results.
Furthermore, if we sell vessels at a time when vessels' prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than
the vessels' carrying amount in our financial statements, resulting in a loss and a reduction in earnings.
Charter hire rates for drybulk vessels are volatile and have declined significantly since their historic highs and may remain at low levels or decrease in the future, which may
adversely affect our earnings, revenue and profitability and our ability to comply with our loan covenants.
The dramatic downturn in the drybulk charter market, from which we derive substantially all of our revenues, has severely affected the drybulk shipping industry and has
harmed our business. The Baltic Dry Index, or BDI, declined from a high of 11,793 in May 2008 to a low of 290 in February 10, 2016, which represents a decline of 98%. In 2017, the BDI
ranged from a low of 685 on February 14, 2017, to a high of 1,743 on December 12, 2017, and during 2018 up to February 15, 2018, the BDI has ranged from a low of 1,082 on February 5,
2018 to a high of 1,395 on January 9, 2018.
The decline and volatility in charter rates has been due to various factors, including the over-supply of drybulk vessels, the lack of trade financing for purchases of
commodities carried by sea, which resulted in a significant decline in cargo shipments, and trade disruptions caused by natural disasters. Drybulk charter rates are at depressed levels
and may decline further. These circumstances have had a number of adverse consequences from time to time for drybulk shipping, including, among other developments:
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decrease in available financing for vessels;
no active secondhand market for the sale of vessels;
charterers seeking to renegotiate the rates for existing time charters;
widespread loan covenant defaults in the drybulk shipping industry due to the substantial decrease in vessel values; and
declaration of bankruptcy by some operators, charterers and vessel owners.
3
The degree of charter hire rate volatility among different types of drybulk vessels has varied widely. If we enter into a charter when charter hire rates are low, our revenues and
earnings will be adversely affected and we may not be able to successfully charter our vessels at rates sufficient to allow us to operate our business profitably or meet our obligations.
Further, if low charter rates in the drybulk market continue or decline further for any significant period, this could have an adverse effect on our vessel values and ability to comply with
the financial covenants in our loan agreements. In such a situation, unless our lenders were willing to provide waivers of covenant compliance or modifications to our covenants, our
lenders could accelerate our debt and we could face the loss of our vessels.
We are dependent on spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.
We currently operate the majority of our vessels in the spot market, exposing us to fluctuations in spot market charter rates. Further, we may employ any additional vessels that
we may acquire in the spot market.
Although the number of vessels in our fleet that participate in the spot market will vary from time to time, we anticipate that a significant portion of our fleet will participate in
this market. As a result, our financial performance will be significantly affected by conditions in the drybulk spot market and only our vessels that operate under fixed-rate time charters
may, during the period such vessels operate under such time charters, provide a fixed source of revenue to us.
Historically, the drybulk markets have been volatile as a result of the many conditions and factors that can affect the price, supply of and demand for drybulk capacity. The
weak global economic trends may further reduce demand for transportation of drybulk cargoes over longer distances, which may materially affect our revenues, profitability and cash
flows. The spot charter market may fluctuate significantly based upon supply of and demand for vessels and cargoes. The successful operation of our vessels in the competitive spot
charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling
unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot rates have declined below the operating cost of vessels. If future spot
charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably or to meet our obligations, including payments on indebtedness. Furthermore,
as charter rates for spot charters are fixed for a single voyage, which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience
delays in realizing the benefits from such increases.
An over-supply of drybulk vessel capacity may prolong or further depress the current low charter rates and, in turn, adversely affect our profitability.
The market supply of drybulk vessels had increased due to the high level of new deliveries in the last years. Drybulk newbuildings were delivered in significant numbers
starting at the beginning of 2006 and continued to be delivered in significant numbers through 2017. In addition, the drybulk newbuilding orderbook, which extends to 2019, equaled
approximately 9.8% of the existing world drybulk fleet as of March 2, 2018, according to Clarksons Research, and the orderbook may increase further in proportion to the existing fleet.
An over-supply of drybulk vessel capacity could prolong the period during which low charter rates prevail. Factors that influence the supply of vessel capacity include:
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number of new vessel deliveries;
scrapping rate of older vessels;
vessel casualties;
price of steel;
number of vessels that are out of service;
changes in environmental and other regulations that may limit the useful life of vessels; and
port or canal congestion.
4
If drybulk vessel capacity increases but the demand for vessel capacity does not increase or increases at a slower rate, charter rates could materially decline, which could have
a material adverse effect on our business, financial condition, results of operations and cash flows.
If economic conditions throughout the world decline, it will impede our results of operations, financial condition and cash flows, and could cause the market price of our common
shares to decline.
The world economy is facing a number of new challenges, including recent turmoil and hostilities in the Middle East, North Africa and other geographic areas and countries.
These may eventually cause a decrease in worldwide demand for certain goods and, thus, shipping. We cannot predict how long the current market conditions will last.
The EU and other parts of the world have recently been or are currently in a recession and continue to exhibit weak economic trends. Moreover, there is uncertainty related to
certain countries' ability to refinance their sovereign debt, such as Greece, Spain, Portugal, and Italy. As a result, the credit markets in the United States and Europe have experienced
significant contraction, deleveraging and reduced liquidity, and the U.S. federal and state governments and European authorities have implemented a broad variety of governmental
action and new regulation of the financial markets and may implement additional regulations in the future. As a result, global economic conditions and global financial markets have
been, and continue to be, volatile. Further, credit markets and the debt and equity capital markets have been distressed and the uncertainty surrounding the future of the global credit
markets has resulted in reduced access to credit worldwide.
In addition, recent economic slowdown in the Asia Pacific region, particularly in China, may exacerbate the effect of the weak economic trends in the rest of the world. Before
the global economic financial crisis that began in 2008, China had one of the world's fastest growing economies in terms of gross domestic product, or GDP, which had a significant
impact on shipping demand. The quarterly year-over-year growth rate of China's GDP was approximately 6.9% for the year ended December 31, 2017, and despite slightly increasing from
approximately 6.7% for the year ended December 31, 2016, continues to remain below pre-2008 levels. It is possible that China and other countries in the Asia Pacific region will continue
to experience slowed or even negative economic growth in the near future. Moreover, the current economic slowdown in the economies of the EU and in certain Asian countries may
further adversely affect economic growth in China and elsewhere. Our results of operations and ability to grow our fleet could be impeded by a continuing or worsening economic
downturn in any of these countries or geographic regions.
Further, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, as indicated,
the United States is seeking to implement more protective trade measures. The new U.S. president was elected on a platform promoting trade protectionism. The results of the 2016
presidential election has thus created significant uncertainty about the future relationship between the United States and China and other exporting countries, including with respect to
trade policies, treaties, government regulations and tariffs. On January 23, 2017, the U.S. President signed an executive order withdrawing the United States from the Trans-Pacific
Partnership, a global trade agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian countries. Protectionist developments, or the perception they
may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an
increase in (i) the cost of goods exported from regions globally, particularly the Asia-Pacific region, (ii) the length of time required to transport goods and (iii) the risks associated with
exporting goods. Such increases may further reduce the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs.
We face risks attendant to the trends in the global economy, such as changes in interest rates, instability in the banking and securities markets around the world, the risk of
sovereign defaults, reduced levels of growth, and trade protectionism among other factors. Major market disruptions and the current adverse changes in market conditions and
regulatory climate worldwide may adversely affect our business or impair our ability to borrow under our loan agreements or any future financial arrangements. We cannot predict how
long the current market conditions will last. However, these recent and developing economic and governmental factors, together with depressed charter rates and vessel values, may
have a material adverse effect on our results of operations, financial condition or cash flows and the trading price of our common stock. In the absence of available financing, we also
may be unable to complete vessel acquisitions, take advantage of business opportunities or respond to competitive pressures.
5
Risks associated with operating ocean-going vessels could affect our business and reputation, which could adversely affect our revenues and expenses.
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
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crew strikes and/or boycotts;
marine disaster;
piracy;
environmental accidents;
cargo and property losses or damage; and
business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions.
Any of these circumstances or events could increase our costs or lower our revenues.
Rising fuel prices may adversely affect our profits.
The cost of fuel is a significant factor in negotiating charter rates. As a result, an increase in the price of fuel may adversely affect our profitability. The price and supply of fuel
is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by members of the Organization of
the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and
regulations. Further, fuel may become much more expensive in the future, including as a result of the imposition of sulfur oxide emissions limits in 2020 under new regulations adopted
by the International Maritime Organization, or the IMO, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or
rail.
Upon redelivery of vessels at the end of a period time or voyage time charter, we may be obligated to repurchase bunkers on board at prevailing market prices, which could be
materially higher than fuel prices at the inception of the charter period. In addition, fuel is a significant, if not the largest, expense that we would incur with respect to vessels operating
on voyage charter.
Our vessels are chartered on the spot charter market, either through trip charter contracts or voyage charter contracts. Voyage charter contracts generally provide that the
vessel owner bears the cost of fuel in the form of bunkers, which is a material operating expense. We do not intend to hedge our fuel costs, thus an increase in the price of fuel may
affect in a negative way our profitability and our cash flows.
Our revenues are subject to seasonal fluctuations, which could affect our operating results and ability to service our debt or pay dividends.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter hire rates. This seasonality may result in quarter-to-
quarter volatility in our operating results. The drybulk shipping market is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw
materials in the northern hemisphere during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel schedule and supplies of certain
commodities. This seasonality should not affect our operating results if our vessels are employed on period time charters, but since the majority of our vessels are employed in the spot
market, seasonality may materially affect our operating results and our ability to pay dividends, if any, in the future.
6
Our vessels may call on ports located in or may operate in countries that are subject to restrictions imposed by the United States, the European Union or other governments that
could adversely affect our reputation and the market price of our common stock.
During the year ended December 31, 2017, none of our vessels called on ports located in countries subject to sanctions and embargoes imposed by the U.S. government and
other authorities or countries identified by the U.S. government or other authorities as state sponsors of terrorism, such as Iran, Sudan and Syria; however our vessels may call on ports
in these countries from time to time in the future on our charterers' instructions. The U.S. 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 strengthened over time.
In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which amended the Iran Sanctions Act. Among other things,
CISADA introduced limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum
or petroleum products. In 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any
sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive
Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the U.S., including conducting business in U.S. dollars. Also in 2012, President Obama
signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions.
Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or
petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the U.S. to impose five or more sanctions from Section 6(a) of the Iran
Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to
transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the
person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of
sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person's vessels from U.S. ports for up to
two years.
On November 24, 2013, the P5+1 (the U.S., United Kingdom, Germany, France, Russia and China) entered into an interim agreement with Iran entitled the Joint Plan of Action, or
JPOA. Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the U.S. and EU
would voluntarily suspend certain sanctions for a period of six months.
On January 20, 2014, the U.S. and EU indicated that they would begin implementing the temporary relief measures provided for under the JPOA. These measures include,
among other things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals, and automotive industries from January 20, 2014 until July 20, 2014. The JPOA
was subsequently extended twice.
On July 14, 2015, the P5+1 and the EU announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic
Republic of Iran's Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran's ability to develop and produce nuclear weapons for 10 years while simultaneously
easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and does not involve U.S. persons. On January 16, 2016, the
U.S. joined the EU and the United Nations, or the UN, in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic
Energy Agency, or the IAEA, that Iran had satisfied its respective obligations under the JCPOA.
U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been repealed or permanently terminated at this time. Rather, the U.S.
government has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain
discretionary sanctions authorities; (3) removing certain individuals and entities from the Office of Foreign Assets Control's sanctions lists; and (4) revoking certain Executive Orders
and specified sections of Executive Orders. These sanctions will not be permanently "lifted" until the earlier of "Transition Day", set to occur on October 20, 2023, or upon a report from
the IAEA stating that all nuclear material in Iran is being used for peaceful activities.
7
Although it is our intention to comply with the provisions of the JCPOA, there can be no assurance that we will be in compliance in the future as such regulations and U.S.
Sanctions may be amended over time, and the U.S. retains the authority to revoke the aforementioned relief if Iran fails to meet its commitments under the JCPOA.
We believe that we are currently in compliance with all applicable sanctions and embargo laws and regulations. In order to maintain compliance, we monitor and review the
movement of our vessels on a frequent basis. During 2017, none of our vessels made port calls to Iran.
All or most of our future charters shall include provisions and trade exclusion clauses prohibiting the vessels from calling on ports where there is an existing U.S embargo.
Furthermore as of the date hereof, neither the Company nor its subsidiaries have ever entered into or have any future plans to enter into, directly or indirectly, any contracts, agreements
or other arrangements with the governments of Iran, Syria or Sudan or any entities controlled by the governments of these countries, including any entities organized in these countries.
Due to the nature of our business and the evolving nature of the foregoing sanctions and embargo laws and regulations, there can be no assurance that we will be in
compliance at all times 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 severely 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 common stock may adversely affect the price at which our common stock trades. 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 entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo
laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated
to those countries or entities controlled by their governments. Investor perception of the value of our common stock may be adversely affected by the consequences of war, the effects
of terrorism, civil unrest and governmental actions in these and surrounding countries.
We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our cash flows and net income.
Our business and the operation of our vessels are materially affected by government regulation in the form of international conventions, national, state and local laws and
regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration, including those governing oil spills, discharges to air and
water, ballast water management, and the handling and disposal of hazardous substances and wastes. These requirements include, but are not limited to, EU regulations, 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, including its amendments
of 1977 and 1990, or the CAA, the U.S. Clean Water Act, or the CWA, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, and regulations of the International Maritime
Organization, or the IMO, including but not limited to the International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and generally
referred to as CLC, the IMO International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended and generally referred to as MARPOL, including
the designation of emission control areas, or ECAs, thereunder, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and generally
referred to as SOLAS, the IMO International Convention on Load Lines of 1966, as from time to time amended and generally referred to as the LL Convention, the International
Convention on Civil Liability for Bunker Oil Pollution Damage, generally referred to as the Bunker Convention, the IMO's International Management Code for the Safe Operation of
Ships and for Pollution Prevention, generally referred to as the ISM Code, the International Convention for the Control and Management of Ships' Ballast Water and Sediments,
generally referred to as the BWM Convention, and the International Ship and Port Facility Security Code, or ISPS. 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 water, 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 and our available cash. Because such conventions, laws and regulations
are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale price or useful life of vessels we may
acquire in the future. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which
may materially adversely affect our operations.
8
Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and disrupt our business.
International shipping is subject to security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. Since the events of
September 11, 2001, there have been a variety of initiatives intended to enhance vessel security, such as the MTSA. These security procedures can result in delays in the loading,
discharging or trans-shipment and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, vessels. Future changes to the existing
security procedures may be implemented that could affect the drybulk sector. These changes have the potential to impose additional financial and legal obligations on vessels and, in
certain cases, to render the shipment of certain types of goods uneconomical or impractical. These additional costs could reduce the volume of goods shipped, resulting in a decreased
demand for vessels and have a negative effect on our business, revenues and customer relations.
Acts of piracy on ocean-going vessels have recently increased in frequency, which 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, Strait of Malacca, Arabian Sea, Red Sea, Gulf of
Aden off the coast of Somalia, Indian Ocean and Gulf of Guinea. Sea piracy incidents continue to occur, particularly in the South China Sea, the Indian Ocean, and increasingly in the
Gulf of Guinea and Strait of Malacca, with drybulk vessels particularly vulnerable to such attacks. If piracy attacks result in regions in which our vessels are deployed being
characterized as "war risk" zones by insurers, as the Gulf of Aden temporarily was in May 2008, or Joint War Committee "war and strikes" listed areas, premiums payable for such
coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew and security equipment costs, including costs which may be
incurred to employ onboard security armed guards, could increase in such circumstances. Furthermore, while we believe the charterer remains liable for charter payments when a vessel
is seized by pirates, the charterer may dispute this and withhold charter hire until the vessel is released. A charterer may also claim that a vessel seized by pirates was not "on-hire" for a
certain number of days and is therefore entitled to cancel the charter party, a claim that we would dispute. We may not be adequately insured to cover losses from these incidents,
which could have a material adverse effect on us. In addition, any 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, financial condition and results of operations.
The operation of drybulk vessels has particular operational risks.
The operation of drybulk vessels has certain unique risks. With a drybulk vessel, the cargo itself and its interaction with the vessel can be an operational risk. By their nature,
drybulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, drybulk vessels are often subjected to battering treatment during discharging
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 discharging procedures may affect a vessel's seaworthiness while at sea. Hull fractures in drybulk vessels may lead to the flooding of the vessels' holds. If a drybulk vessel
suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel's bulkheads, leading to the loss of a 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,
and results of operations.
If any of our vessels fails to maintain its class certification or fails any annual survey, intermediate survey, or special survey, or if any scheduled class survey takes longer or is
more expensive than anticipated, this could have a material adverse impact on our financial condition and results of operations.
The hull and machinery of every commercial vessel must be certified 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 International Convention for the Safety of Life at
Sea.
A vessel must undergo annual, intermediate and special surveys. The vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed
periodically over a five-year period. At the beginning, in between and in the end of this cycle, every vessel is required to undergo inspection of her underwater parts that usually
includes dry-docking. These surveys and dry-dockings can be costly and can result in delays in returning a vessel to operation.
If any vessel does not maintain its class, the vessel will not be allowed to carry cargo between ports and cannot be employed or insured. Any such inability to carry cargo or
be employed, or any related violation of our loan covenants, could have a material adverse impact on our financial condition and results of operations.
9
Because seafaring employees we employ are covered by industry-wide collective bargaining agreements, failure of industry groups to renew those agreements may disrupt our
operations and adversely affect our earnings.
We employ a large number of seafarers. All of the seafarers employed on the vessels in our fleet are covered by industry-wide collective bargaining agreements that set basic
standards. We cannot assure you that these agreements will be renewed as necessary or will prevent labor interruptions. Any labor interruptions could disrupt our operations and harm
our financial performance.
Maritime claimants could arrest or attach one or more of our vessels, which could interrupt our cash flows.
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 maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arresting or attachment of one or more of our
vessels could interrupt our cash flow and require us to pay large sums of funds to have the arrest lifted, which would have a material adverse effect on our financial condition and
results of operations.
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 try to assert "sister ship" liability against one of our vessels for
claims relating to another of our vessels.
Governments could requisition our vessels during a period of war or emergency, which could negatively impact our business, financial condition, results of operations, and
available cash.
A government could requisition for title or hire one or more of our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner.
Also, a government could requisition a vessel for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter
rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels could have a material adverse effect on our financial
condition and results of operations.
The shipping industry has inherent operational risks that may not be adequately covered by our insurance. Further, because we obtain some of our insurance through protection
and indemnity associations, we may also be subject to calls or premiums in amounts based not only on our own claim records, but also on the claim records of all other members
of the protection and indemnity associations.
We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Our current insurance includes hull and machinery insurance, war
risks insurance, freight, demurrage and defense insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). We do not expect to
maintain for all of our vessels insurance against loss of hire, which covers business interruptions that result from the loss of use of a vessel. We may not be adequately insured against
all risks or our insurers may not pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the
event of a loss. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in
amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity
insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may
nevertheless increase our costs. If our insurance is not enough to cover claims that may arise, the deficiency may have a material adverse effect on our financial condition and results of
operations. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and
indemnity associations through which we receive indemnity insurance coverage for tort liability, including pollution-related liability. Our payment of these calls could result in
significant expenses to us.
Risk Relating to Our Company
We are a recently restructured company with a limited history of recent operations on which investors may assess our performance.
In March 2014, we completed a financial restructuring, following which we did not own any vessels. During 2015 we acquired eight of the eleven vessels in our current fleet,
and during November 2016, December 2016 and May 2017, we acquired the remaining vessels in our current fleet. As a result, we have a limited operating history since our financial
restructuring, and therefore limited historical financial results upon which you can evaluate our restructured operations. We cannot assure you that we will be successful in operating
our fleet in the future.
10
We have depended on an entity affiliated with our principal shareholder for financing.
We have relied on Jelco Delta Holding Corp., or Jelco, a company affiliated with Claudia Restis, who is our principal shareholder, or Sponsor, for funding during 2015, 2016 and
2017, for vessel acquisitions and general corporate purposes. This has included convertible promissory notes, loan facilities and a backstop loan facility, all as further described under
"Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Loan Arrangements". We cannot assure you that in the future we will be able to rely on
Jelco for financing on similar terms or at all. Any inability to secure financing in the future from Jelco could negatively affect our liquidity position and ability to fund our ongoing
operations.
If we fail to manage our planned growth properly, we may not be able to successfully expand our market share.
We acquired three vessels between November 2016 and May 2017, and we may acquire additional vessels in the future. Our ability to manage our growth will primarily depend
on our ability to:
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generate excess cash flow so that we can invest without jeopardizing our ability to cover current and foreseeable working capital needs, including debt service;
raise equity and obtain required financing for our existing and new operations;
locate and acquire suitable vessels;
identify and consummate acquisitions or joint ventures;
integrate any acquired businesses or vessels successfully with our existing operations;
hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
expand our customer base; and
manage our expansion.
Growing any business by acquisitions presents numerous risks such as obtaining acquisition financing on acceptable terms or at all, undisclosed liabilities and obligations,
difficulty in obtaining additional qualified personnel, managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. We
may not be successful in executing our growth plans and we may incur significant additional expenses and losses in connection therewith.
Purchasing and operating secondhand vessels, such as our current fleet, may result in increased operating costs and vessel off-hire, which could adversely affect our financial
condition and results of operations.
All eleven of the vessels in our fleet are secondhand vessels. Our inspection of these or other secondhand vessels prior to purchase does not provide us with the same
knowledge about their condition and the cost of any required or anticipated repairs that we would have had if these vessels had been built for and operated exclusively by us. We have
not received in the past, and do not expect to receive in the future, the benefit of warranties on any secondhand vessels we acquire.
As the vessels in our fleet or other secondhand vessels we may acquire age, they may become less fuel efficient and more costly to maintain and will not be as advanced as
recently constructed vessels due to improvements in design, technology and engineering. Rates for cargo insurance, paid by charterers, also increase with the age of a vessel, making
older vessels less desirable to charterers.
Rightship, the ship vetting service founded by Rio Tinto and BHP-Billiton, has become a major vetting service in the drybulk shipping industry, which ranks the suitability of
vessels based on a scale of one to five stars. One, nine and one of the vessels in our fleet have five, four and three star risk ratings from Rightship, respectively. There are carriers that
may not charter a vessel that Rightship has vetted with fewer than three stars. Therefore, a potentially deteriorated star rating system for our vessels may affect their commercial
operation and profitability and vessels in our fleet with lower ratings may experience challenges in securing charters.
11
Governmental regulations, safety or other equipment standards related to the age or condition of vessels may require expenditures for alterations, or the addition of new
equipment, to our vessels and may restrict the type of activities in which the vessels 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.
In addition, unless we maintain cash reserves for vessel replacement, we may be unable to replace the vessels in our fleet upon the expiration of their useful lives. We estimate
the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard. Our cash flows and income are dependent on the revenues we earn by chartering our
vessels to customers. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, financial condition and results of operations will be
materially adversely affected. Any reserves set aside for vessel replacement would not be available for other cash needs or dividends.
Newbuilding projects are subject to risks that could cause delays.
We may enter into newbuilding contracts in connection with our vessel acquisition strategy. Newbuilding construction projects are subject to risks of delay inherent in any
large construction project from numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment or
shipyard construction, failure of equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard,
unanticipated actual or purported change orders, inability to obtain required permits or approvals, design or engineering changes and work stoppages and other labor disputes, adverse
weather conditions or any other events of force majeure. A shipyard's failure to deliver a vessel on time may result in the delay of revenue from the vessel. Any such failure or delay
could have a material adverse effect on our operating results.
We may acquire additional vessels, and if those vessels are not delivered on time or are delivered with significant defects, our earnings and financial condition could suffer.
We may acquire further vessels in the future. The delivery of these vessels could be delayed or certain events may arise which could result in us not taking delivery of a
vessel, such as a total loss of a vessel, a constructive loss of a vessel, or substantial damage to a vessel prior to delivery. A delay in the delivery of any vessels to us, the failure of the
contract counterparty to deliver a vessel at all, or us not taking delivery of a vessel could cause us to breach our obligations under a related time charter or could otherwise adversely
affect our financial condition and results of operations. In addition, the delivery of any vessel with substantial defects could have similar consequences.
Substantial debt levels could limit our flexibility to obtain additional financing and pursue other business opportunities.
As of December 31, 2017, we had $213.8 million of outstanding debt, excluding unamortized financing fees and the convertible promissory notes issued to Jelco. Moreover, we
anticipate that we will incur significant future indebtedness in connection with the acquisition of additional vessels, although there can be no assurance that we will be successful in
identifying further vessels or securing such debt financing. Significant levels of debt could have important consequences to us, including the following:
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our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may
be unavailable on favorable terms;
we may need to use a substantial portion of our cash from operations to make principal and interest payments on our debt, reducing the funds that would otherwise
be available for operations, future business opportunities and any future dividends to our shareholders;
our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally;
and
our debt level may limit our flexibility in responding to changing business and economic conditions.
12
Our ability to service our indebtedness will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic
conditions and financial, business, regulatory and other factors, some of which are beyond our control, as well as the interest rates applicable to our outstanding indebtedness. If our
operating income is not sufficient to service our indebtedness, we will be forced to take actions, such as reducing or delaying our business activities, acquisitions, investments or
capital expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity capital. We may not be able to effect any of these remedies on satisfactory terms,
or at all. In addition, a lack of liquidity in the debt and equity markets could hinder our ability to refinance our debt or obtain additional financing on favorable terms in the future. For
more information regarding our current loan arrangements, please see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Loan
Arrangements".
If LIBOR is volatile, it could affect our profitability, earnings and cash flow.
LIBOR has been volatile in the past, with the spread between LIBOR and the prime lending rate widening significantly at times. Because the interest rates borne by most of our
outstanding indebtedness fluctuates with changes in LIBOR, significant changes in LIBOR would have a material effect on the amount of interest payable on our debt, which in turn,
could have an adverse effect on our financial condition.
Furthermore, historically interest in most loan agreements in our industry has been based on published LIBOR rates. Recently, however, lenders have insisted on provisions
that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. Due to current market practices, we have
agreed to such a provision and may be required to do so in future loan agreements. In case our lenders elect to replace LIBOR with their higher cost of funds rate, our lending costs
could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.
Our loan agreements contain, and we expect that other future loan agreements will contain, restrictive covenants that may limit our liquidity and corporate activities, which could
limit our operational flexibility and have an adverse effect on our financial condition and results of operations. In addition, because of the presence of cross-default provisions in
our loan agreements, a default by us under one loan could lead to defaults under multiple loans.
Our loan agreements contain, and we expect that other future loan agreements will contain, customary covenants and event of default clauses, financial covenants, restrictive
covenants and performance requirements, which may affect operational and financial flexibility. Such restrictions could affect, and in many respects limit or prohibit, among other things,
our ability to pay dividends, incur additional indebtedness, create liens, sell assets, or engage in mergers or acquisitions. These restrictions could limit our ability to plan for or react to
market conditions or meet extraordinary capital needs or otherwise restrict corporate activities. There can be no assurance that such restrictions will not adversely affect our ability to
finance our future operations or capital needs.
As a result of these restrictions, we may need to seek permission from our lenders and other financing counterparties in order to engage in some corporate actions. Our lenders'
and other financing counterparties' interests may be different from ours and we may not be able to obtain their permission when needed. This may prevent us from taking actions that
we believe are in our best interests, which may adversely impact our revenues, results of operations and financial condition.
A failure by us to meet our payment and other obligations, including our financial covenants and any security coverage requirements, could lead to defaults under our
financing arrangements. Likewise, a decrease in vessel values or adverse market conditions could cause us to breach our financial covenants or security requirements (the market values
of drybulk vessels have generally experienced high volatility). In the event of a default that we cannot remedy, our lenders and other financing counterparties could then accelerate their
indebtedness and foreclose on the respective vessels in our fleet. The loss of any of our vessels could have a material adverse effect on our business, results of operations and
financial condition.
In the recent past, we have obtained waivers and deferrals of most major financial covenants under our loan facilities with our lenders until the second quarter of 2018. In
particular, all financial covenants under our loan facilities with our lenders, except for minimum liquidity undertakings for all of our loan facilities and asset coverage undertakings for
Championship, Knightship, Leadership, Lordship and Partnership which are currently applicable, have been either waived until June 30, 2018 or will become effective on that date. In
February and March 2018, we have received approval from the credit committees of certain of our lenders to amend the applicable thresholds or further defer the application date of
certain financial covenants and security requirements of our credit facilities for the next twelve months. This approval is subject to completion of definitive documentation. However,
there can be no assurance that we will obtain similar waivers and deferrals from our lenders in the future if needed.
Because of the presence of cross-default provisions in our loan agreements, a default by us under a loan and the refusal of any one lender to grant or extend a waiver could
result in the acceleration of our indebtedness under our other loans. A cross-default provision means that if we default on one loan, we would then default on our other loans
containing a cross-default provision.
13
The failure of our counterparties to meet their obligations under our charter agreements could cause us to suffer losses or otherwise adversely affect our business.
The ability and willingness of each of our counterparties to perform its obligations under charter agreements with us will depend on a number of factors that are beyond our
control and may include, among other things, general economic conditions, the condition of the drybulk shipping industry and the industries in which our counterparties operate and
the overall financial condition of the counterparties. From time to time, those counterparties may account for a significant amount of our chartering activity and revenues. In addition, in
challenging market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charter agreements, and so our customers may
fail to pay charter hire or attempt to renegotiate charter rates. Should a counterparty 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 in the spot market or on time charters could be at lower rates. If our charterers fail to meet their obligations to
us or attempt to renegotiate our charter agreements, we could suffer significant losses, which could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Rising crew costs may adversely affect our profits.
Crew costs are expected to be a significant expense for us. Recently, the limited supply of and increased demand for qualified crew, due to the increase in the size of the global
shipping fleet, has created upward pressure on crewing costs. Increases in crew costs may adversely affect our profitability.
We may not be able to attract and retain key management personnel and other employees in the shipping industry, which may negatively affect the effectiveness of our
management and our results of operations.
Our success will depend to a significant extent upon the abilities and efforts of our management team, including our ability to retain key members of our management team and
the ability of our management to recruit and hire suitable employees. The loss of any of these individuals could adversely affect our business prospects and financial condition.
Difficulty in hiring and retaining personnel could adversely affect our results of operations.
Our vessels may suffer damage, and we may face unexpected repair costs, which could adversely affect our cash flow and financial condition.
If our vessels suffer damage, they may need to be repaired at a shipyard facility. The costs of repairs are unpredictable and can be substantial. The loss of earnings while our
vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings and reduce the amount of any dividends in the future. We may not
have insurance that is sufficient to cover all or any of these costs or losses and may have to pay repair costs not covered by our insurance.
We are exposed to U.S. dollar and foreign currency fluctuations and devaluations that could harm our reported revenue and results of operations.
We generate all of our revenues and incur the majority of our operating expenses in U.S. dollars, but we currently incur many of our general and administrative expenses in
currencies other than the U.S. dollar, primarily the euro. Because such portion of our expenses is incurred in currencies other than the U.S. dollar, our expenses may from time to time
increase relative to our revenues as a result of fluctuations in exchange rates, particularly between the U.S. dollar and the euro, which could affect the amount of net income that we
report in future periods. We may use financial derivatives to operationally hedge some of our currency exposure. Our use of financial derivatives involves certain risks, including the
risk that losses on a hedged position could exceed the nominal amount invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or
unwilling to satisfy its contractual obligations, which could have an adverse effect on our results.
We maintain cash with a limited number of financial institutions including financial institutions that may be located in Greece, which will subject us to credit risk.
We maintain all of our cash with a limited number of financial institutions, including institutions that are located in Greece. These financial institutions located in Greece may be
subsidiaries of international banks or Greek financial institutions. Economic conditions in Greece have been, and continue to be, severely disrupted and volatile, and as a result of
sovereign weakness, Moody's Investor Services Inc. has downgraded the bank financial strength ratings, as well as the deposit and debt ratings, of several Greek banks to reflect their
weakening stand-alone financial strength and the anticipated additional pressures stemming from the country's challenged economic prospects.
14
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy financial obligations or to pay dividends.
We are a holding company and our subsidiaries, which are all wholly-owned by us either directly or indirectly, conduct all of our operations and own all of our operating
assets. We have no significant assets other than the equity interests in our wholly-owned subsidiaries. As a result, our ability to make dividend payments depends on our subsidiaries
and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by the covenants in our loan agreements, a claim or other action by a
third party, including a creditor, and the laws of Bermuda, the British Virgin Islands, Hong Kong, Liberia, Malta and the Republic of the Marshall Islands, where our vessel-owning
subsidiaries are incorporated, which regulate the payment of dividends by companies. If we are unable to obtain funds from our subsidiaries, we may not be able to satisfy our financial
obligations.
In the highly competitive international shipping industry, we may not be able to compete for charters with new entrants or established companies with greater resources, which
may adversely affect our results of operations.
We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom
have substantially greater resources than we do. Competition for the transportation of drybulk cargoes by sea is intense and depends on price, location, size, age, condition and the
acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter the drybulk shipping industry
and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer. Although we believe
that no single competitor has a dominant position in the markets in which we compete, we are aware that certain competitors may be able to devote greater financial and other resources
to their activities than we can, resulting in a significant competitive threat to us. We cannot give assurances that we will continue to compete successfully with our competitors or that
these factors will not erode our competitive position in the future.
Due to our limited fleet diversification, adverse developments in the maritime drybulk shipping industry would adversely affect our business, financial condition, and operating
results.
We depend primarily on the transportation of drybulk commodities. Our relative lack of diversification could make us vulnerable to adverse developments in the maritime
drybulk shipping industry, which would have a significantly greater impact on our business, financial condition and operating results than it would if we maintained more diverse assets
or lines of business.
We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.
We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental
claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our
business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate
outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases or insurers may not
remain solvent, which may have a material adverse effect on our financial condition.
Because we obtain some of our insurance through protection and indemnity associations, we may also be subject to calls or premiums in amounts based not only on our own claim
records, but also on the claim records of all other members of the protection and indemnity associations.
We may be subject to calls, or premiums, in amounts based not only on our claim records but also on the claim records of all other members of the protection and indemnity
associations through which we receive insurance coverage for tort liability, including pollution-related liability. Our payment of these calls could result in significant expenses to us,
which could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends in the future.
15
Failure to comply with the U.S. Foreign Corrupt Practices Act of 1977, or FCPA, could result in fines, criminal penalties, and an adverse effect on our business.
We operate 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 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 action 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, 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.
We depend on our commercial and technical managers to operate our business and our business could be harmed if our managers fail to perform their services satisfactorily.
Pursuant to our management agreements, V.Ships provides us with technical, general administrative and support services (including vessel maintenance, crewing, purchasing,
shipyard supervision, assistance with regulatory compliance, accounting related to vessels and provisions). Fidelity provides us with commercial management services for our vessels
and Seanergy Management Corp., or Seanergy Management, our wholly owned subsidiary, provides us with certain other management services. Our operational success depends
significantly upon V.Ships', Fidelity's and Seanergy Management's satisfactory performance of these services. Our business would be harmed if V.Ships, Fidelity or Seanergy
Management failed to perform these services satisfactorily. In addition, if our management agreements with either V.Ships, Fidelity or Seanergy Management were to be terminated or if
their terms were to be altered, our business could be adversely affected, as we may not be able to immediately replace such services, and even if replacement services were immediately
available, the terms offered could be less favorable than those under our management agreements..
Our ability to compete for and enter into new period time and spot charters and to expand our relationships with our existing charterers will depend largely on our relationship
with our commercial manager, Fidelity, and its reputation and relationships in the shipping industry. If Fidelity suffers material damage to its reputation or relationships, it may harm our
ability to:
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renew existing charters upon their expiration;
obtain new charters;
obtain financing on commercially acceptable terms;
maintain satisfactory relationships with our charterers and suppliers; and
successfully execute our business strategies.
If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, financial condition and results of operations.
Our managers are each privately held companies and there is little or no publicly available information about them.
The ability of V.Ships and Fidelity to render management services will depend in part on their own financial strength. Circumstances beyond our control could impair their
financial strength, and because each is a privately held company, information about their financial strength is not available. As a result, we and our shareholders might have little
advance warning of financial or other problems affecting them even though their financial or other problems could have a material adverse effect on us.
Management fees will be payable to our technical manager regardless of our profitability, which could have a material adverse effect on our business, financial condition and
results of operations.
Pursuant to our technical management agreements with V.Ships, we paid a monthly fee of $8,000 per vessel in 2017 and we pay a monthly fee of $8,000 per vessel starting
January 1, 2018 in exchange for V.Ships providing technical, support and administrative services. The management fees do not cover expenses such as voyage expenses, vessel
operating expenses, maintenance expenses and crewing costs, which are reimbursed by us to the technical manager. The management fees are payable whether or not our vessels are
employed and regardless of our profitability, and we have no ability to require our technical managers to reduce the management fees if our profitability decreases, which could have a
material adverse effect on our business, financial condition and results of operations.
16
The majority of the members of our shipping committee are appointees nominated by Jelco, which could create conflicts of interest detrimental to us.
Our board of directors has created a shipping committee, which has been delegated exclusive authority to consider and vote upon all matters involving shipping and vessel
finance, subject to certain limitations. Jelco has the right to appoint two of the three members of the shipping committee and as a result effectively controls all decisions with respect to
our shipping operations that do not involve a transaction with our Sponsor. Mr. Stamatios Tsantanis, Ms. Christina Anagnostara and Mr. Elias Culucundis currently serve on our
shipping committee.
We may be classified as a passive foreign investment company, or PFIC, which could result in adverse U.S. federal income tax consequences to U.S. holders of our common stock.
A foreign corporation will be treated as a "passive foreign investment company", or PFIC, for U.S. 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". U.S. shareholders of a PFIC are subject to a disadvantageous U.S. 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 upon our current and anticipated method of operations, we do not believe that we should be a PFIC with respect to any taxable year. In this regard, we intend to treat our
gross income from time charters as active services income, rather than rental income. Accordingly, our income from our time chartering activities should not constitute "passive
income", and the assets that we own and operate in connection with the production of that income should not constitute passive asset. There is substantial legal authority supporting
this position consisting of case law and U.S. 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. However, it should be noted that there is also authority which characterizes time charter income as rental income rather than services
income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could
determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations change.
If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. federal income tax consequences and certain
information reporting requirements. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986 as amended, or
the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be liable to pay U.S. 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 their shares of our common stock, as if the excess distribution or gain had
been recognized ratably over the shareholder's holding period of the shares of our common stock. Similar consequences would apply to holders of our warrants. See "Item 10.E. Tax
Considerations – U.S. Federal Income Tax Consequences – U.S. Federal Income Taxation of U.S. Holders - Passive Foreign Investment Company Rules" for a more comprehensive
discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.
We may have to pay tax on U.S. source income, which would reduce our earnings.
Under the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as us and our subsidiaries, that is attributable to transportation that
begins or ends, but that does not both begin and end, in the United States, exclusive of certain U.S. territories and possessions, ("U.S. source gross shipping income") may be subject
to a 4% U.S. 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.
We did not qualify for exemption from the 4% tax under Section 883 for our 2017 taxable year as we did not satisfy one of the ownership tests described in "Item 10.E. Tax
Considerations – United States Federal Income Tax Consequences – Exemption of Operating Income from United States Federal Income Taxation" for such taxable year. The ownership
tests require us, inter alia, to establish or substantiate sufficient ownership of our common shares by one or more "qualified" shareholders. For our 2017 taxable year, we had U.S.
source gross shipping income, on which we were subject to a U.S federal tax of $42,369. Some of our charterparties contain clauses that permit us to seek reimbursement from charterers
of any U.S. tax paid. We have sought reimbursement and we have secured payment from all of our charterers for the 2017 taxable year.
17
Due to the factual nature of the issues involved, we can give no assurances on the tax-exempt status of ourselves or that of any of our subsidiaries for our 2018 or subsequent
taxable year. If we or our subsidiaries are not entitled to exemption under Section 883 for any such taxable year, we or our subsidiaries could be subject for those years to a 4% U.S.
federal income tax on any shipping income such companies derived during the year that is 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.
We are a "foreign private issuer", which could make our common stock less attractive to some investors or otherwise harm our stock price.
We are a "foreign private issuer", as such term is defined in Rule 405 under the Securities Act. As a "foreign private issuer" the rules governing the information that we
disclose differ from those governing U.S. corporations pursuant to the Exchange Act. We are not required to file quarterly reports on Form 10-Q or provide current reports on Form 8-K
disclosing significant events within four days of their occurrence. In addition, our officers and directors are exempt from the reporting and "short-swing" profit recovery provisions of
Section 16 of the Exchange Act and related rules with respect to their purchase and sales of our securities. Our exemption from the rules of Section 16 of the Exchange Act regarding
sales of common stock by insiders means that you will have less data in this regard than shareholders of U.S. companies that are subject to the Exchange Act. Moreover, we are exempt
from the proxy rules, and proxy statements that we distribute will not be subject to review by the Commission. Accordingly there may be less publicly available information concerning
us than there is for other U.S. public companies. These factors could make our common stock less attractive to some investors or otherwise harm our stock price.
The Public Company Accounting Oversight Board inspection of our independent accounting firm, could lead to findings in our auditors' reports and challenge the accuracy of
our published audited consolidated financial statements.
Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board, or PCAOB, inspections that assess their compliance
with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. For several years certain European Union countries,
including Greece, did not permit the PCAOB to conduct inspections of accounting firms established and operating in such European Union countries, even if they were part of major
international firms. Accordingly, unlike for most U.S. public companies, the PCAOB was prevented from evaluating our auditor's performance of audits and its quality control
procedures, and, unlike stockholders of most U.S. public companies, we and our stockholders were deprived of the possible benefits of such inspections. During 2015, Greece agreed to
allow the PCAOB to conduct inspections of accounting firms operating in Greece. In the future, such PCAOB inspections could result in findings in our auditors' quality control
procedures, question the validity of the auditor's reports on our published consolidated financial statements and the effectiveness of our internal control over financial reporting, and
cast doubt upon the accuracy of our published audited financial statements.
We conduct business in China, where the legal system is not fully developed and has inherent uncertainties that could limit the legal protections available to us.
Some of our vessels may be chartered to Chinese customers and from time to time on our charterers' instructions, our vessels may call on Chinese ports. Such charters and
voyages may be subject to regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese
government new taxes or other fees. Applicable laws and regulations in China may not be well publicized and may not be known to us or our charterers in advance of us or our
charterers becoming subject to them, and the implementation of such laws and regulations may be inconsistent. Changes in Chinese laws and regulations, including with regards to tax
matters, or charges in their implementation by local authorities could affect our vessels if chartered to Chinese customers as well as our vessels calling to Chinese ports and could have
a material adverse impact on our business, financial conditions and results of operations.
Changing laws and evolving reporting requirements could have an adverse effect on our business.
Changing laws, regulations and standards relating to reporting requirements, including the European Union General Data Protection Regulation, or GDPR, may create additional
compliance requirements for us. To maintain high standards of corporate governance and public disclosure, we have invested in, and continue to invest in, reasonably necessary
resources to comply with evolving standards.
GDPR broadens the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to report on data breaches within 72 hours and
be bound by more stringent rules for obtaining the consent of individuals on how their data can be used. GDPR will become enforceable on May 25, 2018 and non-compliance may
expose entities to significant fines or other regulatory claims which could have an adverse effect on our business, and results of operations.
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks in our operations and administration of our business. Our business operations could be targeted by individuals or
groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including
the safety of our operations, or lead to unauthorized release of information or alteration of information in our systems. Any such attack or other breach of our information technology
systems could have a material adverse effect on our business and results of operations.
18
Risks Relating to Our Common Shares
The market price of our common shares has been and may in the future be subject to significant fluctuations. Further, there is no guarantee of a continuing public market to resell
our common shares.
Our common shares commenced trading on the Nasdaq Global Market on October 15, 2008. Since December 21, 2012, our common shares have traded on the Nasdaq Capital
Market. We cannot assure you that an active and liquid public market for our common shares will continue.
The market price of our common shares has been and may in the future be subject to significant fluctuations as a result of many factors, some of which are beyond our control.
Among the factors that have in the past and could in the future affect our stock price are:
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quarterly variations in our results of operations;
changes in market valuations of similar companies and stock market price and volume fluctuations generally;
changes in earnings estimates or the publication of research reports by analysts;
speculation in the press or investment community about our business or the shipping industry generally;
strategic actions by us or our competitors such as acquisitions or restructurings;
the thin trading market for our common shares, which makes it somewhat illiquid;
regulatory developments;
additions or departures of key personnel;
general market conditions; and
domestic and international economic, market and currency factors unrelated to our performance.
The stock markets in general, and the markets for drybulk shipping and shipping stocks in particular, have experienced extreme volatility that has sometimes been unrelated to
the operating performance of individual companies. These broad market fluctuations may adversely affect the trading price of our common stock.
Additionally, there is no guarantee of a continuing public market to resell our common shares. Our common shares now trade on the Nasdaq Capital Market. We cannot assure
you that an active and liquid public market for our common shares will continue.
The declaration and payment of dividends will always be subject to the discretion of our board of directors and will depend on a number of factors. Our board of directors may not
declare dividends in the future.
The declaration, timing and amount of any dividend is subject to the discretion of our board of directors and will be dependent upon our earnings, financial condition, market
prospects, capital expenditure requirements, investment opportunities, restrictions in our loan agreements, the provisions of Marshall Islands law affecting the payment of dividends to
shareholders, overall market conditions and other factors. Our board of directors may not declare dividends in the future.
Marshall Islands law generally prohibits the payment of dividends if the company is insolvent or would be rendered insolvent upon payment of such dividend, and dividends
may be declared and paid out of our operating surplus. Dividends may also be declared or paid out of net profits for the fiscal year in which the dividend is declared and for the
preceding fiscal year. We may be unable to pay dividends in the anticipated amounts or at all.
19
Anti-takeover provisions in our amended and restated articles of incorporation and second amended and restated by-laws could make it difficult for shareholders to replace or
remove our current board of directors or could have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of
our common shares.
Several provisions of our amended and restated articles of incorporation and second amended and restated by-laws could make it difficult for shareholders to change the
composition of our board of directors in any one year, preventing them from changing the composition of our management. In addition, the same provisions may discourage, delay or
prevent a merger or acquisition that shareholders may consider favorable.
These provisions:
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authorize our board of directors to issue "blank check" preferred stock without shareholder approval;
provide for a classified board of directors with staggered, three-year terms;
require a super-majority vote in order to amend the provisions regarding our classified board of directors with staggered, three-year terms;
permit the removal of any director from office at any time, with or without cause, at the request of the shareholder group entitled to designate such director; and
prevent our board of directors from dissolving the shipping committee or altering the duties or composition of the shipping committee without an affirmative vote of
not less than 80% of the board of directors.
These anti-takeover provisions could substantially impede the ability of shareholders to benefit from a change in control and, as a result, may adversely affect the market price
of our common shares and your ability to realize any potential change of control premium.
Issuance of preferred shares may adversely affect the voting power of our shareholders and have the effect of discouraging, delaying or preventing a merger or acquisition, which
could adversely affect the market price of our common shares.
Our amended and restated articles of incorporation currently authorize our board of directors to issue preferred shares in one or more series and to determine the rights,
preferences, privileges and restrictions, with respect to, among other things, dividends, conversion, voting, redemption, liquidation and the number of shares constituting any series
without shareholders' approval. If our board of directors determines to issue preferred shares, such issuance may discourage, delay or prevent a merger or acquisition that shareholders
may consider favorable. The issuance of preferred shares with voting and conversion rights may also adversely affect the voting power of the holders of common shares. This could
substantially impede the ability of public shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our common shares and our
shareholders' ability to realize any potential change of control premium.
Jelco and Comet Shipholding Inc. are able to control the outcome of all matters requiring a shareholder vote, and their interests could conflict with the interests of our other
shareholders.
Jelco and Comet Shipholding Inc., or Comet, both companies affiliated with our Sponsor, currently collectively own approximately 16,763,774, or approximately 43.8%, of our
outstanding common shares. Jelco may also acquire up to 43,016,668 additional common shares upon conversion of the convertible promissory notes issued to it by the Company, in
which case our Sponsor would own approximately 73.6% of our outstanding common shares, based on the number of common shares outstanding as of March 7, 2018. As a result, they
may be able to control the outcome of all matters requiring a shareholder vote. This concentration of ownership may delay, deter or prevent acts that would be favored by our other
shareholders or deprive shareholders of an opportunity to receive a premium for their shares as part of a sale of our business, and it is possible that the interests of our Sponsor may in
some cases conflict with our interests and the interests of our other holders of shares. For example, conflicts of interest may arise between us, on one hand, and our Sponsor or affiliated
entities, on the other hand, which may result in the transactions on terms not determined by market forces. Any such conflicts of interest could adversely affect our business, financial
condition and results of operations, and the trading price of our common shares. In addition, this concentration of share ownership may adversely affect the trading price of our shares
because investors may perceive disadvantages in owning shares in a company with controlling shareholders.
20
We may issue additional common shares or other equity securities without shareholder approval, which would dilute our existing shareholder's ownership interests and may
depress the market price of our common shares.
We may issue additional common shares or other equity securities of equal or senior rank in the future without shareholder approval in connection with, among other things,
future vessel acquisitions, the repayment of outstanding indebtedness, and the conversion of convertible financial instruments.
Our issuance of additional common shares or other equity securities of equal or senior rank in these situations would have the following effects:
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our existing shareholders' proportionate ownership interest in us would decrease;
the proportionate amount of cash available for dividends payable on our common shares could decrease;
the relative voting strength of each previously outstanding common share could be diminished; and
the market price of our common shares could decline.
In addition, we may issue additional common shares upon any conversion of our outstanding convertible promissory notes issued to Jelco or upon exercise of our outstanding
class A warrants or the Representative's Warrants issued to Maxim Group LLC, or Maxim in connection with our public offering in December 2016.
As of March 7, 2018, Jelco had the right to acquire 4,222,223 common shares upon exercise of a conversion option pursuant to the convertible promissory note dated March 12,
2015, as amended, issued by the Company to Jelco, 23,516,667 common shares upon exercise of a conversion option pursuant to the revolving convertible promissory note dated
September 7, 2015, as amended, issued by the Company to Jelco and 15,277,778 common shares upon exercise of a conversion option pursuant to the convertible promissory note dated
September 27, 2017, issued by the Company to Jelco. Under each of the convertible promissory notes, Jelco may, at its option, convert the principal amount under the note at any time
into common shares at a conversion price of $0.90 per share. Our issuance of additional common shares in such instance would cause the proportionate ownership interest in us of our
existing shareholders, other than Jelco, to decrease; the relative voting strength of each previously outstanding common share held by our existing shareholders, other than the
converting noteholder, to decrease; and the market price of our common shares could decline.
As of March 7, 2018, we had 11,500,000 class A warrants outstanding to purchase an aggregate of 11,500,000 common shares and two Representative's Warrants outstanding
to purchase an aggregate of 565,000 common shares. Each class A warrant is exercisable for one common share at an exercise price of $2.00 per share and expires in December 2021. The
Representative's Warrants have an exercise price equal to $1.875 per common share and expire in December 2019. Our issuance of additional common shares upon the exercise of the
class A warrants or Representative's Warrants would cause the proportionate ownership interest in us of our existing shareholders, other than the exercising warrant holders, to
decrease; the relative voting strength of each previously outstanding common share held by our existing shareholders to decrease; and the market price of our common shares could
decline.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law, which may negatively affect the ability of shareholders
to protect their interests.
Our corporate affairs are governed by our amended and restated articles of incorporation, our second amended and restated by-laws and by the Marshall Islands Business
Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial
cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the laws of the Republic of the Marshall Islands are not
as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Shareholder rights may differ
as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions,
shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a
corporation incorporated in a U.S. jurisdiction.
21
It may not be possible for investors to serve process on or enforce U.S. judgments against us.
We and all of our subsidiaries are incorporated in jurisdictions outside the U.S. and substantially all of our assets and those of our subsidiaries are located outside the U.S. In
addition, most of our directors and officers are non-residents of the U.S., and all or a substantial portion of the assets of these non-residents are located outside the U.S. As a result, it
may be difficult or impossible for U.S. investors to serve process within the U.S. upon us, our subsidiaries or our directors and officers or to enforce a judgment against us for civil
liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we or our subsidiaries are incorporated or where our assets or the assets of our
subsidiaries are located (1) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal
and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based on those laws.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Overview
We are an international shipping company specializing in the worldwide seaborne transportation of drybulk commodities. We currently own a modern fleet of eleven dry bulk
carriers, consisting of nine Capesizes and two Supramaxes, with a combined cargo-carrying capacity of approximately 1,682,582 dwt and an average fleet age of about 8.9 years.
We believe we have established a reputation in the international drybulk shipping industry for operating and maintaining vessels with high standards of performance,
reliability and safety. We have assembled a management team comprised of executives who have extensive experience operating large and diversified fleets, and who have strong ties to
a number of international charterers.
We were incorporated under the laws of the Republic of the Marshall Islands, pursuant to the BCA, on January 4, 2008, originally under the name Seanergy Merger Corp. We
changed our name to Seanergy Maritime Holdings Corp. on July 11, 2008. Our executive offices are located at 16 Grigoriou Lambraki Street, 166 74 Glyfada, Athens, Greece and our
telephone number is + 30 210 8913507.
History and Development
In August 2012, we began discussions with our former lenders to finalize the satisfaction and release of our obligations under certain of our former loan facility agreements and
the amendment of the terms of certain of our loan facility agreements. Between January 2012 and March 2014, we sold all 20 of our former vessels, in some cases by transferring
ownership of certain of our vessel-owning subsidiaries to third parties nominated by our former lenders in connection with our restructuring. In March 2014, we completed our
restructuring, following which we did not own any vessels and did not have any long-term debt obligations.
On March 12, 2015 we entered into share purchase agreements with Jelco and Stamatios Tsantanis, our Chairman, Chief Executive Officer and Interim Chief Financial Officer,
under which we sold 5,000,100 of our common shares to Jelco for $4.5 million and 333,400 of our common shares to Mr. Tsantanis for $0.3 million, equal to a price per share of $0.90. As
part of the transactions, the purchasers received customary registration rights.
On March 19, 2015, we acquired a Capesize vessel, which was renamed Leadership, from an unaffiliated third party. The acquisition of the vessel was financed with proceeds
from (i) a convertible promissory note dated March 12, 2015, issued by the Company to Jelco for $4 million, (ii) a loan agreement dated March 06, 2015 for $8.75 million with Alpha Bank
A.E. and (iii) a share purchase agreement dated March 12, 2015 with Jelco for the issuance of 5,000,100 of our common shares in exchange for $4.5 million, equal to a price per share of
$0.90. This acquisition was made pursuant to a memorandum of agreement between our vessel-owning subsidiary and the seller, dated December 23, 2014.
22
On August 6, 2015, we entered into a purchase agreement and seven memoranda of agreement with entities affiliated with our Sponsor to acquire seven secondhand drybulk
vessels, consisting of five Capesize and two Supramax vessels, for an aggregate purchase price of $183.4 million. We took delivery of the seven vessels between September and
December 2015. The acquisition costs of the seven vessels were funded with proceeds from a $44.4 million senior secured loan facility with HSH Nordbank AG to finance the acquisition
of the Geniuship and Gloriuship, a $52.7 million secured term loan facility with UniCredit Bank AG to partly finance the acquisition of the Premiership, Gladiatorship and
Guardianship, a $33.8 million secured loan facility with Alpha Bank A.E. to partly finance the acquisition of the Squireship, a $39.4 million secured term loan facility with Natixis to
partly finance the acquisition of the Championship, the Share Purchase Agreement (defined below) and the convertible promissory note issued to Jelco on September 7, 2015. For more
information regarding our current loan facilities and convertible promissory notes, please see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital
Resources – Loan Arrangements".
On September 7, 2015, we entered into a share purchase agreement with Jelco under which we agreed to sell Jelco 10,022,240 of our common shares in three tranches for $9.0
million, or the Share Purchase Agreement. The common shares were sold at a price of $0.90 per share. On September 11, 2015, the first tranche of 3,889,980 common shares was sold for
$3.5 million. On September 29, 2015, the second tranche of 2,655,740 common shares was sold for $2.4 million. On October 21, 2015, the third tranche of 3,476,520 common shares was
sold for $3.1 million. As part of the transaction, the purchaser received customary registration rights.
Effective at the opening of trading on January 8, 2016, we effected a one-for-five reverse split of our common stock.
In a registered direct offering that was completed on August 10, 2016, we sold 1,180,000 of our common shares to an unaffiliated institutional investor at a public offering price
of $4.15 per share, for aggregate gross proceeds of $4.9 million. The net proceeds from the sale of the common shares, after deducting placement agent fees and related offering
expenses, were approximately $4.1 million.
On September 26, 2016, we entered into agreements with an unaffiliated third party for the purchase of two secondhand Capesize vessels for an aggregate purchase price of
$41.5 million. We took delivery of the vessels, Lordship and Knightship, between November and December 2016. The acquisition costs of the vessels were funded with proceeds from
the Jelco Loan Facility described below, a $32 million secured loan facility with Northern Shipping Fund III LP, or NSF, and by cash on hand.
In a registered direct offering that was completed on November 23, 2016, we sold 1,305,000 common shares to unaffiliated institutional investors at a public offering price of
$2.75 per share, for aggregate gross proceeds of $3.6 million. The net proceeds from the sale of the common shares, after deducting fees and expenses, were approximately $3.2 million.
On December 21, 2016, we completed a public offering of 11,300,000 of our common shares and class A warrants to purchase 11,500,000 common shares, which included the
exercise of an over-allotment option. In connection with the offering, we issued to Maxim, the underwriter, Representative's Warrants to purchase 565,000 of our common shares. We
received net proceeds of $14.9 million in connection with the consummation of the underwritten public offering.
On February 3, 2017, we entered into an Equity Distribution Agreement with Maxim, as sales agent, pursuant to which we sold 2,782,136 of our common shares for an aggregate
net proceeds of $2.6 million. On June 27, 2017, we and Maxim mutually terminated the Equity Distribution Agreement.
On March 7, 2017, we entered into a settlement agreement with Natixis related to our secured term loan facility with Natixis. Under the terms of the settlement agreement, we
were granted an option, until September 29, 2017, to satisfy the full amount of the facility at a discount by making a prepayment of $28 million. On September 29, 2017, our lender, Natixis,
entered into a deed of release and fully discharged the $35.4 million balance of our secured term loan facility obligations to the lender for a total settlement amount of $24.0 million. The
first-priority mortgage over the Championship and all other securities created in favour of Natixis were irrevocably and unconditionally released pursuant to the deed of release. We
recognized a gain from the Natixis refinancing of $11.4 million.
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On March 28, 2017, we entered into an agreement with an unaffiliated third party for the purchase of a secondhand Capesize vessel, the Partnership, for a gross purchase price
of $32.7 million. We took delivery of the vessel Partnership on May 31, 2017. The acquisition costs of the Partnership were funded with proceeds from a $18 million secured loan
facility with Amsterdam Trade Bank N.V., or ATB, and the May 24, 2017 Jelco Loan Facility, both described below.
On May 24, 2017, we entered into an up to $18 million term loan facility with ATB, the ATB Loan Facility, to partially finance the acquisition of the Partnership.
On May 24, 2017, we entered into an up to $16.2 million loan facility with Jelco to partially finance the acquisition of the Partnership, the May 24, 2017 Jelco Loan Facility.
On September 25, 2017, in order to partially fund the refinancing of our Natixis facility, we amended and restated the ATB Loan Facility, increasing the loan amount of the
facility by an additional tranche of $16.5 million.
B. Business Overview
We are an international shipping company specializing in the worldwide seaborne transportation of drybulk commodities. We currently own nine Capesize vessels and two
Supramax vessels, with a combined cargo-carrying capacity of approximately 1,682,582 dwt and an average age of approximately 8.9 years.
We believe we have established a reputation in the international drybulk shipping industry for operating and maintaining vessels with high standards of performance,
reliability and safety. We have assembled a management team comprised of executives who have extensive experience operating large and diversified fleets, and who have strong ties to
a number of international charterers.
Our Former Fleet
In August 2012, we began discussions with our former lenders to finalize the satisfaction and release of our obligations under certain of our former loan facility agreements and
the amendment of the terms of certain of our loan facility agreements. Between January 2012 and March 2014, we sold all 20 of our former vessels, in some cases by transferring
ownership of certain of our vessel-owning subsidiaries to third parties nominated by our former lenders in connection with our restructuring. In March 2014, we completed our
restructuring, following which we did not own any vessels and did not have any long-term debt obligations.
Our Current Fleet
The following table lists the vessels in our fleet as of March 7, 2018:
Vessel Name
Championship
Partnership
Knightship
Lordship
Gloriuship
Leadership
Geniuship
Premiership
Squireship
Guardianship
Gladiatorship
_________
(1)
(2)
Year Built
2011
2012
2010
2010
2004
2001
2010
2010
2010
2011
2010
Dwt
179,238
179,213
178,978
178,838
171,314
171,199
170,057
170,024
170,018
56,884
56,819
Flag
LIB
MI
LIB
LIB
MI
BA
MI
IoM
LIB
MI
BA
Type of Employment
Spot
Time Charter(1)
Spot
Time Charter(2)
Spot
Spot
Spot
Spot
Spot
Spot
Spot
This vessel is being chartered by a major European utility and energy company and was delivered to the charterer on June 13, 2017 for a period of employment of
about 12 months to about 18 months at a gross daily rate of $16,200.
This vessel is being chartered by a major European charterer and was delivered to the charterer on June 28, 2017, in direct continuation of the vessel's previous time
charter, for a period of about 18 months to about 22 months. The net daily charter hire is calculated at an index linked rate based on the five time charter routes rate of
the Baltic Capesize Index. In addition, the time charter provides us an option for any period of time during the hire to be converted into a fixed rate time charter,
between three months and 12 months, with a rate corresponding to the prevailing value of the respective Capesize forward freight agreement.
Key to Flags:
BA – Bahamas, IoM – Isle of Man, LIB – Liberia, MI – Marshall Islands.
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Our Business Strategy
We currently own nine Capesize and two Supramax vessels. We intend to continue to review the market in order to identify potential acquisition targets which will be accretive
to our earnings per share. Our acquisition strategy focuses on newbuilding or secondhand drybulk vessels, although we may acquire vessels in other sectors which we believe offer
attractive investment opportunities.
Management of Our Fleet
We manage our vessel's operations, insurances and bunkering and have the general supervision of our third-party technical and commercial managers.
V.Ships, an independent third party, provides technical management for our vessels that includes general administrative and support services, such as crewing and other
technical management, accounting related to vessels and provisions. Pursuant to our technical management agreements with V.Ships, we paid a monthly fee of $8,000 per vessel in 2017
and we are paying a monthly fee of $8,000 per vessel as of January 1, 2018 in exchange for V.Ships providing these technical, support and administrative services. The management fees
do not cover expenses such as voyage expenses, vessel operating expenses, maintenance expenses and crewing costs, which are reimbursed by us to V.Ships. The technical
management agreements are for an indefinite period until terminated by either party, giving the other notice in writing, in which event the applicable agreement shall terminate after one
month from the date upon which such notice is received.
Seanergy Management Corp., or Seanergy Management, one of our wholly-owned subsidiaries, has entered into a commercial management agreement with Fidelity, an
independent third party, pursuant to which Fidelity provides commercial management services for all of the vessels in our fleet. Fidelity serves as a commercial broker for Capesize
vessels exclusively to us. Under the commercial management agreement, we have agreed to reimburse Fidelity for all reasonable running and/or out-of-pocket expenses, including but
not limited to, telephone, fax, stationary and printing expenses, as well as any pre-approved travelling expenses. In addition, we have agreed to pay to Fidelity effective February 1, 2018,
(i) an annual fee of EUR 120,000 net payable in equal monthly payments and (ii) commission fees equal to 0.15% calculated on the collected gross hire/freight/demurrage payable when
the relevant hire/freight/demurrage is collected. The fees under (i) and (ii) are capped at EUR 300,000 per year. The commercial management agreement may be terminated by either party
upon giving one month prior written notice to the other party.
Employment of Our Fleet
The majority of our vessels are chartered on the spot charter market, either through trip charter contracts or voyage charter contracts. A spot market voyage charter is
generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters,
we pay specific voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from
imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate
revenue that is less predictable than those under time charters, but may enable us to capture increased profit margins during periods of improvements in drybulk vessel charter rates.
Downturns in the drybulk industry would result in a reduction in profit margins, and could lead to losses.
Two of our vessels are also employed on period time charters. Period time charters provide a fixed and stable cash flow for a known period of time. Period time charters also
mitigate in part the volatility and seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future, we may opportunistically
look to employ more of our vessels under time charter contracts should rates become more attractive.
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Shipping Committee
We have established a shipping committee. The purpose of the shipping committee is to consider and vote upon all matters involving shipping and vessel finance in order to
accelerate the pace of our decision making in respect of shipping business opportunities, such as the acquisition of vessels or companies. The shipping industry often demands very
prompt review and decision-making with respect to business opportunities. In recognition of this, and in order to best utilize the experience and skills that our directors bring to us, our
board of directors has delegated all such matters to the shipping committee. Transactions that involve the issuance of our securities or transactions that involve a related party,
however, shall not be delegated to the shipping committee but instead shall be considered by the entire board of directors. The shipping committee consists of three directors. In
accordance with the amended and restated charter of the shipping committee, two of the directors on the shipping committee are nominated by Jelco and one of the directors on the
shipping committee is nominated by a majority of our board of directors and is an independent member of the board of directors. The members of the shipping committee are Mr.
Stamatios Tsantanis and Ms. Christina Anagnostara, who are Jelco's nominees, and Mr. Elias Culucundis, who is the nominee of the board of directors.
In order to assure the continued existence of the shipping committee, our board of directors has agreed that the shipping committee may not be dissolved and that the duties or
composition of the shipping committee may not be altered without the affirmative vote of not less than 80% of our board of directors. In addition, the duties of our chief executive
officer, who is currently Mr. Tsantanis, may not be altered without a similar vote. These duties and powers include voting the shares of stock that Seanergy Maritime Holdings Corp.
owns in its subsidiaries. In addition to these agreements, we have amended certain provisions in our articles of incorporation and second amended and restated by-laws to incorporate
these requirements.
As a result of these various provisions, in general, all shipping-related decisions will be made by Jelco's appointees to our board of directors unless 80% of the board members
vote to change the duties or composition of the shipping committee.
The Drybulk Shipping Industry
The global drybulk vessel fleet is divided into four categories based on a vessel's carrying capacity. These categories are:
Capesize. Capesize vessels have a carrying capacity of exceeding 100,000 dwt. Only the largest ports around the world possess the infrastructure to accommodate vessels of
this size. Capesize vessels are primarily used to transport iron ore or coal and, to a much lesser extent, grains, primarily on long-haul routes.
Panamax. Panamax vessels have a carrying capacity of between 60,000 and 100,000 dwt. These vessels are designed to meet the physical restrictions of the Panama Canal
locks (hence their name "Panamax" — the largest vessels able to transit the Panama Canal, making them more versatile than larger vessels). These vessels carry coal, grains, and, to a
lesser extent, minerals such as bauxite/alumina and phosphate rock.
Handymax/Supramax. Handymax vessels have a carrying capacity of between 30,000 and 60,000 dwt. These vessels operate on a large number of geographically dispersed
global trade routes, carrying primarily grains and minor bulks. The standard vessels are usually built with 25-30 ton cargo gear, enabling them to discharge cargo where grabs are
required (particularly industrial minerals), and to conduct cargo operations in countries and ports with limited infrastructure. This type of vessel offers good trading flexibility and can,
therefore, be used in a wide variety of bulk and neobulk trades, such as steel products. Supramax are a sub-category of this category typically having a cargo carrying capacity of
between 50,000 and 60,000 dwt.
Handysize. Handysize vessels have a carrying capacity of up to 30,000 dwt. These vessels are almost exclusively carry minor bulk cargo. Increasingly, vessels of this type
operate on regional trading routes, and may serve as trans-shipment feeders for larger vessels. Handysize vessels are well suited for small ports with length and draft restrictions. Their
cargo gear enables them to service ports lacking the infrastructure for cargo loading and discharging.
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The supply of drybulk vessels is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss. The level of
scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs.
The demand for drybulk vessel capacity is determined by the underlying demand for commodities transported in drybulk vessels, which in turn is influenced by trends in the
global economy. Demand for drybulk vessel capacity is also affected by the operating efficiency of the global fleet, with port congestion, which has been a feature of the market since
2004, absorbing tonnage and therefore leading to a tighter balance between supply and demand. In evaluating demand factors for drybulk vessel capacity, we believe that drybulk
vessels can be the most versatile element of the global shipping fleets in terms of employment alternatives.
Charter Hire Rates
Charter hire rates fluctuate by varying degrees among drybulk vessel size categories. The volume and pattern of trade in a small number of commodities (major bulks) affect
demand for larger vessels. Therefore, charter rates and vessel values of larger vessels often show greater volatility. Conversely, trade in a greater number of commodities (minor bulks)
drives demand for smaller drybulk vessels. Accordingly, charter rates and vessel values for those vessels are subject to less volatility.
Charter hire rates paid for drybulk vessels are primarily a function of the underlying balance between vessel supply and demand, although at times other factors may play a
role. Furthermore, the pattern seen in charter rates is broadly mirrored across the different charter types and the different drybulk vessel categories. However, because demand for
larger drybulk vessels is affected by the volume and pattern of trade in a relatively small number of commodities, charter hire rates (and vessel values) of larger ships tend to be more
volatile than those for smaller vessels.
In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed and fuel consumption.
In the voyage charter market, rates are influenced by cargo size, commodity, port dues and canal transit fees, as well as commencement and termination 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 than routes with low port dues and no
canals to transit. Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load
cargo also are generally quoted at lower rates, because such voyages generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the
calculation of the return charter to a loading area.
Within the drybulk shipping industry, the charter hire rate references most likely to be monitored are the freight rate indices issued by the Baltic Exchange. 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.
Competition
We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and
condition of the vessel, as well as on its reputation. Fidelity negotiates the terms of our charters (whether voyage charters, period time charters, bareboat charters or pools) based on
market conditions. We compete primarily with other owners of drybulk vessels, many of which may have more resources than us and may operate vessels that are newer, and therefore
more attractive to charterers than vessels we may operate. Ownership of drybulk vessels is highly fragmented and is divided among publicly listed companies, state controlled
companies and independent drybulk vessel owners. We compete primarily with owners of drybulk vessels in the Supramax and Capesize class sizes. Some of our publicly listed
competitors include Diana Shipping Inc. (NYSE: DSX), Genco Shipping & Trading Limited (NYSE: GNK), Safe Bulkers Inc. (NYSE: SB), Scorpio Bulkers Inc. (NYSE: SALT), Star Bulk
Carriers Corp. (NASDAQ: SBLK), Golden Ocean Group Ltd. (NASDAQ: GOGL).
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Customers
Our customers include or have included national, regional and international companies. Customers individually accounting for more than 10% of our revenues during the years
ended December 31, 2017, 2016 and 2015 were:
Customer
A
B
C
D
E
F
G
Total
Seasonality
2017
17%
17%
-
-
-
-
-
34%
2016
-
-
18%
12%
-
-
-
30%
2015
-
-
-
15%
47%
12%
10%
84%
Coal, iron ore and grains, which are the major bulks of the drybulk shipping industry, are somewhat seasonal in nature. The energy markets primarily affect the demand for coal,
with increases during hot summer periods when air conditioning and refrigeration require more electricity and towards the end of the calendar year in anticipation of the forthcoming
winter period. The demand for iron ore tends to decline in the summer months because many of the major steel users, such as automobile makers, reduce their level of production
significantly during the summer holidays. Grains are completely seasonal as they are driven by the harvest within a climate zone. Because three of the five largest grain producers (the
United States of America, Canada and the European Union) are located in the northern hemisphere and the other two (Argentina and Australia) are located in the southern hemisphere,
harvests occur throughout the year and grains require drybulk shipping accordingly.
Environmental and Other Regulations
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local
laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and 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 our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable
national authorities such as the United States Coast Guard ("USCG"), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and
charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to
maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety
requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that
conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance,
continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance
with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our
operations. However, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying
with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant
adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
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It should be noted that the U.S. is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For example, in April 2017,
the U.S. President signed an executive order regarding environmental regulations, specifically targeting the U.S. offshore energy strategy, which may affect parts of the maritime
industry and our operations. Furthermore, recent action by the IMO's Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime
industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-
owners and managers by 2021. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital
expenditures. However, the impact of such regulations is hard to predict at this time.
International Maritime Organization
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the "IMO"), has adopted the International
Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as "MARPOL,"
adopted 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 establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling
of harmful substances in packaged forms. MARPOL is applicable to drybulk, tanker and LPG 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 in packaged form, respectively; Annexes
IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.
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 sulfur oxide and nitrogen oxide
emissions from all commercial vessel exhausts and prohibits "deliberate emissions" of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile
compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to
be established with more stringent controls on sulfur emissions, as explained below. 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, or PCBs) are also prohibited. We believe that all our vessels are currently
compliant in all material respects with these regulations.
The IMO's Marine Environmental Protection Committee ("MEPC"), adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and
ozone depleting substances, which 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 amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide
emissions limit (reduced from the current 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur complaint fuel oil, alternative fuels, or certain exhaust gas
cleaning systems. Once the cap becomes effective, ships will be required to obtain bunker delivery notes and International Air Pollution Prevention ("IAPP") Certificates from their flag
states that specify sulfur content. This subjects ocean-going vessels in these areas to stringent emissions controls, and may cause us to incur additional costs.
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%. 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. 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.
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Annex VI also establishes tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation, with Tier I controlling vessels
constructed on or after January 1, 2000. As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI, which became effective on March 1, 2018, 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 commencing on January 1, 2019.
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 ("SEEMPS"), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency
Design Index. Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.
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.
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 all of our vessels are in substantial compliance with
SOLAS and LL Convention 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 V.Ships 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. We have obtained applicable documents of compliance from V.Ships 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.
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.
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.
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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 9, 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 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. 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
D2 standard on or after September 8, 2019. For most ships, compliance with the D2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted
organisms. Costs of compliance may be substantial.
Once mid-ocean ballast exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost compliance could increase for ocean carriers
and may be material. 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 costs of compliance with a mandatory mid-ocean ballast exchange could be material, and it is difficult to
predict the overall impact of such a requirement on our operations.
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.
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 the 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.
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United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. 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 or operate with the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.'s
territorial sea and its 200 nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, 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 our 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, including
bunkers (fuel). OPA defines these other damages broadly to include:
(i) injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
(ii) injury to, or economic losses resulting from, the destruction of real and personal property;
(iii) loss of subsistence use of natural resources that are injured, destroyed or lost;
(iv) 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;
(v) lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
(vi) 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 21, 2015, the USCG adjusted the limits of OPA
liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,100 per gross ton or $939,800 (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 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.
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OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels
to establish and maintain with the USCG 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.
We plan to comply with the USCG's financial responsibility regulations by providing a certificate of responsibility evidencing sufficient self-insurance.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico has resulted in additional regulatory initiatives or statutes, including the raising of liability caps under OPA, new
regulations regarding offshore oil and gas drilling, and a pilot inspection program for offshore facilities. However, the status of several of these initiatives and regulations is currently in
flux. For example, the U.S. Bureau of Safety and Environmental Enforcement ("BSEE") announced a new Well Control Rule in April 2016, but pursuant to orders by the U.S. President in
early 2017, the BSEE announced in August 2017 that this rule would be revised. In January 2018, the U.S. President proposed leasing new sections of U.S. waters to oil and gas
companies for offshore drilling, vastly expanding the U.S. waters that are available for such activity over the next five years. The effects of the proposal are currently unknown.
Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives
or statutes. Additional legislation or regulations applicable to the operation of our vessels that may be implemented in the future could adversely affect our business.
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. 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. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within
their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners' responsibilities under
these laws. The Company intends to comply with all applicable state regulations in the ports where the Company's vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to
exceed our insurance coverage it could have an adverse effect on our business and results of operation.
The U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) ("CAA") requires the EPA to promulgate standards applicable to emissions of volatile organic
compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, or SIPs, some of which regulate emissions resulting from vessel loading and
unloading operations which may affect our vessels.
The U.S. Clean Water Act ("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.
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 requires a permit regulating ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States
waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (the "VGP"). On March 28, 2013, the EPA re-issued the VGP for another five years
from the effective date of December 19, 2013. The 2013 VGP focuses on authorizing 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. For a new vessel delivered to an owner or operator after December 19, 2013 to be covered by the VGP, the owner must submit a Notice of Intent ("NOI") at least 30
days (or 7 days for eNOIs) before the vessel operates in United States waters. We have submitted NOIs for our vessels where required.
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The USCG regulations adopted under the U.S. National Invasive Species Act ("NISA") impose mandatory ballast water management practices for all vessels equipped with
ballast water tanks entering or operating in U.S. waters, which require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is
discharged or the implementation of other port facility disposal arrangements or procedures, and/or may otherwise restrict our vessels from entering U.S. waters. The USCG has
implemented revised regulations on ballast water management by establishing standards on the allowable concentration of living organisms in ballast water discharged from ships in
U.S. waters. As of January 1, 2014, vessels were technically subject to the phasing-in of these standards, and the USCG must approve any technology before it is placed on a vessel.
The USCG first approved said technology in December 2016, and continues to review ballast water management systems. The USCG may also provide waivers to vessels that
demonstrate why they cannot install the new technology. The USCG has set up requirements for ships constructed before December 1, 2013 with ballast tanks trading with exclusive
economic zones of the U.S. to install water ballast treatment systems as follows: (1) ballast capacity 1,500-5,000m3—first scheduled drydock after January 1, 2014; and (2) ballast
capacity above 5,000m3—first scheduled drydock after January 1, 2016. All of our vessels have ballast capacities over 5,000m3, and those of our vessels trading in the U.S. will have to
install water ballast treatment plants at their first drydock after January 1, 2016, unless an extension is granted by the USCG.
The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. On December 27, 2013, the EPA issued an enforcement
response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but
will not grant any waivers. In addition, through the CWA certification provisions that allow U.S. states to place additional conditions on the use of the VGP within state waters, a
number of states have proposed or implemented a variety of stricter ballast requirements including, in some states, specific treatment standards. Compliance with the EPA, USCG and
state regulations could require 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 cost, or may otherwise restrict our vessels from entering U.S. waters.
Two recent United States court decisions should be noted. First, in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the
sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA issues a new VGP. The effect of such
redrafting remains unknown. Second, on October 9, 2015, the Sixth Circuit Court of Appeals stayed the Waters of the United States rule (WOTUS), which aimed to expand the
regulatory definition of "waters of the United States," pending further action of the court. In response, regulations have continued to be implemented as they were prior to the stay on a
case-by-case basis. In February 2017, the U.S. President issued an executive order directing the EPA and U.S. Army Corps of Engineers publish a proposed rule rescinding or revising
the WOTUS rule. In January 2018, the EPA and Army Corps of Engineers issued a final rule pursuant to the President's order, under which the Agencies will interpret the term "waters
of the United States" to mean waters covered by the regulations, as they are currently being implemented, within the context of the Supreme Court decisions and agency guidance
documents, until February 6, 2020. Litigation regarding the status of the WOTUS rule is currently underway, and the effect of future actions in these cases upon our operations is
unknown.
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.
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 regulation 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 EU ports.
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International Labour Organization
The International Labor 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 above 500 gross tons in international trade. All our vessels
are in compliance with and are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to 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. On June 1, 2017, the U.S. president announced that it is withdrawing from the Paris Agreement. The timing and effect of such action has yet to
be determined.
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, initial IMO strategy for reduction of greenhouse gas emissions is expected to be adopted at MEPC 72 in April 2018. The IMO
may implement market-based mechanisms to reduce greenhouse gas emissions from ships at the upcoming MEPC session.
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 calling at EU ports are required to collect and publish data on
carbon dioxide emissions and other information.
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, the U.S. President signed an executive order
to review and possibly eliminate the EPA's plan to cut greenhouse gas emissions. The outcome of this order is not yet known. Although the mobile source emissions regulations do
not apply to greenhouse gas emissions from vessels, the EPA or individual U.S. states could enact environmental regulations that would affect our operations. For example, California
has introduced a cap-and-trade program for greenhouse gas emissions, aiming to reduce emissions 40% by 2030..
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 more intense weather events.
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.
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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 Facilities 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 following are among the various requirements, some of which are found in the SOLAS Convention:
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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 be aligned 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.
Inspection by Classification Societies
Every seagoing 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 on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject
to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class certification, regular and occasional surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be
performed as follows:
Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable for special equipment
classed, within three months before or after each anniversary of the date of commencement of the class period indicated in the certificate.
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class
renewal. Intermediate surveys are to be carried out at or between the occasion of the second or third annual survey.
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Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship's hull, machinery, including the electrical plant and for any special
equipment classed, 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. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. Substantial
amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey, 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 every part of the vessel would be surveyed within a
five year cycle. At an owner's application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. 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. Vessels under five years of age can waive dry-docking in order to increase
available days and decrease capital expenditures, provided the vessel is inspected underwater.
Most vessels are usually dry-docked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the
classification surveyor will issue a "recommendation" which must be rectified by the shipowner within prescribed time limits.
Most insurance underwriters and lenders make it a condition for insurance coverage and lending, respectively, that a vessel be certified as "in class" by a classification society
which is a member of the International Association of Classification Societies, or the IACS. All our vessels are certified as being "in class" by American Bureau of Shipping, Bureau
Veritas, Korean Register, Lloyd's Register or Nippon Kaiji Kyokai, major classification societies. All new and secondhand vessels that we purchase must be certified prior to their
delivery under our standard purchase contracts and memorandums of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the
vessel.
Risk of Loss and Liability Insurance Generally
The operation of any cargo 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 always an inherent possibility of marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners, operators and demise
charterers of any vessel for oil pollution accidents in the United States Exclusive Economic Zone, has made liability insurance more expensive for shipowners and operators trading in
the United States market. While we maintain hull and machinery insurance, war risks insurance, protection and indemnity cover and freight, demurrage and defense cover for our fleet in
amounts that we believe will be prudent to cover normal risks in our operations, we may not be able to achieve or maintain this level of coverage throughout a vessel's useful life.
Furthermore, while we believe that our 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 we will
always be able to obtain adequate insurance coverage at reasonable rates.
Hull & Machinery and War Risks Insurance
We maintain marine hull and machinery and war risks insurance, which includes the risk of actual or constructive total loss, for all of our vessels. Each of our vessels is
covered up to at least fair market value with deductibles of $150,000 or $100,000 per vessel per incident for our Capesize and Supramax vessels, respectively. We also maintain increased
value coverage for our vessels. Under this increased value coverage, in the event of total loss of a vessel, we will be able to recover the sum insured under the increased value policy in
addition to the sum insured under the hull and machinery policy. Increased value insurance also covers excess liabilities which are not recoverable under our hull and machinery policy
by reason of under insurance.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which insure liabilities to third parties in connection
with our shipping activities. This includes third-party liability and other related expenses resulting from the injury 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. Our P&I coverage will be subject to and in accordance with the rules of the P&I Association in which the vessel is entered. Protection and
indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs". Our coverage is limited to approximately $7.75
billion, except for pollution which is limited to $1 billion.
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Our protection and indemnity insurance coverage for pollution is $1 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. Each P&I Association has capped its
exposure to this pooling agreement at approximately $7.75 billion. As a member of a P&I Association which is a member of the International Group, we are subject to calls payable to the
P&I 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.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits,
licenses 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 a vessel. We believe that we have obtained all permits, licenses and certificates currently required to permit our vessels to operate as planned. Additional laws and regulations,
environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business in the future.
C. Organizational Structure
Seanergy Maritime Holdings Corp. is the ultimate parent company of the following wholly-owned subsidiaries as of the date of this annual report:
Subsidiary
Seanergy Management Corp.
Seanergy Shipmanagement Corp.
Leader Shipping Co.
Sea Glorius Shipping Co.
Sea Genius Shipping Co.
Guardian Shipping Co.
Gladiator Shipping Co.
Premier Marine Co.
Squire Ocean Navigation Co.
Champion Ocean Navigation Co.
Lord Ocean Navigation Co.
Knight Ocean Navigation Co.
Emperor Holding Ltd.
Partner Shipping Co.
Pembroke Chartering Services Limited
Martinique International Corp.
Harbour Business International Corp.
Maritime Capital Shipping Limited
Maritime Capital Shipping (HK) Limited
Maritime Grace Shipping Limited
Maritime Glory Shipping Limited
Atlantic Grace Shipping Limited
D. Property, Plants and Equipment
Jurisdiction of Incorporation
Republic of the Marshall Islands
Republic of the Marshall Islands
Republic of the Marshall Islands
Republic of the Marshall Islands
Republic of the Marshall Islands
Republic of the Marshall Islands
Republic of the Marshall Islands
Republic of the Marshall Islands
Liberia
Liberia
Liberia
Liberia
Republic of the Marshall Islands
Republic of the Marshall Islands
Malta
British Virgin Islands
British Virgin Islands
Bermuda
Hong Kong
British Virgin Islands
British Virgin Islands
British Virgin Islands
We do not own any real estate property. We maintain our principal executive offices at Glyfada, Athens, Greece. Other than our vessels, we do not have any material property.
See "Item 4.B. Business Overview - Our Current Fleet" and "Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources – Loan Arrangements".
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
38
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of the results of our operations and our financial condition should be read in conjunction with the financial statements and the notes to those
statements included in "Item 18. Financial Statements". This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may
differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth in "Item 3 Key Information–D. Risk Factors".
A. Operating Results
Factors Affecting our Results of Operations Overview
We are an international shipping company specializing in the worldwide seaborne transportation of drybulk commodities. We currently own a modern fleet of eleven dry bulk
carriers, consisting of nine Capesizes and two Supramaxes, with a combined cargo-carrying capacity of approximately 1,682,582 dwt and an average fleet age of about 8.9 years.
On January 7, 2016, we effected a 1-for-5 reverse split of our common stock. The reverse stock split became effective and the common stock began trading on a split-adjusted
basis on the NASDAQ Capital Market at the opening of trading on January 8, 2016. There was no change in the number of authorized shares or the par value of our common stock. All
share and per share amounts disclosed herein give effect to this reverse stock split retroactively, for all periods presented.
Important Measures and Definitions for Analyzing Results of Operations
We use a variety of financial and operational terms and concepts. These include the following:
Ownership days. Ownership days are the total number of calendar days in a period during which we owned each vessel in our fleet. Ownership days are an indicator of the size
of our fleet over a period and affect both the amount of revenues and the amount of expenses recorded during that period.
Available days. Available days are the number of ownership days less the aggregate number of days that our vessels are off-hire due to major repairs, dry-dockings, lay-up or
special or intermediate surveys. The shipping industry uses available days to measure the aggregate number of days in a period during which vessels should be capable of generating
revenues.
Operating days. Operating days are the number of available days in a period less the aggregate number of days that our vessels are off-hire for any reason, including off-hire
days between successive voyages, as well as other unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during
which vessels actually generate revenues.
Fleet utilization. Fleet utilization is the percentage of time that our vessels were generating revenues, and is determined by dividing operating days by ownership days for the
relevant period.
Fleet utilization excluding dry-docking and lay-up off-hire days. Fleet utilization excluding dry-docking and lay-up off-hire days is calculated by dividing the number of our
fleet's operating days during a period by the number of available days during that period. The shipping industry uses fleet utilization excluding dry-docking and lay-up off-hire days to
measure a company's efficiency in finding suitable employment for its vessels and excluding the amount of days that its vessels are off-hire for reasons such as scheduled repairs,
vessel upgrades, dry-dockings, special or intermediate surveys and lay-ups.
Off-hire. The period a vessel is not being chartered or is unable to perform the services for which it is required under a charter.
Dry-docking. We periodically dry-dock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or
governmental requirements.
39
Time charter. A time charter is a contract for the use of a vessel for a specific period of time during which the charterer pays substantially all of the voyage expenses, including
port charges, bunker expenses, canal charges and other commissions. The vessel owner pays the vessel operating expenses, which include crew costs, provisions, deck and engine
stores and spares, lubricants, insurance, maintenance and repairs. The vessel owner is also responsible for each vessel's dry-docking and intermediate and special survey costs. Time
charter rates are usually fixed during the term of the charter. Prevailing time charter rates do fluctuate on a seasonal and year-to-year basis and may be substantially higher or lower from
a prior time charter agreement when the subject vessel is seeking to renew the time charter agreement with the existing charterer or enter into a new time charter agreement with another
charterer. Fluctuations in time charter rates are influenced by changes in spot charter rates.
Voyage charter. A voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed-upon total amount. Under voyage
charters, voyage expenses, such as port charges, bunker expenses, canal charges and other commissions, are paid by the vessel owner, who also pays vessel operating expenses.
TCE. Time charter equivalent, or TCE, rate is defined as our net revenue less voyage expenses during a period divided by the number of our operating days during the period.
Voyage expenses include port charges, bunker expenses, canal charges and other commissions.
Daily Vessel Operating Expenses. Daily Vessel Operating Expenses are calculated by dividing vessel operating expenses less pre-delivery expenses by ownership days for the
relevant time periods. Vessel operating expenses include crew costs, provisions, deck and engine stores, lubricants, insurance, maintenance and repairs. Vessel operating expenses
before pre-delivery expenses exclude one-time pre-delivery and pre-joining expenses associated with initial crew manning and supply of stores of Company's vessels upon delivery.
Principal Factors Affecting Our Business
The principal factors that affect our financial position, results of operations and cash flows include the following:
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number of vessels owned and operated;
voyage charter rates;
time charter trip rates;
period time charter rates;
the nature and duration of our voyage charters;
vessels repositioning;
vessel operating expenses and direct voyage costs;
maintenance and upgrade work;
the age, condition and specifications of our vessels;
issuance of our common shares and other securities;
amount of debt obligations; and
financing costs related to debt obligations.
We are also affected by the types of charters we enter into. Vessels operating on period time charters and bareboat time charters provide more predictable cash flows, but can
yield lower profit margins than vessels operating in the spot charter market, either on trip time charters or voyage charters, during periods characterized by favorable market conditions.
40
Vessels operating in the spot charter market generate revenues that are less predictable, but can yield increased profit margins during periods of improvements in drybulk rates.
Spot charters also expose vessel owners to the risk of declining drybulk rates and rising fuel costs in case of voyage charters. All of our vessels in 2015, 2016 and 2017 operated in the
spot charter market, except for the Lordship that we acquired on November 30, 2016 and which has been employed on a short-term time charter under her previous ownership and which
time charter was extended for a period of about 18 months to about 22 months after June 2017 in direct continuation of the vessel's time charter and for the Partnership which was
employed in June 2017 on a short-term time charter for a period of about 12 months to about 18 months.
Results of Operations
Year ended December 31, 2017 as compared to year ended December 31, 2016
(In thousands of U.S. Dollars, except for share and per share data)
Revenues:
Vessel revenue, net
Expenses:
Voyage expenses
Vessel operating expenses
Management fees
General and administrative expenses
Depreciation and amortization
Operating income/(loss)
Other expenses:
Interest and finance costs
Gain on debt refinancing
Other, net
Total other expenses, net:
Net loss before income taxes
Income taxes
Net loss
Year ended December 31,
2016
2017
Change
Amount
%
74,834
34,662
40,172
(34,949)
(19,598)
(1,016)
(5,081)
(11,388)
2,802
(17,399)
11,392
(30)
(6,037)
(3,235)
-
(3,235)
(21,008)
(14,251)
(895)
(4,134)
(9,087)
(14,713)
(9,851)
-
(25)
(9,876)
(24,589)
(34)
(24,623)
(13,941)
(5,347)
(121)
(947)
(2,301)
17,515
(7,548)
11,392
(5)
3,839
21,354
34
21,388
116%
66%
38%
14%
23%
25%
119%
77%
-
20%
39%
87%
100%
87%
Net loss per common share, basic
Weighted average number of common shares outstanding, basic
(0.09)
35,845,890
(1.20)
20,553,007
Vessel Revenue, Net - The increase was attributable to the increase in prevailing charter rates and the increase in operating days. We had 3,339 operating days in 2017 as
compared to 2,444 operating days in 2016. The TCE rate increased in 2017 by 114% to $11,945 compared to $5,587 for 2016. TCE rate is a non-GAAP measure. Please see the
reconciliation below of TCE rate to net revenues from vessels, the most directly comparable U.S. GAAP measure.
Voyage Expenses - The increase was primarily attributable to the increase in ownership days and higher fuel prices. We had 3,864 ownership days in 2017 as compared to 2,978
ownership days in 2016. We acquired the Partnership in May 2017, and 2017 was the first full year of operations for the Lordship and Knightship.
Vessel Operating Expenses - The increase was primarily attributable to the increase in ownership days. We had 3,864 ownership days in 2017 as compared to 2,978 ownership
days in 2016. We acquired a Capesize vessel in May 2017.
Management Fees - The increase was attributable to the increase in ownership days. We had 3,864 ownership days in 2017 as compared to 2,978 ownership days in 2016. We
acquired a Capesize vessel in May 2017. The increase was partly offset by a decrease in monthly management fee. The monthly management fee per vessel payable to our technical
manager is $8 as of January 1, 2017, compared to $9.65 up to December 31, 2016.
41
General and Administrative Expenses – The increase is primarily attributable to an $0.4 million increase in remuneration expenses in 2017 compared to 2016 and to $0.25 million
of professional services in 2017 to an unaffiliated third party related to the Company's internet-based investor relations efforts.
Depreciation and Amortization – The increase was primarily attributable to the increase in ownership days.
Interest and Finance Costs - The increase was primarily attributable to our new ATB Loan Facility, the May 24, 2017 Jelco Loan Facility, and the new convertible note with
Jelco entered into in September 2017, offset with the early settlement of our Natixis loan facility. The weighted average interest rate on our outstanding debt and convertible promissory
notes for the years ended 2017 and 2016 was approximately 5.69% and 4.05%, respectively.
Gain on debt refinancing - The $11.4 million gain was recognized following the early settlement and refinancing of our Natixis loan facility pursuant to the March 7, 2017
settlement agreement.
Year ended December 31, 2016 as compared to year ended December 31, 2015
(In thousands of U.S. Dollars, except for share and per share data)
Revenues:
Vessel revenue, net
Expenses:
Voyage expenses
Vessel operating expenses
Management fees
General and administrative expenses
Depreciation and amortization
Loss on bad debt
Operating loss
Other expenses:
Interest and finance costs
Other, net
Total other expenses, net:
Net loss before income taxes
Income taxes
Net loss
Year ended December 31,
2015
2016
Change
Amount
%
34,662
11,223
23,439
209%
(21,008)
(14,251)
(895)
(4,134)
(9,087)
-
(14,713)
(9,851)
(25)
(9,876)
(24,589)
(34)
(24,623)
(7,496)
(5,639)
(336)
(2,874)
(1,903)
(30)
(7,055)
(1,859)
(42)
(1,901)
(8,956)
-
(8,956)
(13,512)
(8,612)
(559)
(1,260)
(7,184)
30
(7,658)
(7,992)
17
(7,975)
(15,633)
(34)
(15,667)
180%
153%
166%
44%
378%
(100)%
109%
430%
(40)%
420%
175%
-
175%
Net loss per common share, basic
Weighted average number of common shares outstanding, basic
(1.20)
20,553,007
(0.83)
10,773,404
Vessel Revenue, Net – The increase was primarily attributable to the increase in operating days. We had 2,444 operating days in 2016 as compared to 598 operating days in
2015. We incurred 173 off-hire days for a vessel lay-up in 2016. In 2016, we acquired two vessels, with delivery dates of November 30 and December 13. In 2015 we acquired eight
vessels, with the first vessel delivered on March 19, 2015 and the remaining seven vessels delivered between September 11, 2015 and December 7, 2015.
Direct Voyage Expenses – The increase was primarily attributable to the increase in ownership days. We had 2,978 ownership days in 2016 as compared to 776 ownership days
in 2015.
Vessel Operating Expenses – The increase was attributable to the increase in ownership days. However, the daily vessel operating expenses for 2016 were lower than those of
2015, as described below in section "Performance Indicators".
Management Fees – The increase was primarily attributable to the increase in ownership days.
42
General and administrative expenses – The increase is primarily attributable to $0.5 million bonus compensation and $0.6 million of stock based compensation amortization for
shares granted pursuant to our 2011 Equity Incentive Plan, compared to $0.2 million of respective stock based compensation amortization for 2015.
Depreciation and Amortization – The increase was primarily attributable to the increase in ownership days.
Interest and Finance Costs – The increase was primarily attributable to our having higher outstanding indebtedness and a higher weighted average interest rate in 2016
compared to 2015. On March 17, 2015, we drew down $8.75 million under the first of our credit facilities, and we drew down $170.3 million under four other of our credit facilities between
September 11, 2015 and December 7, 2015. Additionally, we drew down $44.8 million under two new credit facilities between October 2016 and December 2016. Furthermore, our
indebtedness under the two convertible promissory notes we issued to Jelco, was higher in 2016 as compared to 2015 due to additional drawdowns of $9.4 million during 2016 under the
unsecured revolving convertible promissory note, dated September 7, 2015. The weighted average interest rate on our outstanding debt and convertible promissory notes for the years
ended 2016 and 2015 was approximately 4.05% and 3.85%, respectively.
Performance Indicators
The figures shown below are non-GAAP statistical ratios used by management to measure performance of our vessels. For the "Fleet Data" figures, there are no comparable
U.S. GAAP measures.
Fleet Data:
Ownership days
Available days(1)
Operating days(2)
Fleet utilization
Fleet utilization excluding dry-docking off hire days
Average Daily Results:
TCE rate(3)
Daily Vessel Operating Expenses(4)
2017
Year Ended December 31,
2016
2015
3,864
3,851
3,339
86%
87%
2,978
2,741
2,444
82%
89%
776
724
598
77%
83%
$
$
11,945
4,985
$
$
5,587
4,618
$
$
6,232
5,428
(1)
(2)
(3)
During the year ended December 31, 2017, we incurred 13 off-hire days for one vessel drydocking. During the year ended December 31, 2016, we incurred 173 off-hire days for a
vessel lay-up and 64 off-hire days for two vessel surveys.
During the year ended December 31, 2017, we incurred 499 off-hire days between voyages and 13 off-hires days due to other unforeseen circumstances. During the year ended
December 31, 2016, we incurred 287 off-hire days between voyages and 10 off-hires days due to other unforeseen circumstances.
We include TCE rate, a non-GAAP measure, as we believe it provides additional meaningful information in conjunction with net revenues from vessels, the most directly
comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial
performance. Our calculation of TCE rate may not be comparable to that reported by other companies. The following table reconciles our net revenues from vessels to TCE rate.
(In thousands of US Dollars, except operating days and TCE rate)
2017
Year Ended December 31,
2016
2015
Net revenues from vessels
Voyage expenses
Net operating revenues
Operating days
Daily time charter equivalent rate
(4)
$
$
$
74,834
(34,949)
39,885
3,339
11,945
$
$
$
34,662
(21,008)
13,654
2,444
5,587
$
$
$
11,223
(7,496)
3,727
598
6,232
We include Daily Vessel Operating Expenses, a non-GAAP measure, as we believe it provides additional meaningful information in conjunction with vessel operating expenses,
the most directly comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating
their financial performance. Our calculation of Daily Vessel Operating Expenses may not be comparable to that reported by other companies. The following table reconciles our
vessel operating expenses to Daily Vessel Operating Expenses.
43
(In thousands of US Dollars, except ownership days and Daily Vessel Operating Expenses)
Vessel operating expenses
Less: Pre-delivery expenses
Vessel operating expenses before pre-delivery expenses
Ownership days
Daily Vessel Operating Expenses
2017
Year Ended December 31,
2016
2015
$
$
19,598
$
(337)
19,261
3,864
4,985
$
14,251
$
(499)
13,752
2,978
4,618
$
5,639
(1,427)
4,212
776
5,428
Recent Accounting Pronouncements
Refer to Note 2 of the consolidated financial statements included in this annual report.
Critical Accounting Policies and Estimates
Our Fleet – Illustrative Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels
In "Critical Accounting Policies and Estimates – Impairment of long-lived assets," we discuss our policy for impairing the carrying values of our vessels. Historically, the
market values of vessels have experienced volatility, which from time to time may be substantial. As a result, the charter-free market value of certain of our vessels may have declined
below those vessels' carrying value, even though we would not impair those vessels' carrying value under our accounting impairment policy. The table set forth below indicates (i) the
carrying value of each of our vessels as of December 31, 2017 and 2016, respectively, and (ii) which of our vessels we believe had a basic market value below their carrying value. This
aggregate difference between the carrying value of our vessels and their market value of $24.9 million and $47.2 million, as of December 31, 2017 and 2016, respectively, represents the
amount by which we believe we would have had to reduce our net income if we sold all of such vessels, on industry standard terms, in cash transactions, and to a willing buyer where
we are not under any compulsion to sell, and where the buyer was not under any compulsion to buy as of December 31, 2017 and 2016, respectively. For purposes of this calculation, we
assumed that the vessels would be sold at a price that reflected our estimate of their charter-free market values as of December 31, 2017 and 2016, respectively.
Our estimates of charter-free market value assume that our vessels were all in good and seaworthy condition without need for repair and if inspected would be certified in class
without notations of any kind. Our estimates are based on information available from various industry sources, including:
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reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
news and industry reports of similar vessel sales;
news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can
be used as part of our estimates;
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have
generally disseminated;
offers that we may have received from potential purchasers of our vessels; and
vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various
other shipping industry participants and observers.
44
As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values are highly volatile; as
such, our estimates may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
Vessel
Championship
Partnership
Knightship
Lordship
Gloriuship
Leadership
Geniuship
Premiership
Squireship
Guardianship
Gladiatorship
TOTAL
Year Built
2011
2012
2010
2010
2004
2001
2010
2010
2010
2011
2010
Dwt
179,238
179,213
178,978
178,838
171,314
171,199
170,057
170,024
170,018
56,884
56,819
1,682,582
Carrying Value as of
December 31, 2017
(in million of U.S. dollars)
Carrying Value as of
December 31, 2016
(in million of U.S. dollars)
38.3*
32.0
19.7
19.7
15.3*
14.5*
25.4
27.4*
31.9*
15.6*
14.9*
254.7
40.0*
-
20.4
20.3
16.0*
15.6*
26.3*
28.4*
33.3*
16.3*
15.5*
232.1
*
Indicates dry bulk carrier vessels for which we believe, as of December 31, 2017 and 2016, respectively, the basic charter-free market value was lower than the vessel's carrying
value.
We refer you to the risk factor entitled "The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or trigger certain financial
covenants under our loan agreements, and we may incur an impairment or, if we sell vessels following a decline in their market value, a loss."
Impairment of long-lived assets
We review our long-lived assets for impairment whenever events or changes in circumstances, such as undiscounted projected operating cash flows, business plans to
dispose a vessel earlier than the end of its useful life and prevailing market conditions, indicate that the carrying amount of the assets may not be recoverable. The volatile market
conditions in the drybulk market with decreased charter rates and decreased vessel market values are conditions we consider indicators of a potential impairment for our vessels. We
determine undiscounted projected operating cash flows, for each vessel and compare it to the vessel's carrying value. When the undiscounted projected operating cash flows expected
to be generated by the use of the vessel and its eventual disposition are less than its carrying amount, we impair the carrying amount of the vessel. Measurement of the impairment loss
is based on the fair value of the asset as determined by independent valuators. The undiscounted projected operating cash inflows are determined by considering the charter revenues
from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the non-fixed days (based on a combination of one year charter rates estimate and
the average of the trailing 10-year historical charter rates, excluding the peak and trough years, available for each type of vessel) adjusted for commissions, expected off hires due to
scheduled vessels' maintenance and estimated unexpected breakdown off hires. The undiscounted projected operating cash outflows are determined by applying various assumptions
regarding vessel operating expenses, management fees and scheduled vessels' maintenance.
Our assessment concluded that no impairment loss should be recorded as of December 31, 2017, 2016 and 2015.
Although we believe that the assumptions used to evaluate potential asset impairment are based on historical trends and are reasonable and appropriate, such assumptions are
highly subjective. To minimize such subjectivity, our analysis for the year ended December 31, 2017, also involved sensitivity analysis to the model input we believe is more important
and likely to change. In particular, in terms of our estimates for the time charter equivalent for the unfixed period, we use a combination of one year charter rates estimate and the average
of the trailing 10-year historical charter rates, excluding the peak and trough years 2008, 2015 and 2016, available for each type of vessel. Although the trailing 10-year historical charter
rates, excluding the peak and trough years 2008, 2015 and 2016, cover at least a full business cycle, we sensitized our model with regards to long-term historical charter rate assumptions
for the unfixed period beyond the first year. Our sensitivity analysis revealed that, to the extent that going forward the 10-year historical charter rates, excluding the peak and trough
years 2008, 2015 and 2016, would not decline by more than 46% and 23% for Capesize vessels and Supramax vessels, respectively, we would not require to recognize impairment.
45
Vessel depreciation
Depreciation is computed using the straight-line method over the estimated useful life of the vessels, after considering the estimated salvage value. Up to September 30, 2015,
management estimated the useful life of our vessels to be 30 years from the date of initial delivery from the shipyard. On October 1, 2015, we changed that estimate to 25 years. This
change increased depreciation expense by $0.3 million (approximately $0.03 per share) for the year ended December 31, 2015. Salvage value is estimated by taking the cost of steel times
the weight of the ship noted in lightweight ton. Salvage values are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of
salvage values affect the depreciable amount of the vessels and the depreciation expense in the period of the revision and future periods. On October 1, 2015, we revised the salvage
value of our vessels from $420 per lightweight ton to $295.5 per lightweight ton. This change increased depreciation expense by $0.2 million (approximately $0.02 per share) for the year
ended December 31, 2015.
B. Liquidity and Capital Resources
Our principal source of funds has been our operating cash inflows, long-term borrowings from banks and our Sponsor, and equity provided by the capital markets and our
Sponsor. Our principal use of funds has primarily been capital expenditures to establish our fleet, maintain the quality of our drybulk vessels, comply with international shipping
standards and environmental laws and regulations, fund working capital requirements, and make principal repayments and interest payments on our outstanding debt obligations.
Our funding and treasury activities are conducted in accordance to corporate policies to maximize investment returns while maintaining appropriate liquidity for both our short
and long term needs. This includes arranging borrowing facilities on a cost-effective basis. Cash and cash equivalents are held primarily in U.S. dollars, with minimal amounts held in
Euros.
As of December 31, 2017, we had cash and cash equivalents of $8.9 million, as compared to $12.9 million as of December 31, 2016.
Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. As of December 31, 2017, we had a working capital deficit of
$15 million as compared to a working capital surplus of $1.1 million as of December 31, 2016. Our working capital primarily decreased due to the commencement of principal ammortization
in the majority of our facilities that resulted in such debt principal payments classified to current liabilities from non-current liabilities as of December 31, 2017, as well as a decrease in
our cash and cash equivalents balance due to debt installment payments and cash paid for interest.
As of December 31, 2017, we had total indebtedness under our credit facilities of $213.8 million, excluding unamortized financing fees, as compared to $216 million as of
December 31, 2016.
Our short-term liquidity commitments, as of March 7, 2018, primarily relate to debt and interest repayments of approximately $34.1 million under our credit facilities and
convertible promissory notes due in 2018. We expect to fund these commitments with cash on hand and cash inflows from operations. Our cash flow projections indicate that cash on
hand and cash to be provided by operating activities will be sufficient to cover the liquidity needs that become due in the twelve-month period ending one year after the financial
statements' issuance.
Our long-term liquidity commitments primarily relate to the repayment of our long-term debt balances under our credit facilities and convertible promissory notes issued to
Jelco. Please see "– Loan Arrangements." We expect to fund these commitments with cash on hand, refinancing of existing financing arrangements and/or public and private debt and
equity transactions in the capital markets.
Cash Flows
(In thousands of US Dollars)
Cash Flow Data:
Net cash provided by / (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
2017
2016
2015
Year ended December 31,
2,782
(32,992)
25,341
(15,339)
(40,779)
68,672
(4,737)
(201,684)
206,902
46
Year ended December 31, 2017, as compared to year ended December 31, 2016
Operating Activities: Net cash provided by operating activities amounted to $2.8 million in 2017, consisting of net income after non-cash items of $0.1 million plus a decrease
in working capital of $2.7 million. Net cash used in operating activities amounted to $15.3 million in 2016, consisting of net loss after non-cash items of $13.5 million plus an increase in
working capital of $1.9 million.
Investing Activities: The 2017 cash outflow resulted from the acquisition of our vessel Partnership in May 2017.
Financing Activities: The 2017 cash inflow resulted from proceeds of $34.5 million obtained from the ATB Loan Facility, proceeds of $16.2 million obtained from the May 24,
2017 Jelco Loan Facility, proceeds of $9 million obtained from the convertible promissory note issued to Jelco on September 27, 2017 and proceeds of $2.6 million from common stock
issuances. The 2017 cash inflow was offset by debt repayments of: $28 million with respect to the Natixis loan facility, $4.7 million with respect to the UniCredit loan facility, $2.1 million
with respect to the HSH loan facility, $1 million with respect to the ATB Loan Facility, $0.7 million with respect to the March 2015 Alpha Bank loan facility and $0.6 million loan finance
fees payments. The 2016 cash inflow resulted from proceeds of $32 million obtained from the NSF loan facility, proceeds of $12.8 million obtained from the Jelco loan facility, proceeds of
$22.6 million from common stock and warrants issuances and drawdowns of $9.4 million under the convertible promissory note issued to Jelco in September 2015 for the acquisition of
two vessels and for working capital purposes, offset by debt repayments of $6.9 million with the respect to the Jelco Loan Facility, debt repayments of $0.65 million with respect to the
March 2015 Alpha Bank loan facility and an increase of $3 million in restricted cash.
Year ended December 31, 2016, as compared to year ended December 31, 2015
Operating Activities: Net cash used in operating activities amounted to $15.3 million in 2016, consisting of net loss after non-cash items of $13.5 million plus an increase in
working capital of $1.9 million. Net cash used in operating activities amounted to $4.7 million in 2015, consisting of net loss after non-cash items of $6.6 million plus a decrease in
working capital of $1.9 million.
Investing Activities: The 2016 cash outflow resulted from payments of $40.8 million for the acquisition of two vessels during the year. The 2015 cash outflow resulted from
payments of $201.7 million for the acquisition of eight vessels during the year.
Financing Activities: The 2016 cash inflow resulted from proceeds of $32 million obtained from the NSF loan facility, proceeds of $12.8 million obtained from the Jelco Loan
Facility, proceeds of $22.6 million from common stock and warrants issuances and drawdowns of $9.4 million under the convertible promissory note issued to Jelco in September 2015
for the acquisition of two vessels and for working capital purposes, offset by debt repayments of $6.9 million with the respect to the Jelco loan facility, debt repayments of $0.65 million
with respect to the March 2015 Alpha Bank loan facility and an increase of $3 million in restricted cash. The 2015 cash inflow primarily resulted from proceeds of $179 million obtained
from our five loan agreements entered into in 2015, proceeds of $13.8 million from common stock issuances and drawdowns of $15.8 million under the convertible promissory notes
issued to Jelco in 2015 for the acquisition of six vessels.
Loan Arrangements
Credit Facilities
March 2015 Alpha Bank A.E. Loan Facility
On March 6, 2015, we entered into a $8.75 million secured floating interest rate loan facility with Alpha Bank A.E. to partly finance the acquisition of the Leadership. On
December 23, 2015 and July 28, 2016, we and Alpha Bank A.E. entered into a first and second supplemental agreement, respectively, to the facility agreement. As amended to date, the
facility provides as follows: the facility bears interest at LIBOR plus a margin of 3.75% and is repayable in twenty consecutive quarterly installments. The first four installments are $0.2
million each, the next installment is $0.25 million, the next four installments are $0.1 million each and the next eleven installments are $0.25 million each, with a final balloon payment of
$4.55 million due on March 17, 2020. Following the reduction by $0.6 million of four repayment instalments that was added to the balloon instalment by the second supplemental
agreement, 80% of Leadership's excess earnings (as defined in the loan agreement) during each financial year starting from 2016, shall be applied by Alpha Bank towards payment of the
deferred amount until same is fully repaid. The borrower under the facility is our applicable vessel-owning subsidiary and the facility is guaranteed by Seanergy Maritime Holdings
Corp. The facility is secured by a first preferred mortgage over the vessel, a general assignment covering earnings, insurances, charter parties and requisition compensation, an account
pledge agreement and technical and commercial managers' undertakings. The facility also imposes certain operating and financing covenants. Certain of these covenants may
significantly limit or prohibit, among other things, the borrower's ability to incur additional indebtedness, create liens, sell capital shares of subsidiaries, engage in mergers, or sell the
vessel without the consent of the relevant lenders. Certain other covenants require ongoing compliance, including requirements that we, on a consolidated basis, maintain (i) from June
30, 2018, a percentage ratio of debt minus cash to market value adjusted total assets minus cash that does not exceed 75%, (ii) from June 30, 2018, a ratio of EBITDA to net interest
expense that is not less than 2:1, and (iii) liquidity in a specified amount. In addition, from July 1, 2017, the borrower shall ensure that the market value of the vessel plus any additional
security to total facility outstanding shall not be less than 125%. The lender may accelerate the maturity of the facility and foreclose upon the collateral securing the indebtedness upon
the occurrence of certain events of default, including a failure to comply with any of the covenants contained in the facility. The facility also restricts our ability to distribute dividends
to our shareholders in excess of 50% of our net income except if our cash and marketable securities are equal or greater than the amount required to meet our debt service for the
following eighteen-month period. As of December 31, 2017, $6.8 million was outstanding under the facility, excluding the unamortized financing fees.
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HSH Nordbank AG Loan Facility
On September 1, 2015, we entered into a $44.4 million senior secured loan facility with HSH Nordbank AG to finance the acquisition of the Geniuship and Gloriuship. On May
16, 2016 and February 23, 2017 we and HSH Nordbank AG entered into supplemental letter agreements to the facility agreement and related guarantee. As amended to date the facility
provides as follows: the facility bears interest at LIBOR plus a margin between 3.25% and 3.6% and is repayable in twelve consecutive quarterly instalments of $1.0 million each,
commencing on September 30, 2017, with a final balloon payment of $31.8 million due on June 30, 2020. Effective as of March 1, 2016, a mandatory prepayment of $3 million required
under the facility is deferred to June 30, 2018. The borrowers under the facility are our two applicable vessel-owning subsidiaries and the facility is guaranteed by Seanergy Maritime
Holdings Corp. The facility was made available in two advances. On October 13, 2015, we drew the first advance of $27.6 million in order to finance the acquisition of the Geniuship. On
November 3, 2015, we drew the second advance of $16.8 million in order to finance the acquisition of the Gloriuship. The facility is secured by a first priority mortgage over each of the
vessels, a general assignment covering earnings, charter parties, insurances and requisition compensation for each of the vessels, an earnings account pledge agreement for each of the
vessels, technical and commercial managers' undertakings, a shares security deed of the two borrowers' shares and a master agreement assignment. The facility also imposes certain
operating and financing covenants. Certain of these covenants may significantly limit or prohibit, among other things, the borrowers' ability to incur additional indebtedness, sell capital
shares of subsidiaries, make certain investments, engage in mergers and acquisitions, or sell the vessels without the consent of the relevant lenders. Certain other covenants require
ongoing compliance, including requirements that we, on a consolidated basis, maintain (i) from June 30, 2018, a percentage ratio of total liabilities (excluding any shareholders'
convertible notes) to total assets (less any activated goodwill) that does not exceed 75%, (ii) from June 30, 2018, a ratio of EBITDA (excluding any gains and losses on the disposal of
subsidiaries or vessels and impairments on goodwill and vessels) to net interest expense that is not less than 2:1, and (iii) liquidity in a specified amount. In addition, after April 30, 2018,
the borrowers shall ensure that the market value of the Geniuship and Gloriuship plus any additional security to the total facility outstanding and any Swap Exposure (as defined in the
HSH Nordbank AG Loan Facility) shall not be less than 120%. The facility also places a restriction on the borrowers' ability to distribute dividends to Seanergy Maritime Holdings Corp.,
in case the market values of Geniuship and Gloriuship plus any additional security is less than 145% of the total facility outstanding and the cash balance of the borrowers after
distribution of dividends is less than $3 million. The $3 million condition on payment of dividends does not apply after June 30, 2018. As of December 31, 2017, $42.3 million was
outstanding under the facility, excluding the unamortized financing fees.
UniCredit Bank AG Loan Facility
On September 11, 2015, we entered into a $52.7 million secured term loan facility with UniCredit Bank AG to partly finance the acquisition of the Premiership, Gladiatorship
and Guardianship. On June 3, 2016, July 29, 2016, March 7, 2017 and September 25, 2017 we and UniCredit Bank AG entered into an amendment, a supplemental letter agreement,
another supplemental letter agreement and another supplemental letter agreement, respectively, to the facility agreement. As amended to date, the facility bears interest at LIBOR plus a
margin of between 2.75% and 3.20%. Effective as of June 13, 2016, the margin is split into a cash portion and a capitalized portion. The capitalized portion of the margin was repaid in full
on June 26, 2017. The facility is repayable in fifteen consecutive quarterly instalments of $1.6 million each, commencing on June 26, 2017, with a final balloon payment of $29.4 million
due on December 28, 2020. The September 25, 2017 supplemental letter agreement deferred an installment payment due on September 25, 2017 to October 2, 2017. The borrowers under
the facility are our three applicable vessel-owning subsidiaries, and the facility is guaranteed by Seanergy Maritime Holdings Corp. The facility was made available in three tranches. On
September 11, 2015, we drew the first tranche of $25.4 million to partly finance the acquisition of the Premiership. On September 29, 2015, we drew the second tranche of $13.6 million to
partly finance the acquisition of the Gladiatorship. On October 21, 2015, we drew the third tranche of $13.6 million to partly finance the acquisition of the Guardianship. The facility is
secured by a first preferred mortgage over each of the relevant vessels, a general assignment covering earnings, charter parties, insurances and requisition compensation for each of the
vessels, an account pledge agreement for each of the vessels, technical and commercial managers' undertakings, a shares security deed of the three applicable vessel owning
subsidiaries' shares and a hedging agreement assignment. The facility also imposes certain operating and financing covenants. Certain of these covenants may significantly limit or
prohibit, among other things, the borrowers' ability to incur additional indebtedness, create liens, engage in mergers, or sell the vessels without the consent of the relevant lenders.
Certain other covenants require ongoing compliance, including requirements that we, on a consolidated basis, maintain (i) from June 30, 2018, a Leverage Ratio (as defined in the
UniCredit Bank AG Loan Facility) that does not exceed 75%, (ii) from June 30, 2018, a ratio of EBITDA to net interest expense (each as defined in the UniCredit Bank AG Loan Facility)
that is not less than 2:1, and (iii) liquidity in a specified amount. In addition, from May 1, 2018, the borrowers shall ensure that the market value of the Premiership, Gladiatorship and
Guardianship plus any additional security to total facility outstanding and the cost (if any) of terminating any transactions entered into under the Hedging Agreement (as defined in
the UniCredit Bank AG Loan Facility) shall not be less than 120%. As of December 31, 2017, $48 million was outstanding under the facility, excluding the unamortized financing fees.
48
November 2015 Alpha Bank A.E. Loan Facility
On November 4, 2015, we entered into a $33.8 million secured floating interest rate loan facility with Alpha Bank A.E. to partly finance the acquisition of the Squireship. On July
28, 2016 we and Alpha Bank A.E. entered into a first supplemental agreement to the facility agreement, and on April 11, 2017, we and Alpha Bank A.E. agreed to an additional
amendment to the facility. As amended to date, the facility provides as follows: the facility bears interest at LIBOR plus a margin of 3.50% and is repayable in sixteen consecutive
quarterly instalments of $0.8 million each, commencing on February 12, 2018, with a final balloon payment of $20.3 million due on November 10, 2021. The borrower under the facility is
our applicable vessel-owning subsidiary, and the facility is guaranteed by Seanergy Maritime Holdings Corp. The facility is secured by a first preferred mortgage over the vessel, a
general assignment covering earnings, insurances, charter parties and requisition compensation, an account pledge agreement and technical and commercial managers' undertakings.
The facility also imposes certain operating and financing covenants. Certain of these covenants may significantly limit or prohibit, among other things, the borrower's ability to incur
additional indebtedness, create liens, sell capital shares of subsidiaries, engage in mergers, or sell the vessel without the consent of the relevant lenders. Certain other covenants require
ongoing compliance, including requirements that we, on a consolidated basis, maintain (i) from June 30, 2018, a percentage ratio of debt minus cash to value market adjusted total assets
minus cash that does not exceed 75%, (ii) from June 30, 2018, a ratio of EBITDA to net interest expense that is not less than 2:1, and (iii) liquidity in a specified amount. In addition, from
May 1, 2018, the borrower shall ensure that the market value of Squireship plus any additional security to total facility outstanding shall not be less than 125%. The facility also restricts
our ability to distribute dividends to our shareholders in excess of 50% of our net income except if our cash and marketable securities are equal or greater than the amount required to
meet our debt service for the following eighteen-month period. As of December 31, 2017, $33.8 million was outstanding under the facility, excluding the unamortized financing fees.
Natixis Loan Facility
On December 2, 2015, we entered into a $39.4 million secured term loan facility with Natixis to partly finance the acquisition of the Championship. On March 7, 2017, we and
Natixis entered into a supplemental agreement and a settlement agreement to the loan facility. As amended, the facility bore interest at LIBOR plus a margin of 2.50% and was repayable
in four installments: $2.0 million due April 28, 2017, $2.0 million due June 30, 2017, $3.0 million due September 29, 2017 and $32.4 million due May 2, 2018. Pursuant to the terms of the
Natixis settlement agreement, we had an option, until September 29, 2017, to satisfy the full amount of the facility by making a prepayment of $28.0 million, which included any payments
made in connection with the first three installment payments. Upon such prepayment, the facility would be deemed satisfied in full. The borrower under the Natixis Loan Facility was
our applicable vessel-owning subsidiary, and the facility was guaranteed by Seanergy Maritime Holdings Corp. The facility was secured by a first priority mortgage over the vessel, a
general assignment covering earnings, insurances and requisition compensation, an account pledge agreement and technical and commercial managers' undertakings. The facility also
imposed certain operating and financing covenants. Certain of these covenants could have significantly limited or prohibited, among other things, the borrower's ability to incur
additional indebtedness, create liens, engage in mergers, or sell the vessels without the consent of the relevant lenders. We had received waivers until May 2, 2018, the maturity date of
the loan, for certain of the covenants that required ongoing compliance in future, including requirements that (i) we maintained a Leverage Ratio (as defined in the Natixis Loan Facility)
that did not exceed 75%, (ii) we maintained a ratio of EBITDA to net interest expense (each as defined in the Natixis Loan Facility) that was not less than 2:1 and (iii) we maintained
liquidity in a specified amount. In addition, we had received waiver from February 1, 2017 until May 2, 2018, for the market value of the Championship plus any additional security to
total facility outstanding undertaking, which should not be less than 120%.
On September 29, 2017, our lender, Natixis, entered into a deed of release and fully discharged the $35.4 million balance of our secured term loan facility obligations to the lender
for a total settlement amount of $24.0 million. The first-priority mortgage over the Championship and all other securities created in favor of Natixis were irrevocably and unconditionally
released pursuant to the deed of release. We recognized a gain from the Natixis refinancing of $11.4 million.
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NSF Loan Facility
On November 28, 2016, we entered into a $32 million secured term loan facility with NSF to partly finance the acquisition of the Lordship and the Knightship. The facility bears
fixed interest at 11% per annum, which is payable quarterly, and the principal is repayable in four consecutive quarterly instalments of $0.9 million each, commencing on March 13, 2019
and a final payment of $28.4 million due on December 13, 2019, which is the initial maturity date assuming that we do not choose to extend the facility for one or two maximum yearly
periods as described below. The facility may only be extended twice so that the final maturity date shall never extend beyond the date falling on the fifth anniversary of the final
drawdown date. The option to extend the facility for up to two years from the initial maturity date is subject to an extension fee of 1.75% per extended year. The borrowers under the
facility are our applicable vessel-owning subsidiaries. The facility is secured by first priority mortgages and general assignment covering earnings, insurances and requisition
compensation for each of the vessels, account pledge agreements, share pledge agreements of our two vessel-owning subsidiaries and technical and commercial managers'
undertakings. The facility also imposes certain operating and financing covenants. Certain of these covenants may significantly limit or prohibit, among other things, the borrowers'
ability to incur additional indebtedness, create liens, engage in mergers, or sell the vessels without the consent of the relevant lenders. Certain other covenants require ongoing
compliance, including requirements that (i) the borrowers maintain restricted deposits of $3 million as prepaid interest to be applied equally against the first eight quarterly interest
payments of the facility, the first interest instalment commenced on March 13, 2017, (ii) the borrowers maintain an asset coverage ratio with respect to the additional vessels equal to at
least 112.5% and (iii) the borrowers accumulate in each of their earnings accounts within three months from each advance relevant drawdown date, and maintain throughout the security
period, a minimum amount of at least $0.25 million per additional vessel, or $0.5 million in total. The facility also places a restriction on each borrower's ability to distribute dividends to
Seanergy Maritime Holdings Corp. or make any other form of distribution or effect any return of share capital if the borrower maintains a balance in its earnings account that when
aggregated with a minimum liquidity amount is less than $1.0 million. As of December 31, 2017, $32 million was outstanding under the facility, excluding the unamortized financing fees.
Jelco Loan Facility
On October 4, 2016, we entered into a $4.2 million loan facility with Jelco to finance the initial deposits for the Lordship and the Knightship. We refer to this as the Jelco Loan
Facility. On November 17, 2016 and November 28, 2016, we entered into amendments to this facility, which, among other things, increased the aggregate amount that may be borrowed
under the facility to up to $12.8 million (to partially finance the remaining payment for the Lordship and the Knightship) and extended the maturity date to the earlier of (i) February 28,
2018 and (ii) the date falling 14 months from the final drawdown date. On January 12, 2018, we exercised our option to extend the maturity date of the Jelco Loan Facility to January 28,
2019. The Jelco Loan Facility bears interest at LIBOR plus a margin of 8.5% increased from 7%, following the extension of the maturity pursuant to the January 12, 2018 amendment and
in accordance with the original terms of the facility, and is repayable in one bullet payment together with accrued interest thereon to the maturity date. Seanergy Maritime Holdings
Corp. is the borrower under this facility. This facility is secured by second priority mortgages and general assignments covering earnings, insurances and requisition compensation on
the Lordship and the Knightship, and the vessel owning subsidiaries that own the Lordship and the Knightship have provided a guarantee to Jelco for Seanergy Maritime Holdings
Corp.'s obligations under this facility. As of December 31, 2017, $5.9 million was outstanding under this facility, excluding the unamortized financing fees.
Jelco Backstop Facility
On March 28, 2017, we entered into a $47.5 million secured loan agreement with Jelco, or the Jelco Backstop Facility. Under the terms of the Jelco Backstop Facility, Jelco would
make available this facility to us in the event that we were not able to secure third party financing to partially fund the Natixis settlement agreement and the balance of the purchase price
of the Partnership. The Jelco Backstop Facility was terminated on September 27, 2017, and no amounts were drawn down under this facility.
50
ATB Loan Facility
On May 24, 2017, we entered into an up to $18 million term loan facility with Amsterdam Trade Bank N.V. to partially finance the acquisition of the Partnership. We refer to this
as the ATB Loan Facility. The facility bears interest at LIBOR plus a margin of 4.65% per annum which is payable quarterly and the principal is repayable by twenty equal consecutive
quarterly installments being $200 thousand each, by additional quarterly repayments of any Excess Cash (as defined in the loan facility) up to $3.6 million in total, and a final balloon
payment due on the maturity date, May 26, 2022. On August 28, 2017, an additional repayment of $0.38 million was made along with the first installment payment. The loan was made
available in two drawdowns: (i) $13.3 million was drawn down on May 26, 2017 and (ii) $4.7 million was drawn down on June 22, 2017. The borrower under the ATB Loan Facility is our
applicable vessel-owning subsidiary. The loan is secured by a first priority mortgage and a general assignment covering earnings, insurances and requisition compensation over the
Partnership, an earnings account pledge agreement, technical and commercial managers' undertakings and a charter assignment. The facility also imposes certain operating and
financing covenants. Certain of these covenants may significantly limit or prohibit, among other things, the borrowers' ability to incur additional indebtedness, create liens, engage in
mergers, or sell the vessels without the consent of the relevant lenders. From June 30, 2018, certain other guarantor covenants require ongoing compliance that Seanergy Maritime
Holdings Corp., on a consolidated basis, to maintain (i) a percentage ratio of net bank debt to market value adjusted total assets that does not exceed 75% and (ii) a ratio of EBITDA to
net interest expense that is not less than 2:1. In addition, certain other covenants require ongoing compliance, including requirements that (i) the borrower maintains at all times a credit
balance of at least $0.5 million, (ii) Seanergy Maritime Holdings Corp. maintains at all times beginning on June 30, 2017 a credit balance of at least $0.5 million per vessel, (iii) the borrower
maintains an asset coverage ratio equal to at least 145% beginning on the utilization date of the first drawdown and ending on the date falling on the second anniversary and 165% at all
times thereafter. The facility also places a restriction on the borrower's ability to distribute dividends to Seanergy Maritime Holdings Corp. or make any other form of distribution or
effect any return of share capital unless additional repayments in an aggregate amount of $3.6 million have been made.
On September 25, 2017, in order to partially fund the refinancing of our Natixis facility, we amended and restated the ATB Loan Facility, increasing the loan amount of the
facility by an additional tranche of $16.5 million, or Tranche B. The principal of Tranche B is repayable by nineteen consecutive quarterly installments, being $0.2 million each of the first
four installments, $0.3 million each of the subsequent four installments, and $0.4 million each of the subsequent eleven installments, in addition to a balloon installment of any
outstanding indebtedness due on the maturity date, May 26, 2022. On each quarterly repayment date, an additional repayment of at least $0.01 million, or an integral multiple of that
amount, of any excess cash standing to the credit of the relevant vessel's operating account shall be applied towards reducing the balloon installment. Excess cash, as defined in the
loan facility, is any amount above $1.0 million. The aggregate amount of the additional repayments, with regard to Tranche B, shall not exceed $1.25 million. The loan facility requires
that the borrower shall maintain in aggregate $0.5 million as minimum liquidity. The amendment and restatement of the facility did not alter the interest rate, the maturity date, the
amortization and the repayment terms of the existing tranche under the loan facility, or the financial covenants applicable to the Company as guarantor. The amended and restated loan
facility is secured by first preferred mortgages and general assignments covering earnings, insurances and requisition compensation over the Partnership and Championship, earnings
account pledges, shares security deeds relating to the shares of both vessels' owning subsidiaries, technical and commercial managers' undertakings and, where applicable, charter
assignments. As of December 31, 2017, $33.5 million was outstanding under the facility, excluding the unamortized financing fees.
Jelco Loan Facility originally dated May 24, 2017 and amended and restated on September 27, 2017
On May 24, 2017, we entered into an up to $16.2 million loan facility with Jelco to partially finance the acquisition of the Partnership. We refer to this as the May 24, 2017 Jelco
Loan Facility. On June 22, 2017 and on August 22, 2017, we entered into supplemental letters with Jelco to amend the terms of this loan facility, whereby the repayment of $4.8 million
was deferred until September 29, 2017, on which date it was repaid.
On September 27, 2017, we amended and restated the May 24, 2017 Jelco Loan Facility. The amended facility currently bears interest at three-month LIBOR plus a margin of 6%
per annum which is payable quarterly and the principal is repayable in one bullet payment due on the maturity date. The maturity date, which was deferred from May 24, 2018 to May 24,
2019, may, at our option, be extended to May 24, 2020, from May 24, 2019 previously. The margin will be increased by 1% if the maturity date is extended. The facility is secured by the
following amended cross collaterals: second preferred mortgages over the Championship and Partnership, second priority general assignments covering earnings, insurances and
requisition compensation over each vessel, guarantees from our vessel-owning subsidiaries, and a guarantee from our wholly-owned subsidiary, Emperor Holding Ltd., which is the
holding company of two of our ship-owing subsidiaries owning vessels Lordship and Knightship. As of December 31, 2017, $11.5 million was outstanding under this facility, excluding
the unamortized financing fees.
In February and March 2018, we have received approval from the credit committees of certain of our lenders to amend the applicable thresholds or further defer the application
date of certain financial covenants and security requirements of our credit facilities for the next twelve months. This approval is subject to completion of definitive documentation.
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Convertible Promissory Notes
On March 12, 2015, we issued a convertible promissory note for $4.0 million to Jelco. The note, as amended, is repayable in four installments with the first installment occurring
six months after the delivery date of the Leadership and the other three installments semi-annually commencing four years after the delivery date of the Leadership, along with a balloon
installment of $3.2 million payable on the final maturity date in the first quarter of 2020. The note bears interest at three-month LIBOR plus a margin of 5% with interest payable quarterly.
At Jelco's option, the principal amount under the convertible note or any part thereof may be paid at any time in common shares at a conversion price of $0.90 per share. Jelco also
received customary registration rights with respect to any shares received upon conversion of the note. As of December 31, 2017, $3.8 million was outstanding under the note.
On September 7, 2015, we issued a revolving convertible promissory note to Jelco for an amount of up to $6.8 million, or the Applicable Limit. Following nine amendments to
the note between December 2015 and September 2017, the Applicable Limit was raised to $21.2 million. The Applicable Limit will be reduced by $3.3 million four years following the first
drawdown. The aggregate outstanding principal is repayable on the third quarter of 2020, however, principal is also repayable earlier to the extent that the aggregate outstanding
principal exceeds the Applicable Limit (as it may be reduced from time to time). The note bears interest at three-month LIBOR plus a margin of 5% with interest payable quarterly. At
Jelco's option, our obligation to repay the principal amount under the revolving convertible note or any part thereof may be paid in common shares at a conversion price of $0.90 per
share. Jelco also received customary registration rights with respect to any shares received upon conversion of the note. As of December 31, 2017, $21.2 million was outstanding under
the note.
On September 27, 2017, we issued a convertible promissory note to Jelco for an amount of $13.75 million. The note is repayable by two consecutive annual installments of
$1.375 million, with the first installment occurring 24 months after the drawdown date, along with a balloon installment of $11 million payable four years after the drawdown date. The
note bears interest at three-month LIBOR plus a margin of 5% with interest payable quarterly. At Jelco's option, the whole or any part of the principal amount under the note may be
paid at any time in common shares at a conversion price of $0.90 per share. Jelco also received customary registration rights with respect to all shares upon conversion of the note. The
note is secured by second preferred mortgages and second priority general assignments covering earnings, insurances and requisition compensation over the Championship and the
Partnership and guarantees from our vessel-owning subsidiaries, all cross collateralized with the May 24, 2017 Jelco Loan Facility, as amended and restated. Of the $13.75 million under
the note, $4.75 million was used to make a mandatory prepayment under the May 24, 2017 Jelco Loan Facility. As of December 31, 2017, $13.75 million was outstanding under the note.
Our wholly-owned subsidiary Emperor Holding Ltd. has provided a guarantee, dated September 27, 2017, to Jelco for Seanergy Maritime Holdings Corp.'s obligations under all
these notes.
C. Research and development, patents and licenses, etc.
Not applicable.
D. Trend Information
Our results of operations depend primarily on the charter rates earned by our vessels. Over the course of 2017, the Baltic Dry Index (the "BDI") registered a low of 685 on
February 14, 2017 and a high of 1,743 on December 12, 2017.
Since the start of the financial crisis in 2008 the performance of the BDI has been characterized by high volatility, as the growth in the size of the dry bulk fleet outpaced growth
in vessel demand for an extended period of time.
Specifically, in the period from 2009 to 2015, the size of the fleet in terms of deadweight tons grew by an annual average of about 9.3% while the corresponding growth in
demand for dry bulk carriers grew by 4.6%, resulting in a drop of about 73% in the value of the BDI. In 2016 and 2017, market dynamics reversed course as the average annual fleet
growth of 2.6% was slower than the corresponding demand growth of 2.8%, leading to a 70% rise in the BDI over the period. According to tentative projections, the total size of the dry
bulk fleet is expected to rise by about 1.8% in 2018, compared to expected demand growth of 2.7%.
Please also see "–B. Liquidity and Capital Resources."
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E. Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2017 (in thousands of U.S. Dollars):
Contractual Obligations
Long-term debt and debt to related party
Convertible promissory notes
Interest expense - long term debt and debt to related party
Interest expense - convertible promissory notes
Office rent
Total
Total
213,800
38,715
36,176
7,796
969
297,456
$
$
G. Safe Harbor
less than 1 year
19,578
-
13,673
2,671
190
36,112
1-3 years
3-5 years
$
$
143,277
27,715
18,828
4,527
374
194,721
$
$
50,945
11,000
3,675
598
374
66,592
more than 5 years
-
$
-
-
-
31
31
$
$
$
See the section titled "Cautionary Statement Regarding Forward-Looking Statements" at the beginning of this annual report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Set forth below are the names, ages and positions of our current directors and executive officers. Members of our board of directors are elected annually on a staggered basis,
and each director elected holds office for a three-year term. Officers are elected from time to time by vote of our board of directors and hold office until a successor is elected. The
business address of each of our directors and executive officers listed below is 16 Grigoriou Lambraki Street, 166 74 Glyfada, Athens, Greece.
Name
Stamatios Tsantanis
Christina Anagnostara
Elias Culucundis
Dimitrios Anagnostopoulos
Ioannis Kartsonas
*Independent Director
Age
46
47
75
71
46
Position
Chairman, Chief Executive Officer, Interim Chief Financial Officer & Director A (term expires in 2019)
B (term expires in 2020)
Director
A (term expires in 2019)
Director*
C (term expires in 2018)
Director*
C (term expires in 2018)
Director*
Director Class
Biographical information with respect to each of our directors and our executive officer is set forth below.
Stamatios Tsantanis has been a member of our board of directors and our chief executive officer since October 1, 2012. Mr. Tsantanis has also been the Chairman of our Board
of Directors since October 1, 2013 and our Interim Chief Financial Officer since November 1, 2013. Mr. Tsantanis brings more than 19 years of experience in shipping and finance and
held senior management positions in prominent shipping companies. Prior to joining us, from September 2008 he served as Group Chief Financial Officer of Target Marine S.A. and was
responsible for its corporate and financial strategy. Mr. Tsantanis previously served as the Chief Financial Officer and as a Director of Top Ships Inc. from its initial public offering and
listing on Nasdaq in 2004 until September 2008. Prior to that, he was an investment banker at Alpha Finance, a member of the Alpha Bank Group, with active roles in a number of
shipping corporate finance transactions. Mr. Tsantanis holds a Master's degree in Shipping Trade and Finance from the City University Business School in London, and a Bachelor's
degree in Shipping Economics from the University of Piraeus.
53
Christina Anagnostara served as our chief financial officer from November 17, 2008 until October 31, 2013 and has served as a member of our board of directors since
December 2008. She has more than 20 years of maritime and international business experience in the areas of finance, banking, capital markets, consulting, accounting and audit. She has
served in executive and board positions of publicly listed companies in the maritime industry and she was responsible for the financial, capital raising and accounting functions. Since
June 2017 she is a Director of the Investment Banking Division of AXIA Ventures Group and from 2014 to 2017 she provided advisory services to corporate clients involved in all
aspects of the maritime industry. Between 2006 and 2008 she served as Chief Financial Officer and member of the Board of Directors of Global Oceanic Carriers Ltd, a dry bulk shipping
company listed on the Alternative Investment Market of the London Stock Exchange. Between 1999 and 2006, she was a senior management consultant of the Geneva-based EFG
Group. Prior to EFG Group she worked for Eurobank EFG and Ernst & Young, the international accounting firm. Ms. Anagnostara studied Economics in Athens and is a Certified
Chartered Accountant. She is a member of various industry organizations including ACCA, Propeller Club, WISTA, Shipping Finance Executives and American Hellenic Chamber of
Commerce.
Elias Culucundis has been a member of our board of directors since our inception. Since 2006, Mr. Culucundis has been an executive member of the board of directors of
Hellenic Duty Free Shops S.A. Since 1999, Mr. Culucundis has been president, chief executive officer and director of Equity Shipping Company Ltd., a company specializing in starting,
managing and operating commercial and technical shipping projects. From 2002 until 2010, Mr. Culucundis was a member of the board of directors of Folli Follie S.A. Additionally, from
1996 to 2000, he was a director of Kassian Maritime Shipping Agency Ltd., a vessel management company operating a fleet of ten bulk carriers. During this time, Mr. Culucundis was
also a director of Point Clear Navigation Agency Ltd, a marine project company. From 1981 to 1995, Mr. Culucundis was a director of Kassos Maritime Enterprises Ltd., a company
engaged in vessel management. While at Kassos, he was initially a technical director and eventually ascended to the position of chief executive officer, overseeing a large fleet of
Panamax, Aframax and VLCC tankers, as well as overseeing new vessel building contracts, specifications and the construction of new vessels. From 1971 to 1980, Mr. Culucundis was a
director and the chief executive officer of Off Shore Consultants Inc. and Naval Engineering Dynamics Ltd. Off Shore Consultants Inc. He worked in Floating Production, Storage and
Offloading vessel, or FPSO, design and construction and responsible for the technical and commercial supervision of a pentagon-type drilling rig utilized by Royal Dutch Shell plc.
Seven FPSOs were designed and constructed that were subsequently utilized by Pertamina, ARCO, Total and Elf-Aquitaine. Naval Engineering Dynamics Ltd. was responsible for
purchasing, re-building and operating vessels that had suffered major damage. From 1966 to 1971, Mr. Culucundis was employed as a Naval Architect for A.G. Pappadakis Co. Ltd.,
London, responsible for tanker and bulk carrier new buildings and supervising the technical operation of our fleet. He is a graduate of Kings College, Durham University, Great Britain,
with a degree in Naval Architecture and Shipbuilding. He is a member of several industry organizations, including the Council of the Union of Greek Shipowners and American Bureau
of Shipping. Mr. Culucundis is a fellow of the Royal Institute of Naval Architects and a Chartered Engineer.
Dimitrios Anagnostopoulos has been a member of our board of directors since May 2009. Mr. Anagnostopoulos has over forty years of experience in shipping and ship
finance. His career began in the 1970's at Athens University of Economics followed by four years with the Onassis Group in Monaco. Mr. Anagnostopoulos has also held various posts
at the National Investment Bank of Industrial Development (ETEBA), Continental Illinois National Bank of Chicago, the Greyhound Corporation, and with ABN AMRO, where he has
spent nearly two decades with the Bank as Senior Vice-President and Head of Shipping. In June 2010 he was elected a board member of the Aegean Baltic Bank S.A. Mr.
Anagnostopoulos has been a speaker and panelist in various shipping conferences in Europe, and a regular guest lecturer at the City University Cass Business School in London and
the Erasmus University in Rotterdam. He is a member (and ex-vice chairman) of the Association of Banking and Financial Executives of Greek Shipping. In 2008 he was named by the
Lloyd's Organization as Shipping Financier of the Year.
Ioannis Kartsonas has been a member of our board of directors since May 2017. Mr. Kartsonas has more than 18 years of experience in finance and commodities trading. He is
currently the Principal and Managing Partner of Breakwave Advisors LLC., a commodity-focused advisory firm based in New York. From 2011 to 2017, he was a Senior Portfolio
Manager at Carlyle Commodity Management, a commodity-focused investment firm based in New York and part of the Carlyle Group, being responsible for the firm's Shipping and
Freight investments. During his tenure, he managed one of the largest freight futures funds globally. Prior to his role, Mr. Kartsonas was a Co-Founder and Portfolio Manager at Sea
Advisors Fund, an investment fund focused in Shipping. From 2004 to 2009, he was the leading Transportation Analyst at Citi Investment Research covering the broader transportation
space including Shipping. Prior to that, he was an Equity Analyst focusing on Shipping and Energy for Standard & Poor's Investment Research. Mr. Kartsonas holds an MBA in
Finance from the Simon School of Business, University of Rochester.
No family relationships exist among any of the directors and executive officers.
54
B. Compensation
For the year ended December 31, 2017, we paid our executive officers and directors aggregate compensation of $0.63 million. Our executive officers are employed by us
pursuant to employment and consulting contracts.
Four of the five members of our board of directors each received a fee of $52,300 in 2017 and the fifth member, who was appointed to the board of directors in May 2017,
received a fee of $37,187. The Shipping Committee fee has been suspended since July 1, 2013 until the board of directors decides otherwise. The aggregate director fees paid by us for
the years ended December 31, 2017, 2016 and 2015 totaled 246,000, $100,000 and $80,000, respectively.
On January 12, 2011 our board of directors adopted the Seanergy Maritime Holdings Corp. 2011 Equity Incentive Plan, or the Plan. The Plan was amended and restated on
December 15, 2016, to increase the aggregate number of shares of our common stock reserved for issuance under the Plan from 856,667 shares to 1,000,000 shares. The Plan was also
amended and restated on February 1, 2018, to further increase the aggregate number of shares of our common stock reserved for issuance under the Plan to 3,000,000. The Plan is
administered by the Compensation Committee of our board of directors. Under the Plan, our officers, key employees, directors, consultants and service providers may be granted
incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, and unrestricted stock at the discretion of our
Compensation Committee. Any awards granted under the Plan that are subject to vesting are conditioned upon the recipient's continued service as an employee or a director of the
Company, through the applicable vesting date.
On October 1, 2015, the Compensation Committee granted an aggregate of 189,000 restricted shares of common stock pursuant to the Plan. Of the total 189,000 shares issued,
36,000 shares were granted to our board of directors and the other 153,000 shares were granted to certain of our other employees. The fair value of each share on the grant date was
$3.70 and will be expensed over three years. The shares to our board of directors vested over a period of two years, which commenced on October 1, 2015. On October 1, 2015, 12,000
shares vested, on October 1, 2016, 12,000 shares vested, and on October 1, 2017, 12,000 shares vested. All the shares granted to certain of our employees will vest over a period of three
years, commencing on October 1, 2015. On October 1, 2015, 25,000 shares vested, on October 1, 2016, 33,000 shares vested, on October 1, 2017, 44,000 shares vested and 47,000 shares
will vest on October 1, 2018.
On December 15, 2016, the Compensation Committee granted an aggregate of 772,800 restricted shares of common stock pursuant to the Plan. Of the total 772,800 shares
issued, 274,800 shares were granted to our board of directors, 448,000 shares were granted to certain of our employees and 50,000 shares were granted to the sole director of the
Company's commercial manager, a non-employee. The fair value of each share on the grant date was $1.30. The shares to our board of directors will vest over a period of two years,
which commenced on December 15, 2016. On December 15, 2016, 91,600 shares vested, on October 1, 2017, 91,600 shares vested and 91,600 shares will vest on October 1, 2018. All the
other shares granted will vest over a period of three years, which commenced on December 15, 2016. Of the shares granted to certain of our other employees, 114,500 shares vested on
December 15, 2016, 114,500 shares vested on October 1, 2017, 109,500 shares will vest on October 1, 2018 and 109,500 shares will vest on October 1, 2019. Of the shares granted to the
sole director of the Company's commercial manager, 15,000 shares vested on December 15, 2016, 15,000 shares vested on October 1, 2017, 10,000 shares will vest on October 1, 2018 and
10,000 shares will vest on October 1, 2019.
On February 1, 2018, the Compensation Committee granted an aggregate of 1,260,000 restricted shares of common stock pursuant to the Plan. Of the total 1,260,000 shares
issued, 575,000 shares were granted to our board of directors, 665,000 shares were granted to certain of our employees and 20,000 shares were granted to the sole director of the
Company's commercial manager, a non-employee. The fair value of each share on the grant date was $1.035. All the shares will vest over a period of two years. 420,024 shares vested on
February 1, 2018, 419,988 shares will vest on October 1, 2018 and 419,988 shares will vest on October 1, 2019.
55
C. Board Practices
Our directors do not have service contracts and do not receive any benefits upon termination of their directorships. Our board of directors has an audit committee, a
compensation committee, a nominating committee and a shipping committee. Our board of directors has adopted a charter for each of these committees.
Audit Committee
Our audit committee consists of Messrs. Dimitrios Anagnostopoulos and Elias Culucundis. Our board of directors has determined that the members of the audit committee
meet the applicable independence requirements of the Commission and the NASDAQ Stock Market Rules. Our board of directors has determined that Mr. Dimitrios Anagnostopoulos
is an "Audit Committee Financial Expert" under the Commission's rules and the corporate governance rules of the NASDAQ Stock Market.
The audit committee has powers and performs the functions customarily performed by such a committee (including those required of such a committee by NASDAQ and the
Commission). The audit committee is responsible for selecting and meeting with our independent registered public accounting firm regarding, among other matters, audits and the
adequacy of our accounting and control systems.
Compensation Committee
Our compensation committee consists of Messrs. Dimitrios Anagnostopoulos and Elias Culucundis, each of whom is an independent director. The compensation committee
reviews and approves the compensation of our executive officers.
Nominating Committee
Our nominating committee consists of Messrs. Elias Culucundis and Dimitrios Anagnostopoulos, each of whom is an independent director. The nominating committee is
responsible for overseeing the selection of persons to be nominated to serve on our board of directors.
Shipping Committee
We have established a shipping committee. The purpose of the shipping committee is to consider and vote upon all matters involving shipping and vessel finance in order to
accelerate the pace of our decision making in respect of shipping business opportunities, such as the acquisition of vessels or companies. The shipping industry often demands very
prompt review and decision-making with respect to business opportunities. In recognition of this, and in order to best utilize the experience and skills that our directors bring to us, our
board of directors has delegated all such matters to the shipping committee. Transactions that involve the issuance of our securities or transactions that involve a related party,
however, shall not be delegated to the shipping committee but instead shall be considered by the entire board of directors. The shipping committee consists of three directors. In
accordance with the Amended and Restated Charter of the Shipping Committee, two of the directors on the shipping committee are nominated by Jelco and one of the directors on the
shipping committee is nominated by a majority of our board of directors and is an independent member of the board of directors. The members of the shipping committee are Mr.
Stamatios Tsantanis and Ms. Christina Anagnostara, who are Jelco's nominees, and Mr. Elias Culucundis, who is the Board's nominee.
In order to assure the continued existence of the shipping committee, our board of directors has agreed that the shipping committee may not be dissolved and that the duties or
composition of the shipping committee may not be altered without the affirmative vote of not less than 80% of our board of directors. In addition, the duties of our chief executive
officer, who is currently Mr. Tsantanis, may not be altered without a similar vote. These duties and powers include voting the shares of stock that Seanergy owns in its subsidiaries. In
addition to these agreements, we have amended certain provisions in its articles of incorporation and by-laws to incorporate these requirements.
As a result of these various provisions, in general, all shipping-related decisions will be made by Jelco's appointees to our board of directors unless 80% of the board members
vote to change the duties or composition of the shipping committee.
56
D. Employees
We currently have one executive officer, Mr. Stamatios Tsantanis. In addition, we employ Ms. Theodora Mitropetrou, our general counsel, and a support staff of twenty-six
employees.
E. Share Ownership
The common shares beneficially owned by our directors and executive officers are disclosed below in "Item 7. Major Shareholders and Related Party Transactions".
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets out information, of which we are aware as of the date of this annual report, regarding the beneficial ownership of our common shares by (i) the owners
of more than five percent of our outstanding common shares and (ii) our directors and executive officers. All of the shareholders, including the shareholders listed in this table, are
entitled to one vote for each common share held.
Number of
Shares Owned
59,780,442
785,200
—
—
—
—
1,219,333
Percent of
Class(2)
73.6%
2.1%
*
*
*
*
3.2%
Identity of Person or Group
Claudia Restis(1)
Stamatios Tsantanis
Christina Anagnostara
Elias Culucundis
Dimitrios Anagnostopoulos
Ioannis Kartsonas
Directors and executive officers as a group (5 individuals)
_______________
*
(1)
Less than one percent.
Based on the Schedule 13D/A filed by Jelco, Comet and Claudia Restis on October 20, 2017, Claudia Restis may be deemed to beneficially own 58,927,008 common shares
through Jelco and 853,434 of our common shares through Comet, each through a revocable trust of which she is beneficiary. The shares she may be deemed to beneficially
own through Jelco include (i) 4,222,223 common shares which Jelco may be deemed to beneficially own, issuable upon exercise of a conversion option pursuant to the
Convertible Promissory Note dated March 12, 2015, that we issued to Jelco, (ii) 23,516,667 common shares which Jelco may be deemed to beneficially own, issuable upon
exercise of a conversion option pursuant to the Convertible Promissory Note dated September 7, 2015, as amended, that we issued to Jelco and (iii) 15,277,778 common
shares which Jelco may be deemed to beneficially own, issuable upon exercise of a conversion option pursuant to the Convertible Promissory Note dated September 27,
2017, that we issued to Jelco.
Based on 38,239,346 common shares outstanding as of March 7, 2018 and any additional shares that such person may be deemed to beneficially own in accordance with Rule
13d-3 under the Exchange Act.
(2)
B. Related Party Transactions
Agreement for the Acquisition of Seven Vessels
On August 6, 2015, we entered into a purchase agreement with entities affiliated with certain of our principal shareholders to acquire seven secondhand drybulk vessels,
consisting of five Capesize and two Supramax vessels, for an aggregate purchase price of $183.4 million. These included all of the vessels in our then-current fleet other than
Leadership. We took delivery of the seven vessels between September and December 2015. The acquisition costs of the seven vessels were funded with proceeds from a $44.4 million
senior secured loan facility with HSH Nordbank AG to finance the acquisition of the Geniuship and Gloriuship, a $52.7 million secured term loan facility with UniCredit Bank AG to
partly finance the acquisition of the Premiership, Gladiatorship and Guardianship, a $33.8 million secured loan facility with Alpha Bank A.E. to partly finance the acquisition of the
Squireship, a $39.4 million secured term loan facility with Natixis to partly finance the acquisition of the Championship, the Share Purchase Agreement and an unsecured revolving
convertible promissory note issued to Jelco initially for an amount up to $6.8 million. For more information regarding our current loan facilities and convertible promissory notes, please
see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources".
57
Share Purchase Agreements
On March 12, 2015 we entered into share purchase agreements with Jelco, an entity affiliated with our Sponsor, and Stamatios Tsantanis, our Chairman, Chief Executive Officer
and Interim Chief Financial Officer, under which we sold 5,000,100 of our common shares to Jelco for $4.5 million and 333,400 of our common shares Mr. Tsantanis for $0.3 million, equal
to a price per share of $0.90, and on the same date we entered into registration rights agreements with Jelco and Mr. Tsantanis providing customary registration rights with respect to
these common shares. Our Board of Directors obtained fairness opinions from an independent third party for the share price. The price was determined using a build-up method,
combining our net asset value with the cost that a private company would incur to be listed on a U.S. stock exchange.
On September 7, 2015, the Company entered into a share purchase agreement under which the Company sold 10,022,240 of its common shares in three tranches to Jelco for $9.0
million. The common shares were sold at a price of $0.90 per share. The Company's Board of Directors obtained a fairness opinion from an independent third party for the share price.
The price was determined using the capital market multiples and the discounted cash flow methods. On September 11, 2015, the first tranche of 3,889,980 common shares was sold for
$3.5 million. On September 29, 2015, the second tranche of 2,655,740 common shares was sold for $2.4 million. On October 21, 2015, the third tranche of 3,476,520 common shares was
sold for $3.1 million. The transaction was approved by an independent committee of the Company's Board of Directors.
Convertible Promissory Notes
On March 12, 2015, we issued a convertible promissory note for $4.0 million to Jelco. The note, as amended, is repayable in four installments with the first installment occurring
six months after the delivery date of the Leadership and the other three installments semi-annually commencing four years after delivery date of the Leadership, along with a balloon
installment of $3.2 million payable on the final maturity date in the first quarter of 2020. The note bears interest at three-month LIBOR plus a margin of 5% with interest payable quarterly.
At Jelco's option, the principal amount under the convertible note or any part thereof may be paid at any time in common shares at a conversion price of $0.90 (adjusted for the reverse
stock split discussed above according to the terms of the convertible note) per share. Jelco also received customary registration rights with respect to any shares received upon
conversion of the note. As of December 31, 2017, $3.8 million was outstanding under the note.
58
On September 7, 2015, we issued a revolving convertible promissory note to Jelco for an amount up to $6.8 million, or the Applicable Limit. Following nine amendments to the
note between December 2015 and September 2017, the Applicable Limit was raised to $21.2 million. The Applicable Limit will be reduced by $3.3 million four years following the first
drawdown. The aggregate outstanding principal is repayable on the third quarter of 2020, however, principal is also repayable earlier to the extent that the aggregate outstanding
principal exceeds the Applicable Limit (as it may be reduced from time to time). The note bears interest at three-month LIBOR plus a margin of 5% with interest payable quarterly. At
Jelco's option, our obligation to repay the principal amount under the revolving convertible note or any part thereof may be paid in common shares at a conversion price of $0.90
(adjusted for the reverse stock split discussed above according to the terms of the convertible note) per share. Jelco also received customary registration rights with respect to any
shares received upon conversion of the note. As of December 31, 2017, $21.2 million was outstanding under the note.
On September 27, 2017, we issued a $13.75 million convertible promissory note to Jelco. The note is repayable by two consecutive annual installments of $1.375 million with the
first installment occurring 24 months after the drawdown date, the second installment occurring 36 months after the drawdown date and a balloon payment of $11.0 million four years
after the drawdown date. The note bears quarterly interest at three-month LIBOR plus a margin of 5% and is payable in cash. At Jelco's option, the whole or any part of the principal
amount under the note may only be paid at any time in common shares at a conversion price of $0.90 per share. The conversion price was determined and approved by a special
committee of independent directors of the Company's board of directors, as well as by the board of directors itself. The special committee of independent directors of the Company's
board of directors and our board of directors obtained a valuation report from an independent third party financial advisor for the fair market value of the Company's equity per share.
Jelco also received customary registration rights with respect to all shares it beneficially owns, including any shares to be received upon conversion of the note. The note is secured by
the following cross collaterals: second preferred mortgages over the Championship and Partnership, second priority general assignments covering earnings, insurances and requisition
compensation over each vessel, guarantees from our two vessel-owning subsidiaries, and a guarantee from our wholly-owned subsidiary, Emperor Holding Ltd, which is the holding
company of two of our ship-owing subsidiaries owning the Lordship and the Knightship. Of the $13.75 million under the note, $4.75 million were used to make a mandatory prepayment
under the May 24, 2017 Jelco Loan Facility. As of December 31, 2017, $13.75 million was outstanding under the note.
Our wholly-owned subsidiary Emperor Holding Ltd. has provided a guarantee to Jelco for Seanergy Maritime Holdings Corp.'s obligations under all these notes.
Jelco Loan Facilities
On October 4, 2016, we entered into a $4.2 million loan facility with Jelco, or the Jelco Loan Facility, to fund the initial deposits for the Lordship and the Knightship. On
November 17, 2016 and November 28, 2016, we entered into amendments to the Jelco Loan Facility, which, among other things, increased the aggregate amount that may be borrowed
under the facility to up to $12.8 million and extended the maturity date to the earlier of (i) February 28, 2018 and (ii) the date falling 14 months from the final drawdown date. On January
12, 2018, we exercised our option to defer the final repayment date to January 28, 2019. The Jelco Loan Facility bears interest at LIBOR plus a margin of 8.5%, increased from 7%,
following the extension of the final repayment date, and is repayable in one bullet payment together with accrued interest thereon on the maturity date. The Jelco Loan Facility is
secured by second priority mortgages and general assignments covering earnings, insurances and requisition compensation on the Lordship and the Knightship, and the vessel
owning subsidiaries that own the Lordship and the Knightship have provided a guarantee to Jelco for Seanergy Maritime Holdings Corp.'s obligations under this facility. As of
December 31, 2017, $5.9 million was outstanding under the Jelco Loan Facility, excluding the unamortized financing fees.
On March 28, 2017, we entered into a $47.5 million secured loan agreement with Jelco, or the Jelco Backstop Facility. Under the terms of the Jelco Backstop Facility, Jelco would
make available this facility to us in the event that we were not able to secure third party financing to partially fund the Natixis settlement agreement and the balance of the purchase price
of the Partnership. The Jelco Backstop Facility was terminated on September 27, 2017, and no amounts were drawn down under this facility.
On May 24, 2017, we entered into a loan agreement with Jelco for an amount of up to $16.2 million to fund part of the acquisition cost for the Partnership, which we refer to as
the May 24, 2017 Jelco Loan Agreement. On June 22, 2017 and August 22, 2017, we entered into supplemental letters to the May 24, 2017 Jelco Loan Agreement, which, deferred our
obligation to mandatory prepay to Jelco the amount of $4.75 million due under the loan. Relevant mandatory prepayment of $4.75 million was made through the proceeds we received
from the above stated note of $13.75 million issued to Jelco on September 27, 2017.
59
On September 27, 2017, we entered into a loan agreement with Jelco to amend and restate the May 24, 2017 Jelco Loan Agreement. The amended facility currently bears interest
at three-month LIBOR plus a margin of 6% per annum and is payable quarterly with the principal being repayable in one bullet payment due on the maturity date. The maturity date,
which was deferred from May 24, 2018 to May 24, 2019, may, at the Company's option, be extended to May 24, 2020. The facility is secured by second preferred mortgages, second
priority general assignments covering earnings, insurances and requisition compensation over the Championship and the Partnership, guarantees from our vessel-owning subsidiaries,
and a guarantee from our wholly-owned subsidiary, Emperor Holding Ltd., all cross collateralized with the convertible promissory note issued to Jelco on September 27, 2017. As of
December 31, 2017, $11.45 million was outstanding under this facility.
Commercial Real Estate Sublease Agreement
We previously leased our executive office space in Athens, Greece pursuant to the terms of a sublease agreement between Seanergy Management and Waterfront S.A., a
company affiliated with a member of the Restis family. The initial sublease was subsequently amended, including on January 1, 2015 to provide that for the remaining term of the
sublease agreement the sublease fee would be EUR 25,000 per month and that the term of the agreement was extended to January 31, 2015, on February 1, 2015 to extend the sublease
term to February 28, 2015, and on March 13, 2015 to extend the sublease term to March 15, 2015, at a lease payment of EUR 12,500 per month, following which we relocated our executive
office space to premises owned by an unaffiliated third party.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18.
Legal Proceedings
We have previously reported that in 2010, certain of our then shareholders, including George Koutsolioutsos, who is also the former Chairman of the Board of the Company,
brought suit in Greece against certain other shareholders of the Company, our former Chief Financial Officer, and the immediate successor to Mr. Koutsolioutsos as Chairman. The suit
seeks damages from the defendants for alleged willful misconduct that purportedly caused the plaintiffs damage both by way of diminution of the value of their shares in the Company
and harm to their reputations. The defendants have advised us that they do not believe the action has merit, and that they intend vigorously to defend it. The next hearing date in this
action is currently scheduled for November 15, 2018.
Mr. Koutsolioutsos also commenced three actions in Greece during 2014 against his immediate successor as Chairman, on substantially the same or related set of grounds. The
plaintiff seeks money damages in two of these cases. The next hearing date in these actions is also currently scheduled for November 15, 2018. The third case, in which the plaintiff
sought an injunction, was discontinued following the plaintiffs' resignation in September 2014.
On July 2017, certain of the plaintiffs that filed the 2010 suit commenced two new lawsuits against, among others, Mr. Koutsolioutsos' immediate successor as Chairman, on
substantially the same set of grounds as the two actions filed in 2014. With these new lawsuits, the plaintiffs withdrew the two actions filed in 2014 which were to be discussed on
November 15, 2018 and further lessened their claim amount. The hearing of the new lawsuits is scheduled for November 15, 2018.
Neither we nor our current Chairman is named in any of these actions. We have also notified our insurance underwriters of these actions, and our underwriters are advancing a
portion of the defendants' legal expenses.
60
Dividend Policy
The declaration, timing and amount of any dividend is subject to the discretion of our board of directors and will be dependent upon our earnings, financial condition, market
prospects, capital expenditure requirements, investment opportunities, restrictions in our loan agreements, the provisions of the Marshall Islands law affecting the payment of dividends
to shareholders, overall market conditions and other factors. We have not declared any dividends since our inception. Our board of directors may review and amend our dividend policy
from time to time in light of our plans for future growth and other factors. In addition, since we are a holding company with no material assets other than the shares of our subsidiaries
and affiliates through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries and affiliates distributing to us their earnings and cash flow. Some
of our loan agreements limit our ability to pay dividends and our subsidiaries' ability to make distributions to us.
B. Significant Changes
There have been no significant changes since the date of the consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Our common shares and class A warrants trade on the NASDAQ Capital Market under the symbol "SHIP" and "SHIPW" respectively. The following table sets forth the high
and low closing prices for each of the periods indicated for our common shares, as adjusted for the 5-for-1 reverse stock split effective January 8, 2016 and for 15-for-1 reverse stock split
effective June 24, 2011.
For the Year Ended December 31,
2017
2016
2015
2014
2013
For the Quarter Ended
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
For the Month Ended
March 1, 2018 through March 6, 2018
February 2018
January 2018
December 2017
November 2017
October 2017
September 2017
High
Low
1.43
7.20
6.75
9.95
12.30
$
$
$
$
$
High
Low
1.43
1.23
1.20
1.25
7.20
6.20
3.01
5.54
4.35
1.15
1.06
1.10
1.11
1.43
1.25
1.23
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
High
Low
0.61
1.15
2.75
4.13
4.00
0.93
0.71
0.61
0.76
1.15
2.06
2.10
1.58
3.00
1.04
1.00
1.03
1.00
0.93
0.96
1.09
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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B. Plan of Distribution
Not applicable.
C. Markets
Our common shares and class A warrants trade on the NASDAQ Capital Market under the symbol "SHIP" and "SHIPW" respectively.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Incorporation
Our amended and restated articles of incorporation have been filed in the Annex to Seanergy Maritime's proxy statement filed with the Commission on Form 6-K on July 31,
2008. Those amended and restated articles of incorporation contained in such Annex are incorporated by reference. Our second amended and restated bylaws have been filed with the
Commission on Form 6-K on July 20, 2011, which we incorporate by reference. We also incorporate by reference, the section titled "Description of Capital Stock and Warrants" in our
Registration Statement on Form F-1 (Registration No. 333-214322), declared effective by the Commission on December 7, 2016.
C. Material contracts
Attached as exhibits to this annual report are the contracts we consider to be both material and outside the ordinary course of business during the two-year period immediately
preceding the date of this annual report. We refer you to "Item 4. Information on the Company – A. History and Development of the Company," "Item 4. Information on the Company –
B. Business Overview," "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Loan Arrangements," and "Item 7. Major Shareholders and
Related Party Transactions–B. Related Party Transactions" for a discussion of these contracts. Other than as discussed in this annual report, we have no material contracts, other than
contracts entered into in the ordinary course of business, to which we are a party.
D. Exchange controls
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls, or restrictions that affect the remittance of
dividends, interest or other payments to non-resident holders of our common shares.
62
E. Taxation
The following is a summary of the material U.S. federal income tax and Marshall Islands tax consequences of the ownership and disposition of our common stock and warrants
as well as the material U.S. federal and Marshall Islands income tax consequences applicable to us and our operations. The discussion below of the U.S. federal income tax
consequences to "U.S. Holders" will apply to a beneficial owner of our common stock and/or warrants that is treated for U.S. federal income tax purposes as:
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an individual citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) that is created or organized (or treated as created or organized) in or under the laws of
the United States, any state thereof or the District of Columbia; or
an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or a trust if (i) a U.S. court can exercise primary supervision over
the trust's administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.
If you are not described as a U.S. Holder and are not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, you will be considered
a "Non-U.S. Holder." The U.S. federal income tax consequences applicable to Non-U.S. Holders is described below under the heading "United States Federal Income Taxation of Non-
U.S. Holders."
This discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our common stock or warrants through such entities. If
a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock or warrants, the U.S. federal income tax
treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership.
This summary is based on the U.S. Internal Revenue Code of 1986. as amended, or the Code, its legislative history, Treasury Regulations promulgated thereunder, published
rulings and court decisions, all as currently in effect. These authorities are subject to change, possibly on a retroactive basis.
This summary does not address all aspects of U.S. federal income taxation that may be relevant to any particular holder based on such holder's individual circumstances. In
particular, this discussion considers only holders that will own and hold our common stock and warrants as capital assets within the meaning of Section 1221 of the Code and does not
address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to holders that are subject to special rules, including:
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financial institutions or "financial services entities";
broker-dealers;
taxpayers who have elected mark-to-market accounting;
tax-exempt entities;
governments or agencies or instrumentalities thereof;
insurance companies;
regulated investment companies;
real estate investment trusts;
certain expatriates or former long-term residents of the United States;
persons that actually or constructively own 10% or more of our voting shares;
persons that own shares through an "applicable partnership interest";
persons that hold our common stock or warrants as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; or
persons whose functional currency is not the U.S. dollar.
63
This summary does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws.
We have not sought, nor will we seek, a ruling from the Internal Revenue Service, or the IRS, as to any U.S. federal income tax consequence described herein. The IRS may
disagree with the description herein, and its determination may be upheld by a court.
Because of the complexity of the tax laws and because the tax consequences to any particular holder of our common stock and warrants may be affected by matters not
discussed herein, each such holder is urged to consult with its tax advisor with respect to the specific tax consequences of the ownership and disposition of our common stock and
warrants, including the applicability and effect of state, local and non-U.S. tax laws, as well as U.S. federal tax laws.
United States Federal Income Tax Consequences
Taxation of Operating Income: In General
Unless exempt from United States federal income taxation under the rules discussed below, a foreign corporation is subject to United States federal income taxation in respect
of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a shipping pool,
partnership, strategic alliance, joint operating agreement, code sharing arrangements or other joint venture it directly or indirectly owns or participates in that generates such income, or
from the performance of services directly related to those uses, which we refer to as "shipping income", to the extent that the shipping income is derived from sources within the United
States. For these purposes, 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States,
exclusive of certain U.S. territories and possessions, constitutes income from sources within the United States, which we refer to as "U.S. source gross shipping income".
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are
prohibited by law from engaging in transportation that produces income considered to be 100% from sources within the United States.
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 any United States federal income tax.
For our 2017 taxable year, we had U.S. source gross shipping income of $2,118,460.
We are subject to a 4% tax imposed without allowance for deductions for such taxable year, as described in " – Taxation in the Absence of Exemption,", unless we qualify for
exemption from tax under Section 883 of the Code, the requirements of which are described in detail below. For our 2017 taxable year, we had U.S. source gross shipping income, on
which we were subject to a U.S federal tax of $42,369.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the regulations thereunder, we will be exempt from United States federal income taxation on our U.S.-source shipping income if:
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we are organized in a foreign country (our "country of organization") that grants an "equivalent exemption" to corporations organized in the United States; and
more than 50% of the value of our stock is owned, directly or indirectly, by "qualified shareholders," that are persons (i) who are "residents" of our country of
organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States, and (ii) we satisfy certain
substantiation requirements, which we refer to as the "50% Ownership Test"; or
our stock is "primarily" and "regularly" traded on one or more established securities markets in our country of organization, in another country that grants an
"equivalent exemption" to United States corporations, or in the United States, which we refer to as the "Publicly-Traded Test".
64
The jurisdictions where we and our ship-owning subsidiaries are incorporated grant "equivalent exemptions" to United States corporations. Therefore, we will be exempt from
United States federal income taxation with respect to our U.S. source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.
50% Ownership Test
Under the regulations, a foreign corporation will satisfy the 50% Ownership Test for a taxable year if (i) for at least half of the number of days in the taxable year, more than 50%
of the value of its stock is owned, directly or constructively through the application of certain attribution rules prescribed by the regulations, by one or more shareholders who are
residents of foreign countries that grant "equivalent exemption" to corporations organized in the United States and (ii) the foreign corporation satisfies certain substantiation and
reporting requirements with respect to such shareholders. Holders of warrants will not be treated as constructive owners of shares for purposes of the 50% Ownership Test.
These substantiation requirements are onerous and therefore there can be no assurance that we would be able to satisfy them. Even if we were not able to satisfy the 50%
Ownership Test for a taxable year, we may nonetheless qualify for exemption from tax under Section 883 if we are able to satisfy the Publicly-Traded Test, which is described below.
Publicly-Traded Test
The regulations provide that the 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 the 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.
Under the regulations, the stock of a foreign corporation will be considered "regularly traded" if one or more classes of its stock representing 50% or more of its outstanding
shares, by total combined voting power of all classes of stock entitled to vote and by total combined value of all classes of stock, are listed on one or more established securities
markets (such as NASDAQ Capital Market), which we refer to as the "listing threshold."
The regulations further require that with respect to each class of stock relied upon to meet the listing requirement: (i) such class of the stock is traded on the market, other than
in minimal quantities, on at least sixty (60) days during the taxable year or one-sixth (1/6) of the days in a short taxable year; and (ii) the aggregate number of shares of such class of
stock traded on such market is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short
taxable year. Even if a foreign corporation does not satisfy both tests, the regulations provide that the trading frequency and trading volume tests will be deemed satisfied by a class of
stock if such class of stock is traded on an established market in the United States and such class of stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that a class of stock 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 shares of such class of stock are owned, actually or constructively under specified attribution
rules, on more than half the days during the taxable year by persons who each own directly or indirectly 5% or more of the vote and value of such class of stock, who we refer to as "5%
Shareholders". We refer to this restriction in the regulations as the "Closely-Held Rule".
For purposes of being able to determine our 5% Shareholders, the regulations permit a foreign corporation to rely on Schedule 13G and Schedule 13D filings with the
Commission. The regulations further provide that an investment company that is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5%
Shareholder for such purposes.
Additionally, holders of warrants will not be treated as constructive owners of shares for purposes of the Closely Held Rule.
The Closely-Held Rule will not disqualify a foreign corporation, however, if it can establish or substantiate that qualified shareholders own, actually or constructively under
specified attribution rules, sufficient shares in the closely-held block of stock to preclude the shares in the closely-held block that are owned by non-qualified 5% Shareholders from
representing 50% or more of the value of such class of stock for more than half of the days during the tax year. These substantiation requirements are onerous and consequently there
can be no assurance that we would be able to satisfy them.
65
Due to the factual nature of the issues involved, there can be no assurance that we or any of our subsidiaries will qualify for the benefits of Section 883 of the Code for our
subsequent taxable years.
Taxation in Absence of Exemption
To the extent the benefits of Section 883 are unavailable, our U.S. source gross 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, otherwise referred to
as the "4% Tax". Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from U.S. sources, the maximum effective
rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4% Tax.
To the extent the benefits of the Section 883 exemption are unavailable and our U.S. source gross 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 gross shipping income, net of applicable deductions, would be subject to the
U.S. federal corporate income tax currently imposed at a rate of 21%. In addition, we may be subject to the 30% "branch profits" tax on earnings effectively connected with the conduct
of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our U.S. trade or business.
Our U.S. source gross shipping income would be considered "effectively connected" with the conduct of a U.S. trade or business only if:
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we have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and
substantially all of our U.S. source gross shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a
published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.
We do not intend to have, or permit circumstances that would result in having, any vessel operating to 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 gross shipping income will be "effectively connected" with
the conduct of a U.S. trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883, we will not be subject to United States 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 United States 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.
United States Federal Income Taxation of U.S. Holders
Taxation of Distributions Paid on Common Stock
Subject to the passive foreign investment company, or PFIC, rules discussed below, any distributions made by us with respect to 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 non-taxable 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.
66
Dividends paid on common shares to a U.S. Holder which is an individual, trust, or estate (a "U.S. Non-Corporate Holder") will generally be treated as "qualified dividend
income" that is taxable to such shareholders at preferential U.S. federal income tax rates provided that (1) the common shares are readily tradable on an established securities market in
the United States (such as the NASDAQ Global Market on which the common shares were listed and the Nasdaq Capital Market on which the common shares are currently listed); (2)
we are not a passive foreign investment company, or PFIC, for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we
are, have been or will be); (3) the U.S. Non-Corporate 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; and (4) certain other conditions are met.
Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Holder.
Special rules may apply to any "extraordinary dividend"—generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder's adjusted basis in a
common share—paid by us. If we pay an "extraordinary dividend" on our common stock that is treated as "qualified dividend income," then any loss derived by a U.S. Non-Corporate
Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of such dividend.
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 stock.
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. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
Exercise, Sale, Retirement or Other Taxable Disposition of Warrants
Neither we nor a U.S. Holder of a warrant will recognize gain or loss as a result of the U.S. Holder's receipt of our common stock upon exercise of a warrant. A U.S. Holder's
adjusted tax basis in the common shares received will be an amount equal to the sum of (i) the U.S. Holder's adjusted tax basis in the warrant exercised plus (ii) the amount of the exercise
price for the warrant. If the warrants lapse without exercise, the U.S. Holder will recognize capital loss in the amount equal to the U.S. Holder's adjusted tax basis in the warrants. A U.S.
Holder's holding period for common shares received upon exercise of a warrant will commence on the date the warrant is exercised.
Upon the sale, retirement or other taxable disposition of a warrant, the U.S. Holder will recognize gain or loss to the extent of the difference between the sum of the cash and the
fair market value of any property received in exchange therefor and the U.S. Holder's tax basis in the warrant. Any such gain or loss recognized by a holder upon the sale, retirement or
other taxable disposition of a warrant will be capital gain or loss and will be long-term capital gain or loss if the warrant has been held for more than one year.
The exercise price of a warrant is subject to adjustment under certain circumstances. If an adjustment increases a proportionate interest of the holder of a warrant in the fully
diluted common stock without proportionate adjustments to the holders of our common stock, U.S. Holder of the warrants may be treated as having received a constructive distribution,
which may be taxable to the U.S. Holder as a dividend.
Passive Foreign Investment Company Rules
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock or warrants 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 or warrants, either:
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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.
67
For purposes of determining whether we are a PFIC, we will be treated as earning and owning its proportionate share of the income and assets, respectively, of any of its
subsidiary corporations in which it owns 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, which includes bareboat hire, would generally constitute "passive income" unless we are treated under specific rules
as deriving rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. Although there is
no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to
derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute 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 its
position consisting of case law and Internal Revenue Service pronouncements concerning the characterization of income derived from time charters and voyage charters as services
income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. It should be
noted that in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the Internal Revenue Service or a court could disagree with this
position. In addition, although we intend to conduct its affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that the nature
of our operations will not change in the future.
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 is referred 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 the common shares, as discussed below. In addition, if we were to be treated as a PFIC for any taxable year ending on or after
December 31, 2013, a U.S. Holder would be required to file an IRS Form 8621 for the year with respect to such holder's common stock.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder is referred to as an "Electing Holder," the Electing Holder must report each year for U.S. federal income tax
purposes his pro rata share of the our ordinary earnings and its 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. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of the common shares.
A U.S. Holder would make a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with his, her or its U.S. federal income tax return. After the end of each
taxable year, we will determine whether we were a PFIC for such taxable year. If we determine or otherwise become aware that we are a PFIC for any taxable year, we will provide each
U.S. Holder with all necessary information, including a PFIC Annual Information Statement, in order to enable such holder to make a QEF election for such taxable year. A U.S. Holder
may not make a QEF election with respect to its ownership of a warrant.
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 anticipated, our common stock is treated as "marketable stock," a U.S. Holder would be allowed to
make a "mark-to-market" election with respect to our common shares. 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 U.S. 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 his common shares would be adjusted to reflect any
such income or loss amount. Gain realized on the sale, exchange or other disposition of the 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 by
the U.S. Holder. The mark-to-market election is generally available to U.S. Holders of warrants.
68
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 stock or warrants in a taxable year in excess of 125 percent 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 stock or warrants), and (2) any gain realized on the sale, exchange or other disposition of our common
stock or warrants. Under these special rules:
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the excess distribution or gain would be allocated ratably over the Non-Electing Holders' aggregate holding period for the common stock or warrants;
the amount allocated to the current taxable year and any taxable year before we became a passive foreign investment company 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 stock or warrants. If a Non-Electing Holder who is an individual dies while owning our common stock, such Non-Electing Holder's successor generally
would not receive a step-up in tax basis with respect to such stock or warrants.
United States Federal Income Taxation of Non-U.S. Holders
Dividends paid to a Non-U.S. Holder with respect to our common stock generally should not be subject to U.S. federal income tax, unless the dividends are effectively
connected with the Non-U.S. Holder's conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent
establishment or fixed base that such holder maintains in the United States).
In addition, a Non-U.S. Holder generally should not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our common stock or warrants
unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent
establishment or fixed base that such holder maintains 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 in the
taxable year of sale or other disposition and certain other conditions are met (in which case such gain from United States sources may be subject to tax at a 30% rate or a lower
applicable tax treaty rate).
Dividends and gains that are effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States (and, if required by an applicable income tax
treaty, are attributable to a permanent establishment or fixed base in the United States) generally should be subject to tax in the same manner as for a U.S. Holder and, if the Non-U.S.
Holder is a corporation for U.S. federal income tax purposes, it also may be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
A Non-U.S. Holder will not recognize any gain or loss on the exercise or lapse of the warrants.
Backup Withholding and Information Reporting
In general, information reporting for U.S. federal income tax purposes should apply to distributions made on our common stock within the United States to a non-corporate U.S.
Holder and to the proceeds from sales and other dispositions of our common stock to or through a U.S. office of a broker by a non-corporate U.S. Holder. Payments made (and sales and
other dispositions effected at an office) outside the United States will be subject to information reporting in limited circumstances.
69
In addition, backup withholding of U.S. federal income tax, currently at a rate of 24%, generally should apply to distributions paid on our common stock to a non-corporate U.S.
Holder and the proceeds from sales and other dispositions of our common stock by a non-corporate U.S. Holder, who:
ö
ö
ö
fails to provide an accurate taxpayer identification number;
is notified by the IRS that backup withholding is required; or
fails in certain circumstances to comply with applicable certification requirements.
A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of
perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Backup withholding is not an additional tax. Rather, the amount of any backup withholding generally should be allowed as a credit against a U.S. Holder's or a Non-U.S.
Holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS.
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, the common shares, unless the shares 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 consult their own tax advisors regarding their
reporting obligations under this legislation.
Marshall Islands Tax Consequences
We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, no Marshall Islands withholding tax will
be imposed upon payment of dividends by us to its shareholders, and holders of our common stock that are not residents of or domiciled or carrying on any commercial activity in the
Marshall Islands will not be subject to Marshall Islands tax on the sale or other disposition of our common stock.
F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. Documents on display
We file annual reports and other information with the Commission. You may inspect and copy any report or document we file, including this annual report and the
accompanying exhibits, at the Commission's public reference facilities located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of
the public reference facilities by calling the Commission at 1-800-SEC-0330, and you may obtain copies at prescribed rates. Our Commission filings are also available to the public at the
website maintained by the Commission at http://www.sec.gov, as well as on our website at http://www.seanergymaritime.com. Information on our website does not constitute a part of
this annual report and is not incorporated by reference.
70
We will also provide without charge to each person, including any beneficial owner of our common stock, upon written or oral request of that person, a copy of any and all of
the information that has been incorporated by reference in this annual report. Please direct such requests to Investor Relations, Seanergy Maritime Holdings Corp., 16 Grigoriou
Lambraki Street, 166 74 Glyfada, Athens, Greece, telephone number +30 210 8913507 or facsimile number +30 210 9638404.
I. Subsidiary information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to risks associated with changes in interest rates relating to our unhedged variable–rate borrowings, according to which we pay interest at LIBOR plus a
margin; as such increases in interest rates could affect our results of operations and ability to service our debt. As of December 31, 2017, we had aggregate variable-rate borrowings,
including the convertible promissory notes issued to Jelco, of $221 million. An increase of 1% in the interest rates of our variable-rate borrowings as of December 31, 2017 would
increase our interest payments $2.3 million per year. We have not entered into any hedging contracts to protect against interest rate fluctuations. We expect to manage any exposure in
interest rates through our regular operating and financing activities.
Foreign Currency Exchange Rate Risk
We generate all of our revenue in U.S. dollars. The minority of our operating expenses (approximately 2% in 2017) and the majority of our general and administrative expenses
(approximately 62% in 2017) are in currencies other than the U.S. dollar, primarily the Euro. For accounting purposes, expenses incurred in other currencies are converted into U.S.
dollars at the exchange rate prevailing on the date of each transaction. We do not consider the risk from exchange rate fluctuations to be material for our results of operations, as during
2017, these non-US dollar expenses represented 6% of our revenues. However, the portion of our business conducted in other currencies could increase in the future, which could
expand our exposure to losses arising from exchange rate fluctuations. We have not hedged currency exchange risks associated with our expenses.
Inflation Risk
We do not consider inflation to be a significant risk to direct expenses in the current and foreseeable future. However, in the event that inflation becomes a significant factor in
the global economy, inflationary pressures would result in increased operating, voyage and financing costs.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
71
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Both of our loan facilities with Alpha Bank A.E. place restrictions on our ability to distribute dividends to our shareholders, specifically that the amount of the dividends so
declared shall not exceed 50% of our net income except in case that cash and marketable securities are equal or greater than the amount required to meet our debt service for the
following eighteen-month period.
ITEM 15. CONTROLS AND PROCEDURES
a) Disclosure Controls and Procedures
Management (our Chief Executive Officer / Interim Chief Financial Officer) has evaluated the effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this
annual report (as of December 31, 2017). The term disclosure controls and procedures is defined under the Commission's rules as controls and other procedures of an issuer that are
designed to ensure that information required to be disclosed by the 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 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 the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's
management (our Chief Executive Officer / Interim Chief Financial Officer, or persons performing similar functions) as appropriate to allow timely decisions regarding required
disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on that evaluation, our Chief Executive Officer / Interim Chief Financial Officer has concluded that our disclosure controls and procedures are effective as of the
evaluation date.
b) Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rule 13a-15(f).
Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer / Interim Chief Financial Officer and effected by our board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external
reporting purposes in accordance with U.S. GAAP.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures are being made only in accordance with the authorization of our management and directors; and (iii) 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 consolidated financial
statements.
Management (our Chief Executive Officer / Interim Chief Financial Officer), has assessed the effectiveness of our internal control over financial reporting as of December 31,
2017, based on the framework established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, management has determined that the Company's internal control over financial reporting is effective as of December 31, 2017.
72
However, it should be noted that because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements with certainty even when
determined to be effective and can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate / obsolete because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.
c) Attestation Report of the Registered Public Accounting Firm
Not applicable.
d) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the year covered by this annual report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Dimitrios Anagnostopoulos, an independent director and a member of our audit committee, is an "Audit Committee Financial
Expert" under Commission rules and the corporate governance rules of the NASDAQ Stock Market.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics that applies to our employees, officers and directors. Our Code of Business Conduct and Ethics is available on the
Corporate Governance section of our website at www.seanergymaritime.com. Information on our website does not constitute a part of this annual report and is not incorporated by
reference. We will also provide a hard copy of our Code of Business Conduct and Ethics free of charge upon written request. We intend to disclose any waivers to or amendments of
the Code of Business Conduct and Ethics for the benefit of any of our directors and executive officers within 5 business days of such waiver or amendment. Shareholders may direct
their requests to the attention of Investor Relations, Seanergy Maritime Holdings Corp., 16 Grigoriou Lambraki Street, 16674 Glyfada, Athens, Greece, telephone number +30 210 8913507
or facsimile number +30 210 9638404.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our principal accountants are Ernst & Young (Hellas) Certified Auditors-Accountants S.A., or EY. EY has billed us for audit, audit-related and non-audit services as follows:
Audit fees
Audit related fees
Tax fees
All other fees
Total fees
2017
2016
202,000
129,000
-
-
331,000
$
$
161,000
223,000
-
-
384,000
$
$
Audit fees for 2017 and 2016 related to professional services rendered for the audit of our financial statements for the years ended December 31, 2017 and 2016, respectively.
Audit related fees for 2017 and 2016 related to services provided related to our equity offerings during 2017 and 2016, respectively. As per the audit committee charter, our audit
committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent registered public accounting firm and associated fees
prior to the engagement of the independent registered public accounting firm with respect to such services.
73
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Please see "Item 7. Major Shareholders and Related Party Transactions–B. Related Party Transactions–Share Purchase Agreements" for a description of our recent sales of our
common shares to certain of our affiliates.
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
As a foreign private issuer, as defined in Rule 3b-4 under the Exchange Act, the Company is permitted to follow certain corporate governance rules of its home country in lieu
of NASDAQ's corporate governance rules. The Company's corporate governance practices deviate from NASDAQ's corporate governance rules in the following ways:
ö
ö
ö
ö
In lieu of obtaining shareholder approval prior to the issuance of designated securities or the adoption of equity compensation plans or material amendments to such
equity compensation plans, we will comply with provisions of the BCA, providing that the board of directors approve share issuances and adoptions of and material
amendments to equity compensation plans. Likewise, in lieu of obtaining shareholder approval prior to the issuance of securities in certain circumstances, consistent
with the BCA and our amended and restated articles of incorporation and second amended and restated by-laws, the board of directors approves certain share
issuances.
The Company's Board is not required to have an Audit Committee comprised of at least three members. Our Audit Committee is comprised of two members.
The Company's Board is not required to meet regularly in executive sessions without management present.
As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall
Islands law. Consistent with Marshall Islands law and as provided in our second amended and restated bylaws, we will notify our shareholders of meetings between
15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting.
Other than as noted above, we are in full compliance with all other applicable NASDAQ corporate governance standards.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
74
ITEM 17. FINANCIAL STATEMENTS
See Item 18.
ITEM 18. FINANCIAL STATEMENTS
PART III
The financial information required by this item, together with the report of Ernst & Young (Hellas) Certified Auditors-Accountants S.A., is set forth on pages F-1 through F-34
and are filed as part of this annual report.
ITEM 18.1 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF SEANERGY MARITIME HOLDINGS CORP. (PARENT COMPANY ONLY)
The Schedule I, beginning on page F-30, is filed as part of this report.
ITEM 19.
EXHIBITS
Exhibit Number Description
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2.1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
Amended and Restated Articles of Incorporation(1)
Second Amended and Restated Bylaws(2)
Amendment to Amended and Restated Articles of Incorporation(3)
Second Amendment to Amended and Restated Articles of Incorporation(4)
Third Amendment to Amended and Restated Articles of Incorporation(5)
Fourth Amendment to Amended and Restated Articles of Incorporation(6)
Fifth Amendment to Amended and Restated Articles of Incorporation(7)
Specimen Common Stock Certificate(8)
Registration Rights Agreement dated March 26, 2010 between the registrant, United Capital Investments Corp., Atrion Shipholding S.A., Plaza Shipholding Corp. and
Comet Shipholding Inc. (9)
Registration Rights Agreement dated January 4, 2012 between the registrant, United Capital Investments Corp., Atrion Shipholding S.A., Plaza Shipholding Corp. and
Comet Shipholding Inc. (10)
Registration Rights Agreement dated June 24, 2014 between the registrant, Comet Shipholding Inc. and Plaza Shipholding Corp. (11)
Registration Rights Agreement dated September 29, 2014 between the registrant, Comet Shipholding Inc. and Plaza Shipholding Corp. (12)
Amended and Restated Equity Incentive Plan of the registrant adopted on February 1, 2018*
Ship Technical Management Agreement dated February 11, 2015 between Leader Shipping Co. and V.Ships Greece Ltd. (13)
Novation Agreement to Ship Technical Management Agreement dated July 27, 2015, among V.Ships Greece Ltd., Leader Shipping Co. and V.Ships Limited (14)
Addendum No. 1 to Technical Management Agreement dated March 18, 2016, between Leader Shipping Co. and V.Ships Limited (15)
Form of Ship Technical Management Agreement with V.Ships Limited (16)
Commercial Management Agreement dated March 2, 2015 between Seanergy Management Corp. and Fidelity Marine Inc. (17)
Amendment No. 1 to Commercial Management Agreement dated September 11, 2015 between Seanergy Management Corp. and Fidelity Marine Inc. with respect to
the Commercial Management Agreement dated March 2, 2015 (18)
Amendment No. 2 to Commercial Management Agreement dated March 24, 2016 between Seanergy Management Corp. and Fidelity Marine Inc. with respect to the
Commercial Management Agreement dated March 2, 2015 (19)
Amendment No. 3 to Commercial Management Agreement dated February 1, 2018 between Seanergy Management Corp. and Fidelity Marine Inc. with respect to the
Commercial Management Agreement dated March 2, 2015*
Loan Agreement dated March 6, 2015 between Leader Shipping Co. and Alpha Bank A.E. (20)
75
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
First Supplemental Agreement dated December 23, 2015 between Leader Shipping Co. and Alpha Bank A.E. with respect to the Loan Agreement dated March 6, 2015
(21)
Second Supplemental Agreement dated July 28, 2016 between Leader Shipping Co. and Alpha Bank A.E. with respect to the Loan Agreement dated March 6, 2015 (22)
Convertible Promissory Note dated March 12, 2015 issued by the registrant to Jelco Delta Holding Corp. (23)
Amendment No. 1 to Convertible Promissory Note dated May 14, 2015, with respect to the Convertible Promissory Note dated March 12, 2015 (24)
Mutual Consent dated September 18, 2017 between the registrant and Jelco Delta Holding Corp. with respect to the Convertible Promissory Note dated March 12,
2015 (25)
Amendment No. 2 to Convertible Promissory Note dated September 18, 2017, with respect to the Convertible Promissory Note dated March 12, 2015 (26)
Share Purchase Agreement dated March 12, 2015 between the registrant and Stamatios Tsantanis (27)
Registration Rights Agreement dated March 12, 2015 between the registrant and Stamatios Tsantanis (28)
Loan Agreement dated September 1, 2015 between Sea Glorius Shipping Co., Sea Genius Shipping Co., HSH Nordbank AG and the Banks and Financial Institutions
listed in Schedule 1 thereto (29)
Supplemental Letter dated May 16, 2016 from HSH Nordbank AG to Sea Glorius Shipping Co. and Sea Genius Shipping Co. with respect to the Loan Agreement dated
September 1, 2015 (30)
Supplemental Letter dated February 23, 2017 from HSH Nordbank AG to Sea Glorius Shipping Co., Sea Genius Shipping Co. and the registrant with respect to the Loan
Agreement dated September 1, 2015 (31)
Revolving Convertible Promissory Note dated September 7, 2015 issued by the registrant to Jelco Delta Holding Corp. (32)
First Amendment to the Revolving Convertible Promissory Note dated December 1, 2015 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (33)
Second Amendment to the Revolving Convertible Promissory Note dated December 14, 2015 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (34)
Third Amendment to the Revolving Convertible Promissory Note dated January 27, 2016 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (35)
Fourth Amendment to the Revolving Convertible Promissory Note dated March 7, 2016 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (36)
Fifth Amendment to the Revolving Convertible Promissory Note dated April 21, 2016 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (37)
Sixth Amendment to the Revolving Convertible Promissory Note dated May 17, 2016 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (38)
Seventh Amendment to the Revolving Convertible Promissory Note dated June 16, 2016 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (39)
Eighth Amendment to the Revolving Convertible Promissory Note dated March 28, 2017 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (40)
Mutual Consent dated September 8, 2017 between the registrant and Jelco Delta Holding Corp. with respect to the Revolving Convertible Promissory Note dated
September 7, 2015 (41)
Ninth Amendment to the Revolving Convertible Promissory Note dated September 27, 2017 between the registrant and Jelco Delta Holding Corp. with respect to the
Revolving Convertible Promissory Note dated September 7, 2015 (42)
Facility Agreement dated September 11, 2015 between Premier Marine Co., Gladiator Shipping Co., Guardian Shipping Co., the registrant and UniCredit Bank AG (43)
Supplemental Agreement dated June 3, 2016 between Premier Marine Co., Gladiator Shipping Co., Guardian Shipping Co., the registrant and UniCredit Bank AG with
respect to the Facility Agreement dated September 11, 2015 (44)
Supplemental Letter dated July 29, 2016 from UniCredit Bank AG to Premier Marine Co., Gladiator Shipping Co., Guardian Shipping Co. and the registrant with respect
to the Facility Agreement dated September 11, 2015 (45)
76
4.40
4.41
4.42
4.43
4.44
4.45
4.46
4.47
4.48
4.49
4.50
4.51
4.52
4.53
4.54
4.55
4.56
4.57
4.58
4.59
4.60
4.619
4.62
4.63
4.64
4.65
8.1
12.1
12.2
13.1
13.2
15.1
101
Supplemental Letter dated March 7, 2017 from UniCredit Bank AG to Premier Marine Co., Gladiator Shipping Co., Guardian Shipping Co. and the registrant with
respect to the Facility Agreement dated September 11, 2015 (46)
Supplemental Letter dated September 25, 2017 from UniCredit Bank AG to Premier Marine Co., Gladiator Shipping Co., Guardian Shipping Co. and the registrant with
respect to the Facility Agreement dated September 11, 2015 (47)
Loan Agreement dated November 4, 2015 between Squire Ocean Navigation Co. and Alpha Bank A.E. (48)
First Supplemental Agreement dated July 28, 2016 between Alpha Bank A.E. and Squire Ocean Navigation Co. with respect to the Loan Agreement dated November 4,
2015 (49)
Facility Agreement dated December 2, 2015 between Champion Ocean Navigation Co., the registrant and Natixis (50)
Supplemental Agreement dated March 7, 2017 between Champion Ocean Navigation Co., the registrant and Natixis with respect to the Facility Agreement dated
December 2, 2015 (51)
Settlement Agreement dated March 7, 2017 between Champion Ocean Navigation Co., the registrant and Natixis with respect to the Facility Agreement dated
December 2, 2015 (52)
Memorandum of Agreement dated September 26, 2016 with respect to Lordship (53)
Addendum No. 1 dated October 6, 2016 with respect to the Memorandum of Agreement dated September 26, 2016 (54)
Addendum No. 2 dated November 15, 2016 with respect to the Memorandum of Agreement dated September 26, 2016 (55)
Memorandum of Agreement dated September 26, 2016 with respect to Knightship (56)
Addendum No. 1 dated October 6, 2016 with respect to the Memorandum of Agreement dated September 26, 2016 (57)
Addendum No. 2 dated November 16, 2016 with respect to the Memorandum of Agreement dated September 26, 2016 (58)
Amended and Restated Loan Agreement dated November 28, 2016 between the registrant and Jelco Delta Holding Corp. with respect to the Loan Agreement dated
October 4, 2016 (59)
Loan Agreement dated November 28, 2016 between Lord Ocean Navigation Co., Knight Ocean Navigation Co., the Entities listed in Schedule 1 thereto and Northern
Shipping Fund III LP (60)
Loan Agreement dated March 28, 2017 between the registrant and Jelco Delta Holding Corp. (61)
Termination Letter dated September 27, 2017 between the registrant and Jelco Delta Holding Corp. with respect to the Loan Agreement dated March 28, 2017*
Memorandum of Agreement dated March 28, 2017 with respect to Partnership (62)
Addendum No. 1 dated April 25, 2017 with respect to the Memorandum of Agreement dated March 28, 2017 (63)
Addendum No. 2 dated May 15, 2017 with respect to the Memorandum of Agreement dated March 28, 2017 (64)
Addendum No. 3 dated May 30, 2017 with respect to the Memorandum of Agreement dated March 28, 2017 (65)
Amended and Restated Facility Agreement dated September 25, 2017 between Partner Shipping Co., Champion Ocean Navigation Co., the registrant and Amsterdam
Trade Bank N.V. with respect to the Facility Agreement dated May 24, 2017 (66)
Amended and Restated Loan Agreement dated September 27, 2017 between the registrant and Jelco Delta Holding Corp. with respect to the Loan Agreement dated
May 24, 2017 (67)
Convertible Promissory Note dated September 27, 2017 issued by the registrant to Jelco Delta Holding Corp. (68)
Registration Rights Agreement dated September 27, 2017 between the registrant and Jelco Delta Holding Corp. (69)
Guarantee dated September 27, 2017 between Emperor Holding Ltd. and Jelco Delta Holding Corp. (70)
List of Subsidiaries*
Certificate of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act*
Certificate of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act*
Certificate of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Certificate of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Consent of Ernst & Young (Hellas) Certified Auditors-Accountants S.A.*
The following financial information from the registrant's annual report on Form 20-F for the fiscal year ended December 31, 2017, formatted in Extensible Business
Reporting Language (XBRL)*
(1) Consolidated Balance Sheets as of December 31, 2017 and 2016;
(2) Consolidated Statements of Income/(loss) for the years ended December 31, 2017, 2016 and 2015;
(3) Consolidated Statements of Shareholders' (Deficit) / Equity for the years ended December 31, 2017, 2016 and 2015; and
(4) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015.
77
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
Filed herewith
Incorporated herein by reference to Annex M to Exhibit 99.1 to the registrant's report on Form 6-K filed with the Commission on July 31, 2008 (File No. 001-33690).
Incorporated herein by reference to Exhibit 99.1 to the registrant's report on Form 6-K filed with the Commission on July 20, 2011.
Incorporated herein by reference to Exhibit 3.3 to the registrant's registration statement on Form F-1MEF filed with the Commission on August 28, 2009 (File No. 333--
161595).
Incorporated herein by reference to Exhibit 3.4 to the registrant's report on Form 6-K filed with the Commission on September 16, 2010 (File No. 001-34848).
Incorporated herein by reference to Exhibit 1 to the registrant's report on Form 6-K filed with the Commission on June 27, 2011.
Incorporated herein by reference to Exhibit 1 to the registrant's report on Form 6-K filed with the Commission on August 5, 2011.
Incorporated herein by reference to Exhibit 3.7 to the registrant's report on Form 6-K filed with the Commission on January 7, 2016.
Incorporated herein by reference to Exhibit 4.1 to the registrant's report on Form 6-K filed with the Commission on January 7, 2016.
Incorporated herein by reference to Exhibit 4.1 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit 4.2 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit C to the Schedule 13D/A related to the registrant filed by United Capital Investments Corp. with the Commission on September
12, 2014.
Incorporated herein by reference to Exhibit D to the Schedule 13D related to the registrant filed by Jelco Delta Holding Corp. with the Commission on March 12, 2015.
Incorporated herein by reference to Exhibit 4.51 to the registrant's annual report on Form 20-F filed with the Commission on April 21, 2015.
Incorporated herein by reference to Exhibit 4.10 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 4.11 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 4.12 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 4.52 to the registrant's annual report on Form 20-F filed with the Commission on April 21, 2015.
Incorporated herein by reference to Exhibit 4.14 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 4.15 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 4.53 to the registrant's annual report on Form 20-F filed with the Commission on April 21, 2015.
Incorporated herein by reference to Exhibit 4.17 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 10.18 to the registrant's registration statement on Form F-1 filed with the Commission on October 28, 2016.
Incorporated herein by reference to Exhibit B to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on April 13, 2015.
Incorporated herein by reference to Exhibit 10.17 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.18 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit B to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 4.57 to the registrant's annual report on Form 20-F filed with the Commission on April 21, 2015.
78
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
(44)
(45)
(46)
(47)
(48)
(49)
(50)
(51)
(52)
(53)
(54)
(55)
(56)
Incorporated herein by reference to Exhibit 4.58 to the registrant's annual report on Form 20-F filed with the Commission on April 21, 2015.
Incorporated herein by reference to Exhibit 4.38 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 10.43 to the registrant's registration statement on Form F-1 filed with the Commission on October 28, 2016.
Incorporated herein by reference to Exhibit 4.43 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit B to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on October 29, 2015.
Incorporated herein by reference to Exhibit C to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on December 29,
2015.
Incorporated herein by reference to Exhibit D to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on December 29,
2015.
Incorporated herein by reference to Exhibit A to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on February 11,
2016.
Incorporated herein by reference to Exhibit A to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on March 14, 2016.
Incorporated herein by reference to Exhibit 10.1 to the registrant's report on Form 6-K filed with the Commission on August 5, 2016.
Incorporated herein by reference to Exhibit 10.2 to the registrant's report on Form 6-K filed with the Commission on August 5, 2016.
Incorporated herein by reference to Exhibit 10.3 to the registrant's report on Form 6-K filed with the Commission on August 5, 2016.
Incorporated herein by reference to Exhibit A to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on April 7, 2017.
Incorporated herein by reference to Exhibit 10.34 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit C to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 4.39 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 10.45 to the registrant's registration statement on Form F-1 filed with the Commission on October 28, 2016.
Incorporated herein by reference to Exhibit 10.46 to the registrant's registration statement on Form F-1 filed with the Commission on October 28, 2016.
Incorporated herein by reference to Exhibit 4.47 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit 10.40 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 4.40 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 10.48 to the registrant's registration statement on Form F-1 filed with the Commission on October 28, 2016.
Incorporated herein by reference to Exhibit 4.41 to the registrant's annual report on Form 20-F filed with the Commission on April 20, 2016.
Incorporated herein by reference to Exhibit 4.51 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit 4.52 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit 10.50 to the registrant's registration statement on Form F-1 filed with the Commission on October 28, 2016.
Incorporated herein by reference to Exhibit 10.47 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.48 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.51 to the registrant's registration statement on Form F-1 filed with the Commission on October 28, 2016.
79
(57)
(58)
(59)
(60)
(61)
(62)
(63)
(64)
(65)
(66)
(67)
(68)
(69)
(70)
Incorporated herein by reference to Exhibit 10.50 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.51 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.52 to the registrant's registration statement on Form F-1/A filed with the Commission on November 29, 2016.
Incorporated herein by reference to Exhibit 10.53 to the registrant's registration statement on Form F-1/A filed with the Commission on November 29, 2016.
Incorporated herein by reference to Exhibit 4.55 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit 4.56 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit 4.57 to the registrant's annual report on Form 20-F filed with the Commission on April 28, 2017.
Incorporated herein by reference to Exhibit 10.57 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.58 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.59 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.60 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit A to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit D to the Schedule 13D/A related to the registrant filed by Jelco Delta Holding Corp. with the Commission on October 20, 2017.
Incorporated herein by reference to Exhibit 10.63 to the registrant's registration statement on Form F-1 filed with the Commission on October 20, 2017.
80
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report
on its behalf.
SIGNATURES
SEANERGY MARITIME HOLDINGS CORP.
By:
Name: Stamatios Tsantanis
Title:
Chairman & Chief Executive Officer
Date: March 7, 2018
Seanergy Maritime Holdings Corp.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Loss for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Seanergy Maritime Holdings Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Seanergy Maritime Holdings Corp. (the Company) as of December 31, 2017 and 2016, the related consolidated
statements of loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed
in the Index at Item 18.1 (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2017, in conformity with U.S. generally accepted accounting principles.
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 Public Company Accounting Oversight Board (United States) (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
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 include 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.
/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
We have served as the Company's auditor since 2012.
Athens, Greece
March 7, 2018
F-2
Seanergy Maritime Holdings Corp.
Consolidated Balance Sheets
December 31, 2017 and 2016
(In thousands of US Dollars, except for share and per share data)
Notes
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable trade, net
Inventories
Other current assets
Total current assets
Fixed assets:
Vessels, net
Office equipment, net
Total fixed assets
Other non-current assets:
Deferred charges
Restricted cash, non-current
Other non-current assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of long-term debt, net of deferred finance costs
Current portion of convertible promissory notes
Trade accounts and other payables
Accrued liabilities
Deferred revenue
Total current liabilities
Non-current liabilities:
Long-term debt, net of current portion and deferred finance costs
Due to related parties, non-current
Long-term portion of convertible promissory notes
Total liabilities
Commitments and contingencies
STOCKHOLDERS EQUITY
Preferred stock, $0.0001 par value; 25,000,000 shares authorized; none issued
Common stock, $0.0001 par value; 500,000,000 authorized shares as at December 31, 2017 and 2016; 36,979,346 and
34,072,210 shares issued and outstanding as at December 31, 2017 and 2016, respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
F-3
4
4, 7
5
6
4, 7
7
3
7
3
3
9
10
3
8,889
1,550
3,626
4,797
636
19,498
254,730
-
254,730
846
600
31
275,705
19,216
-
8,778
4,725
1,741
34,460
175,805
17,342
6,785
234,392
-
-
3
383,007
(341,697)
41,313
275,705
12,858
1,550
2,783
4,049
1,089
22,329
232,109
19
232,128
1,572
1,500
5
257,534
10,301
200
6,350
2,529
1,850
21,230
198,497
5,878
1,097
226,702
-
-
3
369,291
(338,462)
30,832
257,534
Seanergy Maritime Holdings Corp.
Consolidated Statements of Loss
For the years ended December 31, 2017, 2016 and 2015
(In thousands of US Dollars, except for share and per share data)
Notes
2017
2016
2015
Revenues:
Vessel revenue
Commissions
Vessel revenue, net
Expenses:
Voyage expenses
Vessel operating expenses
Management fees
General and administration expenses
General and administration expenses - related party
Loss on bad debts
Amortization of deferred dry-docking costs
Depreciation
Operating income / (loss)
Other income / (expenses), net:
Interest and finance costs
Interest and finance costs - related party
Gain on debt refinancing
Interest and other income
Foreign currency exchange losses, net
Total other expenses, net
Net loss before income taxes
Income taxes
Net loss
Net loss per common share
Basic
Weighted average common shares outstanding
Basic
The accompanying notes are an integral part of these consolidated financial statements.
F-4
77,710
(2,876)
74,834
(34,949)
(19,598)
(1,016)
(5,081)
-
-
(870)
(10,518)
2,802
(12,277)
(5,122)
11,392
47
(77)
(6,037)
(3,235)
-
(3,235)
35,983
(1,321)
34,662
(21,008)
(14,251)
(895)
(4,134)
-
-
(556)
(8,531)
(14,713)
(7,235)
(2,616)
-
20
(45)
(9,876)
(24,589)
(34)
(24,623)
11,661
(438)
11,223
(7,496)
(5,639)
(336)
(2,804)
(70)
(30)
(38)
(1,865)
(7,055)
(1,460)
(399)
-
-
(42)
(1,901)
(8,956)
-
(8,956)
11
3 & 11
7
12
12
(0.09)
(1.20)
(0.83)
35,845,890
20,553,007
10,773,404
Seanergy Maritime Holdings Corp.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2017, 2016 and 2015
(In thousands of US Dollars, except for share data)
Common stock
# of Shares
Par Value
Additional paid-in
capital
Accumulated
deficit
Total
stockholders'
equity
Balance, January 1, 2015
Issuance of common stock (Note 10)
Issuance of convertible promissory notes (Note 3)
Gain on extinguishment of convertible promissory notes (Note 3)
Stock based compensation (Note 13)
Net loss
Balance, December 31, 2015
Issuance of common stock and warrants (Note 10)
Issuance of convertible promissory notes (Note 3)
Stock based compensation (Notes 1 & 13)
Net loss
Balance, December 31, 2016
Issuance of commons stock (Note 10)
Issuance of convertible promissory notes (Note 3)
Stock based compensation (Notes 10 & 13)
Net loss
Balance, December 31, 2017
3,977,854
15,355,559
-
-
189,000
-
19,522,413
13,785,000
-
764,797
-
34,072,210
2,782,136
-
125,000
-
36,979,346
The accompanying notes are an integral part of these consolidated financial statements.
F-5
-
2
-
-
-
-
2
1
-
-
-
3
-
-
-
-
3
307,559
13,819
15,765
(200)
178
-
337,121
22,146
9,400
624
-
369,291
2,597
10,389
730
-
383,007
(304,883)
-
-
-
-
(8,956)
(313,839)
-
-
-
(24,623)
(338,462)
-
-
-
(3,235)
(341,697)
2,676
13,821
15,765
(200)
178
(8,956)
23,284
22,147
9,400
624
(24,623)
30,832
2,597
10,389
730
(3,235)
41,313
Seanergy Maritime Holdings Corp.
Consolidated Statements of Cash Flows
For the years ended December 31, 2017, 2016 and 2015
(In thousands of US Dollars)
2017
2016
(as adjusted –
Note 2)
2015
(as adjusted –
Note 2)
(24,623)
(8,956)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Depreciation
Amortization of deferred dry-docking costs
Amortization of deferred finance charges
Amortization of convertible promissory note beneficial conversion feature
Gain on extinguishment of convertible promissory notes
Stock based compensation
Loss on bad debt
Gain on debt refinancing
Changes in operating assets and liabilities:
Accounts receivable trade, net
Inventories
Other current assets
Deferred charges
Other non-current assets
Trade accounts and other payables
Due to related parties
Accrued liabilities
Deferred revenue
Net cash provided by / (used in) operating activities
Cash flows from investing activities:
Acquisition of vessels and improvements
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants
Proceeds from long term debt
Proceeds from convertible promissory notes
Proceeds from related party debt
Repayments of related party debt
Payments of financing costs
Repayments of long term debt
Repayments of convertible promissory notes
Net cash provided by financing activities
Net (decrease) / increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest
Non cash financing activities:
Conversion of related party debt into convertible promissory note
The accompanying notes are an integral part of these consolidated financial statements.
F-6
(3,235)
10,518
870
531
2,127
-
730
-
(11,392)
(843)
(748)
453
(144)
(26)
2,345
-
1,705
(109)
2,782
(32,992)
(32,992)
2,637
34,500
9,000
16,200
-
(561)
(36,435)
-
25,341
(4,869)
15,908
11,039
8,531
556
265
1,163
-
624
-
-
(1,496)
(1,069)
(432)
(934)
(5)
371
-
14
1,696
(15,339)
(40,779)
(40,779)
22,606
32,000
9,400
12,800
(6,900)
(584)
(650)
-
68,672
12,554
3,354
15,908
14,661
7,973
(4,750)
-
1,865
38
72
334
(200)
178
30
-
(1,287)
(2,980)
(353)
(1,232)
-
5,715
(105)
1,990
154
(4,737)
(201,684)
(201,684)
13,820
179,047
15,765
-
-
(930)
(600)
(200)
206,902
481
2,873
3,354
855
-
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
1.
Basis of Presentation and General Information:
Seanergy Maritime Holdings Corp. (the "Company" or "Seanergy") was formed under the laws of the Republic of the Marshall Islands on January 4, 2008, with executive offices located
in Athens, Greece. The Company provides global transportation solutions in the dry bulk shipping sector through its vessel-owning subsidiaries.
On January 8, 2016, the Company's common stock began trading on a split-adjusted basis, following a December 22, 2015 approval from the Company's Board of Directors to reverse
split the Company's common stock at a ratio of one-for-five. All share and per share amounts disclosed in the consolidated financial statements and notes give effect to this reverse
stock split retroactively, for all periods presented.
The accompanying consolidated financial statements include the accounts of Seanergy Maritime Holdings Corp. and its subsidiaries (collectively, the "Company" or "Seanergy").
a.
Subsidiaries in Consolidation:
Seanergy's subsidiaries included in these consolidated financial statements as of December 31, 2017, are as follows:
Company
Seanergy Management Corp.(1) (3)
Seanergy Shipmanagement Corp.(1) (3)
Sea Glorius Shipping Co.(1)
Sea Genius Shipping Co.(1)
Leader Shipping Co.(1)
Premier Marine Co.(1)
Gladiator Shipping Co.(1)
Guardian Shipping Co.(1)
Champion Ocean Navigation Co.(1)
Squire Ocean Navigation Co.(1)
Emperor Holding Ltd.(1)
Knight Ocean Navigation Co.(6)
Lord Ocean Navigation Co.(6)
Partner Shipping Co.(1)
Pembroke Chartering Services Limited (1)(4)(5)
Martinique International Corp.(1)
Harbour Business International Corp.(1)
Maritime Capital Shipping Limited (1)
Maritime Capital Shipping (HK) Limited (2)(3)
Maritime Glory Shipping Limited (2)
Maritime Grace Shipping Limited (2)
Atlantic Grace Shipping Limited (2)(5)
Country of Incorporation
Vessel name
Date of Delivery
Date of Sale/Disposal
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Liberia
Liberia
Marshall Islands
Liberia
Liberia
Marshall Islands
Malta
British Virgin Islands
British Virgin Islands
Bermuda
Hong Kong
British Virgin Islands
British Virgin Islands
British Virgin Islands
N/A
N/A
Gloriuship
Geniuship
Leadership
Premiership
Gladiatorship
Guardianship
Championship
Squireship
N/A
Knightship
Lordship
Partnership
N/A
Bremen Max
Hamburg Max
N/A
N/A
Clipper Glory
Clipper Grace
N/A
N/A
N/A
November 3, 2015
October 13, 2015
March 19, 2015
September 11, 2015
September 29, 2015
October 21, 2015
December 7, 2015
November 10, 2015
N/A
December 13, 2016
November 30, 2016
May 31, 2017
N/A
September 11, 2008
September 25, 2008
N/A
N/A
May 21, 2010
May 21, 2010
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
March 7, 2014
March 10, 2014
N/A
N/A
December 4, 2012
October 15, 2012
N/A
F-7
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
(1) Subsidiaries wholly owned
(2) Vessel owning subsidiaries owned by Maritime Capital Shipping Limited (or "MCS")
(3) Management company
(4) Chartering services company
(5) Dormant company
(6) Vessel owning subsidiaries owned by Emperor Holding Ltd.
2.
Significant Accounting Policies:
(a)
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and
include the accounts and operating results of Seanergy and its wholly-owned subsidiaries where Seanergy has control. Under Accounting Standards Codification (ASC or
Codification) 810 Consolidation, the Company consolidates entities in which it has a controlling financial interest, by first considering if an entity meets the definition of a variable
interest entity (VIE) for which the Company is deemed to be the primary beneficiary under the VIE model, or if the Company controls an entity through a majority of voting interest
based on the voting interest model. The Company evaluates its various arrangements to determine if any variable interests relating to an entity exist. The Company has not identified
any entities for which it holds a variable interest. The Company deconsolidates a subsidiary or derecognizes a group of assets when it no longer controls the subsidiary or group of
assets. When control is lost, the parent-subsidiary relationship no longer exists and the Company derecognizes the assets and liabilities of the qualifying subsidiary or group of assets.
A gain or loss is recognized upon the deconsolidation of a subsidiary or derecognition of a group of assets. All significant intercompany balances and transactions and any
intercompany profit or loss on assets remaining with the group have been eliminated in the accompanying consolidated financial statements.
A parent company deconsolidates a subsidiary or derecognizes a group of assets when that parent company no longer controls the subsidiary or group of assets specified in ASC 810-
10-40-3A. When control is lost, the parent-subsidiary relationship no longer exists and the parent derecognizes the assets and liabilities of the qualifying subsidiary or group of assets.
The Financial Accounting Standards Board ("FASB") concluded that the loss of control and the related deconsolidation of a subsidiary or derecognition of a group of assets specified
in ASC 810-10-40-3A is a significant economic event that changes the nature of the investment held in the subsidiary or group of assets. Based on this consideration, a gain or loss is
recognized upon the deconsolidation of a subsidiary or derecognition of a group of assets.
(b)
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant items subject to such estimates include evaluation of relationships with other entities to identify whether they are variable
interest entities, determination of vessel useful lives and salvage value, allocation of purchase price in a business combination, determination of vessels impairment and determination of
goodwill impairment.
(c)
Foreign Currency Translation
Seanergy's functional currency is the United States dollar since the Company's vessels operate in international shipping markets and therefore primarily transact business in US Dollars.
The Company's books of accounts are maintained in US Dollars. Transactions involving other currencies are translated into the United States dollar using exchange rates, which are in
effect at the time of the transaction. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated to United States dollars at the
foreign exchange
F-8
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
rate prevailing at year-end. Gains or losses resulting from foreign currency translation are reflected in the consolidated statement of loss.
(d)
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts receivable.
The Company places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the
relative credit standing of the financial institutions in which it places its deposits. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations
of its customers' financial condition.
(e)
Cash and Cash Equivalents
Seanergy considers time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.
(f)
Restricted Cash
Restricted cash is excluded from cash and cash equivalents. Restricted cash represents minimum cash deposits or cash collateral deposits required to be maintained with certain banks
under the Company's borrowing arrangements or in relation to bank guarantees issued on behalf of the Company, which are legally restricted as to withdrawal or use. In the event that
the obligation relating to such deposits is expected to be terminated within the next twelve months, these deposits are classified as current assets; otherwise they are classified as non-
current assets.
(g)
Accounts Receivable Trade, Net
Accounts receivable trade, net at each balance sheet date, includes receivables from charterers for hire, freight and demurrage billings, net of a provision for doubtful accounts. At each
balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts. The provision for
doubtful accounts at December 31, 2017 and 2016 amounted to $NIL and $43, respectively.
(h)
Inventories
Inventories consist of lubricants and bunkers. On January 1, 2017, the Company adopted Accounting Standards Update (ASU) No. 2015-11, Inventory, effective for the fiscal year
ending December 31, 2017 and interim periods within this fiscal year. Previous guidance required an entity to measure inventory at the lower of cost or market. Market could be the
replacement cost, net realizable value or net realizable value less an approximately normal profit margin. Under new guidance, entities are required to measure inventory at the lower of
cost or net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. The adoption of this guidance had no impact on the Company's results of operations, cash flows and net assets for any period. Cost is determined by the first in, first
out method.
(i)
Insurance Claims
The Company records insurance claim recoveries for insured losses incurred on damage to fixed assets and for insured crew medical expenses and for legal fees covered by directors'
and officers' liability insurance. Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Company's fixed assets suffer insured damages or when crew
medical expenses are incurred, recovery is probable under the related insurance policies, the claim is not subject to litigation and the Company can make an estimate of the amount to be
reimbursed. The classification of the insurance claims into current and non-current assets is based on management's expectations as to their collection dates.
F-9
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
(j)
Vessels
Vessels acquired as a part of a business combination are recorded at fair market value on the date of acquisition. Vessels acquired as asset acquisitions are stated at historical cost,
which consists of the contract price less discounts, plus any material expenses incurred upon acquisition (delivery expenses and other expenditures to prepare for the vessel's initial
voyage). Vessels acquired from entities under common control are recorded at historical cost. Subsequent expenditures for conversions and major improvements are capitalized, when
they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Expenditures for routine maintenance and repairs are expensed as
incurred.
(k)
Vessel Depreciation
Depreciation is computed using the straight-line method over the estimated useful life of the vessels, after considering the estimated salvage value. Up to September 30, 2015,
management estimated the useful life of the Company's vessels to be 30 years from the date of initial delivery from the shipyard. On October 1, 2015, the Company changed that estimate
to 25 years. This change increased depreciation expense by $289 (approximately $0.03 per share) for the year ended December 31, 2015. Salvage value is estimated by the Company by
taking the cost of steel times the weight of the ship noted in lightweight ton ("LWT"). Salvage values are periodically reviewed and revised to recognize changes in conditions, new
regulations or other reasons. Revisions of salvage values affect the depreciable amount of the vessels and affects depreciation expense in the period of the revision and future periods.
On October 1, 2015, the Company revised the salvage value of its vessels from $420 per lightweight ton to $295.5 per lightweight ton. This change increased depreciation expense by
$235 (approximately $0.02 per share) for the year ended December 31, 2015.
(l)
Impairment of Long-Lived Assets (Vessels)
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances, such as undiscounted projected operating cash flows, business plans to
dispose a vessel earlier than the end of its useful life and prevailing market conditions, indicate that the carrying amount of the assets may not be recoverable. The volatile market
conditions in the dry bulk market with decreased charter rates and decreased vessel market values are conditions that the Company considers indicators of a potential impairment for its
vessels.
The Company determines undiscounted projected operating cash flows, for each vessel and compares it to the vessel's carrying value. When the undiscounted projected operating
cash flows expected to be generated by the use of the vessel and its eventual disposition are less than its carrying amount, the Company impairs the carrying amount of the vessel.
Measurement of the impairment loss is based on the fair value of the asset as determined by independent valuators. The undiscounted projected operating cash inflows are determined
by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the non-fixed days (based on a combination of
one year charter rates estimate and the average of the trailing 10-year historical charter rates, excluding the peak and trough years, available for each type of vessel) adjusted for
commissions, expected off hires due to scheduled vessels' maintenance and estimated unexpected breakdown off hires. The undiscounted projected operating cash outflows are
determined by applying various assumptions regarding vessel operating expenses, management fees and scheduled vessels' maintenance.
The Company's assessment concluded that no impairment loss should be recorded as of December 31, 2017.
F-10
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
(m)
Dry-Docking and Special Survey Costs
The Company follows the deferral method of accounting for dry-docking costs and special survey costs whereby actual costs incurred are deferred and are amortized on a straight-line
basis over the period through the expected date of the next dry-docking which is scheduled to become due in 2 to 3 years. Dry-docking costs which are not fully amortized by the next
dry-docking period are expensed.
(n)
Commitments and Contingencies
Liabilities for loss contingencies, arising from claims, assessments, litigation, fines and penalties, environmental and remediation obligations and other sources are recorded when it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
(o)
Revenue Recognition
Revenues are generated from time charters, bareboat charters and voyage charters. A time charter is a contract for the use of a vessel for a specific period of time and a specified daily
charter hire rate, which is generally payable in advance. Some of the time charters also include profit sharing provisions, under which additional revenue can be realized in the event the
spot rates are higher than the base rates under the time charters. A bareboat charter is a contract in which the vessel is provided to the charterer for a fixed period of time at a specified
daily rate, which is generally payable in advance. Voyage charter agreements are charter hires, where a contract is made in the spot market for the use of a vessel for a specific voyage at
a specified charter rate per ton of cargo.
Time charter revenue, including bareboat hire, is recorded over the term of the charter agreement as the service is provided and collection of the related revenue is reasonably assured.
Under a time charter, revenue is adjusted for a vessel's off hire days due to major repairs, dry dockings or special or intermediate surveys. Voyage charter revenue is recognized on a
pro-rata basis over the duration of the voyage, when a voyage agreement exists, the price is fixed or determinable, service is provided and the collection of the related revenue is
reasonably assured. A voyage is deemed to commence upon signing the charter party or completion of previous voyage, whichever is later, and is deemed to end upon the completion
of the discharge of the delivered cargo.
Deferred revenue represents cash received prior to the balance sheet date and is related to revenue applicable to periods after such date.
Charterers individually accounting for more than 10% of revenues during the years ended December 31, 2017, 2016 and 2015 were:
Customer
A
B
C
D
E
F
G
Total
2017
17%
17%
-
-
-
-
-
34%
2016
-
-
18%
12%
-
-
-
30%
F-11
2015
-
-
-
15%
47%
12%
10%
84%
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
(p)
Commissions
Commissions, which include address and brokerage commissions, are recognized in the same period as the respective charter revenues. Address commissions to third parties are
included in Commissions. Brokerage commissions to third parties are included in Voyage expenses.
(q)
Vessel Voyage Expenses
Vessel voyage expenses primarily consist of port, canal, bunker expenses and brokerage commissions that are unique to a particular charter and are paid for by the charterer under time
charter agreements and other non-specified voyage expenses.
(r)
Repairs and Maintenance
All repair and maintenance expenses, including major overhauling and underwater inspection expenses are expensed in the year incurred. Such costs are included in Vessel operating
expenses.
(s)
Financing Costs
Underwriting, legal and other direct costs incurred with the issuance of long-term debt or to refinance existing debt are deferred and amortized to interest expense over the life of the
related debt using the effective interest method. Unamortized fees relating to loans repaid are expensed in the period the repayment is made. The Company presents unamortized
deferred financing costs as a reduction of long term debt in the accompanying balance sheets.
(t)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized, when applicable, for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of
income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50%
likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to
unrecognized tax benefits in interest expense and penalties in general and administration expenses.
Maritime Capital Shipping (HK) Limited, the Company's management office in Hong Kong, is subject to Hong Kong profits tax at a rate of 16.5% on the estimated assessable profit for
the year. The estimated profits tax for the year ended December 31, 2017 is $NIL.
Seanergy Management Corp. ("Seanergy Management"), the Company's management company, established in Greece under Greek Law 27/1975 (as amended to date), is subject to an
annual contribution calculated on the total amount of foreign exchange annually imported and converted to Euros. The contribution to be paid in 2018 by Seanergy Management for
2017 is estimated at $57.
F-12
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
Pursuant to the Internal Revenue Code of the United States (the "Code"), U.S. source income from the international operations of ships is generally exempt from U.S. tax if the company
operating the ships meets both of the following requirements: (a) the Company is organized in a foreign country that grants an equivalent exception to corporations organized in the
United States and (b) either (i) more than 50% of the value of the Company's stock is owned, directly or indirectly, by individuals who are "residents" of the Company's country of
organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States (50% Ownership Test) or (ii) the Company's stock is
"primarily and regularly traded on an established securities market" in its country of organization, in another country that grants an "equivalent exemption" to United States
corporations, or in the United States (Publicly-Traded Test).
Notwithstanding the foregoing, the regulations provide, in pertinent part, that each class of the Company's stock 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 shares of such class are owned, actually or constructively under specified 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 such class of the Company's outstanding stock ("5 Percent
Override Rule").
The Company and each of its subsidiaries did not qualify for this statutory tax exemption for the 2017 and 2016 taxable years, as the Company did not meet the 50% Ownership Test
requirement for either year.
The Company estimates that since no more than the 50% of its shipping income will be treated as being United States source income, the effective tax rate is expected to be 2% and
accordingly it anticipates that the impact on its results of operations will not be material. Some of the charterparties contain clauses that permit the Company to seek reimbursement from
charterers of any U.S. tax paid. The Company has sought reimbursement and has secured payment from all of its charterers for the 2017 taxable year. Based on its U.S. source shipping
income for 2017, 2016 and 2015, the Company is subject to U.S. federal income tax of approximately $NIL, $34 and $NIL.
(u) Stock-based Compensation
Stock-based compensation represents vested and non-vested common stock granted to directors and employees for their services as well as to non-employees. For common stock
granted to directors and employees, the Company calculates stock-based compensation expense for the award based on its fair value on the grant date and recognizes it on an
accelerated basis over the vesting period. For common stock granted to non-employees, the Company calculates stock-based compensation expense for the award based on its fair
value at each financial reporting date and recognizes the aggregate fair value on the measurement date (i.e., the vesting date). The Company assumes that all non-vested shares will
vest. The Company does not include estimated forfeitures in determining the total stock-based compensation expense because it estimates the forfeitures of non-vested shares to be
immaterial. The Company re-evaluates the reasonableness of its assumption at each reporting period. On January 1, 2017, the Company adopted ASU No. 2016-09, Compensation -
Stock Compensation: Improvements to Employee Share-Based Payment Accounting, effective for the fiscal year ending December 31, 2017 and interim periods within this fiscal year.
The adoption of this guidance has had no impact on the Company's results of operations, cash flows and net assets for any period.
(v)
Earnings (Losses) per Share
Basic earnings (losses) per common share are computed by dividing net income (loss) available to Seanergy's shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings (losses) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted at the beginning of the periods presented, or issuance date, if later. The treasury stock method is used to compute the dilutive effect of warrants and shares issued under the
Equity Incentive Plan. The if-converted method is used to compute the dilutive effect of shares which could be issued upon conversion of the convertible promissory notes. Potential
common shares that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share.
(w)
Segment Reporting
Seanergy reports financial information and evaluates its operations by total charter revenues and not by the length of vessel employment, customer, or type of charter. As a result,
management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus, Seanergy has determined that
it operates under one reportable segment. Furthermore, when Seanergy charters a vessel to a
F-13
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
charterer, the charterer is free to trade the vessel worldwide and, as a result, disclosure of geographic information is impracticable.
(x) Financial Instruments
Derivative instruments (including certain derivative instruments embedded in other contracts) are recorded in the balance sheet as either an asset or liability measured at its fair value,
with changes in the derivatives' fair value recognized currently in earnings unless specific hedge accounting criteria are met.
(y)
Fair Value Measurements
The Company follows the provisions of ASC 820 "Fair Value Measurements and Disclosures", which defines fair value and provides guidance for using fair value to measure assets and
liabilities. The guidance creates a fair value hierarchy of measurement and describes fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants in the market in which the reporting entity transacts. In accordance with the requirements of accounting guidance relating to Fair Value
Measurements, the Company classifies and discloses its assets and liabilities carried at the fair value in one of the following categories:
ö
ö
ö
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
(z) Troubled Debt Restructurings
A restructuring of a debt constitutes a troubled debt restructuring if the lender or creditor for economic or legal reasons related to the Company's financial difficulties grants a
concession to the Company that it would not otherwise consider. Troubled debt that is fully satisfied by foreclosure, repossession, or other transfer of assets or by grant of equity
securities by the Company is included in the term troubled debt restructuring and is accounted as such.
The Company, when issuing or otherwise granting an equity interest to a lender or creditor to settle fully a payable or debt, accounts for the equity interest granted at its fair value. The
difference between the fair value of the equity interest granted and the carrying amount of the payable or debt settled is recognized as a gain on restructuring of payables or debt. Legal
fees and other direct costs incurred in granting an equity interest to a creditor reduce the fair value of the equity interest issued. All other direct costs incurred in connection with a
troubled debt restructuring are charged to expense as incurred.
(aa) Convertible Promissory Notes and related Beneficial Conversion Features
The convertible promissory notes are accounted in accordance with ASC 470-20 "Debt with Conversion and Other Options." The terms of each convertible promissory note included an
embedded conversion feature which provided for a conversion at the option of the holder into shares of common stock at a predetermined rate. The Company determined that the
conversion features were beneficial conversion features ("BCF") pursuant to ASC 470-20. The Company considered the BCF guidance only after determining that the features did not
need to be bifurcated under ASC 815 "Derivatives and Hedging" or separately accounted for under the cash conversion literature of ASC 470-20 "Debt, Debt with Conversion and
Other Options".
F-14
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
Accounting for an embedded BCF in a convertible instrument requires that the BCF be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic
value of the BCF to additional paid-in capital, resulting in a discount on the convertible instrument. This discount is accreted from the date on which the BCF is first recognized through
the stated maturity date of the convertible instrument using the effective yield method. If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible
instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible instrument.
(ab) Going Concern
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern. ASU No. 2014-15 provides guidance on management's responsibility in
evaluating whether there is substantial doubt about a company's ability to continue as a going concern and on related required footnote disclosures. For each reporting period,
management is required to evaluate whether there are conditions or events that raise substantial doubt about the Company's ability to continue as a going concern within one year from
the date the financial statements are issued.
Recent Accounting Pronouncements Adopted
In November 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-18 Statement of Cash Flows (Topic 230) – Restricted Cash which addresses the presentation of
changes in restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 will reduce diversity in how entities present changes in restricted cash and
restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting
period. The Company early adopted ASU No. 2016-18 in 2017. The only effect the adoption of ASU No. 2016-18 had on prior-period information is the presentation of the restricted cash
on the statement of cash flows. Specifically, the line item Restricted cash released/(retained) was removed from the Cash flows from financing activities section of the statement of
cash flows and the beginning period and ending period cash balances now include restricted cash. Comparative periods of the statement of cash flow have been retrospectively
adjusted to reflect the adoption of ASU No. 2016-18.
In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323). ASU
2017-03 amends the Codification for U.S. Securities and Exchange Commission (SEC) staff announcements made at recent Emerging Issues Task Force (EITF) meetings. The SEC
guidance that specifically relates to the Company's consolidated financial statements was from the September 2016 meeting, where the SEC staff expressed their expectations about the
extent of disclosures registrants should make about the effects of the new FASB guidance as well as any amendments issued prior to adoption, on revenue (ASU 2014-09), leases (ASU
2016-02) and credit losses on financial instruments (ASU 2016-13) in accordance with Staff Accounting Bulletin (SAB) Topic 11.M. Registrants are required to disclose the effect that
recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the
adoption, then additional qualitative disclosures should be considered. The ASU incorporates these SEC staff views into ASC 250 and adds references to that guidance in the transition
paragraphs of each of the three new standards. The adoption of this new accounting guidance did not have a material effect on the Company's consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based
payment award must be accounted for as modifications. ASU 2017-09 allows companies to make certain changes to awards without accounting for them as modifications. It does not
change the accounting for modifications. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 for all entities.
Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued or made available for issuance. The Company is currently
evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
F-15
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The
FASB has issued several ASUs which clarify the guidance in ASU No. 2014-09 and have the same effective date as the original standard. The core principle is that a company should
recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods
or services. ASU No. 2014-09 indicates that an entity should perform a five-step approach in recognizing revenue, which might require more judgement and estimates compared to
existing U.S. GAAP standards. The update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In May and
April 2016, the FASB issued two Updates with respect to Topic 606: ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The Company reviewed the contracts
with its customers and performed an assessment on the impact of the new standard in terms of accounting and reporting processes affected. The Company will adopt the new standard
for the interim periods after December 31, 2017, using the modified retrospective transition method. Upon adoption, the Company will recognize the cumulative effect of adopting this
guidance as an adjustment to its opening balance of retained earnings as of January 1, 2018. Prior periods will not be retrospectively adjusted. While the assessment of certain effects of
the adoption of new standard are still ongoing, the timing of revenue recognition will primarily affect spot market voyage charters. Currently, revenue is recognized from the latter of the
completion of the previous voyage and the signing of the next charter party until completion of cargo discharge. Under the new standard, revenue will be recognized beginning from
when the vessel arrives at the load port until completion of cargo discharge. In addition, voyage expenses occurred between signing the charter party and arrival at loading port will be
deferred and amortized during the charter period. The Company expects that the adoption of new standard will result in an increase in the opening Accumulated deficit balance as of
January 1, 2018 of approximately $300 as a result of the adjustment of Vessels revenue and Voyage expenses. The Company is currently evaluating presentation and disclosure
requirements of ASU No. 2014-09 on the consolidated financial statements.
3.
a.
Transactions with Related Parties:
Convertible Promissory Notes:
March 12, 2015 Convertible Promissory Note
On March 12, 2015 ("commitment date"), the Company issued a convertible promissory note of $4,000 to Jelco Delta Holding Corp., or Jelco, a company affiliated with Claudia Restis,
who is the Company's principal shareholder, for general corporate purposes. The convertible note, as amended, is repayable in four installments with the first installment occurring six
months after the delivery date of the M/V Leadership and the other three installments semi-annually commencing four years after the delivery date of the M/V Leadership, along with a
balloon installment of $3,200 payable on the final maturity date, March 19, 2020. The note bears interest at three-month LIBOR plus a margin of 5% with quarterly interest payments. At
Jelco's option, the outstanding principal amount under the convertible note or any part thereof may be paid at any time in common shares at a conversion price of $0.90 per share. Jelco
also received customary registration rights with respect to all shares upon conversion of the note. The note is secured by a guarantee from the Company's wholly-owned subsidiary,
Emperor Holding Ltd., which is the holding company of the M/V Lordship and the M/V Knightship.
The Company accounted for the issuance of the March 2015 convertible promissory note in accordance with the beneficial conversion features ("BCF") guidance of ASC 470-20. The
intrinsic value of the BCF was determined as the number of shares converted from the convertible note times the positive difference between the fair value of the stock on the
commitment date and the contractual conversion price. Since the intrinsic value of the BCF at the commitment date was greater than the proceeds allocated to the convertible
instrument, the amount of the discount assigned to the BCF was limited to the amount of the proceeds allocated to the convertible instrument. As of December 31, 2015, the Company
had paid the first installment, with the entire payment recorded as a reduction to Additional paid-in capital.
September 27, 2017 Convertible Promissory Note
On September 27, 2017, the Company issued a convertible promissory note to Jelco for an amount of $13,750. The note is repayable by two consecutive annual installments of $1,375,
with the first installment occurring 24 months after the drawdown date, along with a balloon installment of $11,000 payable four years after the drawdown date. The note bears interest at
three-month LIBOR plus a margin of 5% with quarterly interest payments. At Jelco's option, the whole or any part of the principal amount under the note may be paid at any time in
common shares at a conversion price of $0.90 per share. Jelco also received customary registration rights with respect to all shares upon conversion of the note. The note is secured by
second preferred mortgages and second priority general assignments covering earnings, insurances and requisition compensation over the M/V Championship and the M/V
Partnership,
F-16
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
guarantees from the Company's vessel-owning subsidiaries, and a guarantee from the Company's wholly-owned subsidiary, Emperor Holding Ltd.; all cross collateralized with the loan
entered into with Jelco on May 24, 2017, as amended and restated. Of the $13,750 under the note, $4,750 were used to make a mandatory prepayment under the May 24, 2017 Jelco loan
facility.
The Company accounted for the issuance of the September 2017 convertible promissory note in accordance with the beneficial conversion features ("BCF") guidance of ASC 470-20.
The intrinsic value of the BCF was determined as the number of shares converted from the convertible note times the positive difference between the fair value of stock on the
commitment date and the contractual conversion price. The intrinsic value of the BCF at the commitment date was not greater than the proceeds allocated to the convertible instrument
and the amount of the discount assigned to the BCF was $10,389.
The debt movement of the convertible notes is presented below:
Balance, December 31, 2015
Amortization (Note 11)
Balance, December 31, 2016
Additions
Amortization (Note 11)
Balance, December 31, 2017
The equity movement of the convertible notes is presented below:
Balance, December 31, 2015
Balance, December 31, 2016
Intrinsic value of BCF
Balance, December 31, 2017
September 7, 2015 Revolving Convertible Promissory Note
Applicable limit
4,000
-
4,000
13,750
-
17,750
Debt discount
Accumulated
deficit
Debt
(4,000)
-
(4,000)
(10,389)
-
(14,389)
103
322
425
-
792
1,217
103
322
425
3,361
792
4,578
Additional
paid-in capital
3,800
3,800
10,389
14,189
On September 7, 2015 ("commitment date"), the Company issued a revolving convertible promissory note to Jelco for an amount up to $6,765 (the "Applicable Limit") for general
corporate purposes. Following nine amendments to the revolving convertible note between December 2015 and September 2017, the Applicable Limit was raised to $21,165. The
Applicable Limit will be reduced by $3,300 four years following the first drawdown. The aggregate outstanding principal is repayable in September 2020. However, the principal is also
repayable earlier to the extent that the aggregate outstanding principal exceeds the Applicable Limit (as it may be reduced from time to time). The note bears interest at three-month
LIBOR plus a margin of 5% with interest payable quarterly. At Jelco's option, the Company's obligation to repay the principal amount under the revolving convertible note or any part
thereof may be paid in common shares at a conversion price of $0.90 per share. Jelco also received customary registration rights with respect to all shares upon conversion of the note.
The note is secured by a guarantee from the Company's wholly-owned subsidiary, Emperor Holding Ltd. The Company has drawn down the entire $21,165 as of December 31, 2017.
F-17
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
The Company accounted for the issuance of the revolving convertible promissory note in accordance with the BCF guidance of ASC 470-20. The intrinsic value of the BCF was
determined as the number of shares converted from the convertible note times the positive difference between the fair value of the stock on the commitment date and the contractual
conversion price. Since the intrinsic value of the BCF at the commitment date was greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned
to the BCF was limited to the amount of the proceeds allocated to the convertible instrument.
The debt movement of the revolving convertible note is presented below:
Balance, December 31, 2015
Additions
Amortization (Note 11)
Balance, December 31, 2016
Amortization (Note 11)
Balance, December 31, 2017
The equity movement of the revolving convertible note is presented below:
Applicable limit
11,765
9,400
-
21,165
-
21,165
Debt discount
Accumulated
deficit
Debt
(11,765)
(9,400)
-
(21,165)
-
(21,165)
31
-
841
872
1,335
2,207
31
-
841
872
1,335
2,207
Balance, December 31, 2015
Intrinsic value of BCF
Balance, December 31, 2016
Balance, December 31, 2017
b.
Loan Agreements:
Additional
paid-in capital
11,765
9,400
21,165
21,165
On October 4, 2016, the Company entered into a $4,150 loan facility with Jelco to finance the initial deposits for the vessels M/V Lordship and M/V Knightship. On November 17, 2016
and November 28, 2016, the Company entered into amendments to this facility, which, among other things, increased the aggregate amount that could be borrowed under the facility to
up to $12,800 (to partially finance the remaining payment for the M/V Lordship and the M/V Knightship) and extended the maturity date to the earlier of (i) February 28, 2018 and (ii) the
date falling 14 months from the final drawdown date with the option to further defer to the earlier of (i) February 28, 2019 and (ii) the date falling 26 months from the final drawdown date.
As of December 31, 2016, the Company had drawn down the entire $12,800. The facility bore interest at LIBOR plus a margin of 9% per annum and is repayable in one bullet payment
together with accrued interest thereon to the maturity date. The facility further provided that the Company was required to prepay Jelco (i) in the event of a public offering by the
Company of Seanergy Maritime Holdings Corp's securities, an amount equal to 25 percent of the net offering proceeds and (ii) $1,900 upon the delivery of the M/V Knightship.
Seanergy Maritime Holdings Corp. is the borrower under this facility. The margin would be reduced by 2% upon a $5,000 prepayment by the Company or increased by 1.5% if the
maturity date was extended in accordance with the terms of the facility. The facility is secured by second priority mortgages and general assignments covering earnings, insurances and
requisition compensation on the M/V Lordship and the M/V Knightship, and the vessel owning subsidiaries that own the M/V Lordship and the M/V Knightship have provided a
guarantee to Jelco for Seanergy Maritime Holdings Corp.'s obligations under this facility. On December 14, 2016, following the delivery of M/V Knightship on December 13, 2016, the
company prepaid Jelco $1,900 in accordance with the facility provisions. Additionally, on December 14, 2016, following the completion of the Company's public offering of 10,000,000 of
F-18
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
its common shares on December 13, 2016 (Note 10), the company prepaid Jelco $5,000 in accordance with the facility provisions. The $5,000 comprised of (i) $3,430 mandatory
prepayment as per the 25 percent of the then estimated net offering proceeds provision described above and (ii) $1,570 voluntary prepayment. As a result of the $5,000 prepayment, the
margin was reduced by 2% to 7%. On January 12, 2018, the Company exercised its option to defer the final repayment date from January 28, 2018 to January 28, 2019. The margin
increased from 7% to 8.5% following such extension of the final maturity date, in accordance with the original terms of the facility. As of December 31, 2017, $5,900 was outstanding
under this loan facility. The balance sheet amount is shown net of deferred financing costs.
On March 28, 2017, the Company entered into a $47,500 secured loan agreement with Jelco. Under the terms of this agreement, Jelco would have made available this facility to the
Company in the event that the Company was not able to secure third party financing to partly fund the Natixis settlement agreement (Note 7), as well as the balance purchase price of
the M/V Partnership (Notes 6 and 7). This facility was terminated on September 27, 2017, and no amounts were drawn down under this facility.
On May 24, 2017, the Company entered into an up to $16,200 loan facility with Jelco to partially finance the acquisition of the M/V Partnership. The Company drew down the $16,200 on
May 24, 2017. On June 22, 2017 and on August 22, 2017, the Company entered into supplemental letters with Jelco to amend the terms of this loan facility, whereby the mandatory
repayment of $4,750 was deferred until September 29, 2017. On September 27, 2017, the facility was amended and restated. The amended facility currently bears interest at three-month
LIBOR plus a margin of 6% per annum which is payable quarterly and the principal is repayable in one bullet payment due on the maturity date. The maturity date, which was deferred
from May 24, 2018 to May 24, 2019, may, at the Company's option, be extended to May 24, 2020, from May 24, 2019 previously. The margin will be increased by 1% if the maturity date is
extended. The mandatory repayment of the $4,750 was financed by the convertible promissory note to Jelco on September 27, 2017. The facility is secured by the following amended
cross collaterals: second preferred mortgages over the M/V Championship and M/V Partnership, second priority general assignments covering earnings, insurances and requisition
compensation over each vessel, guarantees from our vessel-owning subsidiaries, and a guarantee from the Company's wholly-owned subsidiary, Emperor Holding Ltd. As of December
31, 2017, $11,450 was outstanding under this loan facility. The balance sheet amount is shown net of deferred financing costs.
4.
Cash and Cash Equivalents and Restricted Cash:
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheet that sum to the total of the same such amounts shown
in the statement of cash flows:
Cash and cash equivalents
Restricted cash
Restricted cash, non-current
Total
December 31,
2017
December 31,
2016
8,889
1,550
600
11,039
12,858
1,550
1,500
15,908
As of December 31, 2017, restricted cash amounts include $1,500 of restricted deposits as contractually required under the loan facility with Northern Shipping Fund III LP, or NSF (Note
7), $500 of minimum liquidity requirements as per the Amsterdam Trade Bank N.V. loan agreement (Note 7), $100 in dry-docking reserve accounts as per the Amsterdam Trade Bank N.V.
loan agreement and $50 of restricted deposits pledged as collateral regarding credit cards balances with one of the Company's financial institutions. Minimum liquidity, not legally
restricted, of $5,500 as per the Company's credit facilities covenants is included in Cash and cash equivalents. As of December 31, 2016, restricted cash amounts include $3,000 of
restricted deposits as contractually required under the loan facility with NSF (Note 7) and $50 of restricted deposits pledged as collateral regarding credit cards balances with one of the
Company's financial institutions.
F-19
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
5.
Inventories:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Lubricants
Bunkers
Total
6.
Vessels, Net:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Cost:
Beginning balance
- Additions
Ending balance
Accumulated depreciation:
Beginning balance
- Additions
Ending balance
Net book value
December 31,
2017
December 31,
2016
582
4,215
4,797
553
3,496
4,049
December 31,
2017
December 31,
2016
242,462
33,120
275,582
(10,353)
(10,499)
(20,852)
201,684
40,778
242,462
(1,844)
(8,509)
(10,353)
254,730
232,109
On March 28, 2017, the Company entered into an agreement with an unaffiliated third party to acquire a secondhand Capesize vessel, at a gross purchase price of $32,650. On May 31,
2017, the Company acquired the 2012 Capesize, 179,213 DWT vessel M/V Partnership. The acquisition was financed with the Amsterdam Trade Bank N.V. loan facility (Note 7), the
Jelco loan facility entered into on May 24, 2017 (Note 3) and by cash on hand. Additionally, approximately $465 worth of expenditures that increased the earning capacity and improved
the efficiency of certain vessels were capitalized.
On September 26, 2016, the Company entered into separate agreements with an unaffiliated third party for the purchase of two second hand Capesize vessels for a gross purchase price
of $20,750 per vessel. On November 30, 2016, the Company acquired the first of the two vessels, the 2010 Capesize, 178,838 DWT vessel M/V Lordship. On December 13, 2016, the
Company acquired the second of the two vessels, the 2010 Capesize, 178,978 DWT vessel M/V Knightship. The vessels were financed through the loan facility with NSF (Note 7),
through the loan facility with Jelco (Note 3) and by cash on hand.
All vessels are mortgaged to secured loans (Notes 3 and 7).
F-20
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
7.
Long-Term Debt:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Secured loan facilities
Less: Deferred financing costs
Total
Less - current portion
Long-term portion
December 31,
2017
December 31,
2016
196,450
(1,429)
195,021
(19,216)
175,805
210,130
(1,332)
208,798
(10,301)
198,497
On March 6, 2015, the Company entered into a loan agreement with Alpha Bank A.E., for a secured loan facility in an amount of $8,750. The loan was used to partially finance the
acquisition of the M/V Leadership. The loan bears interest of LIBOR plus a margin of 3.75% with quarterly interest payments. The loan is secured by a first priority mortgage over the
vessel. The facility places a restriction on the Company's ability to distribute dividends to its shareholders. The amount of the dividends so declared shall not exceed 50% of Seanergy's
net income except in case the cash and marketable securities are equal or greater than the amount required to meet Seanergy's consolidated installment and debt interest payments for
the following eighteen-month period. The Company has paid the first eleven installments as of December 31, 2017. On December 23, 2015, the Company amended the loan agreement
with Alpha Bank A.E. in order to (i) defer from December 31, 2015, to June 30, 2018, the requirement that the Company maintain a corporate leverage ratio (as defined in the loan facility)
that does not exceed 75%, and (ii) defer from December 31, 2015, to June 30, 2018, the requirement that the Company maintain a ratio of EBITDA to net interest expense (as defined in the
loan facility) that is not less than 2:1. On July 28, 2016, the Company further amended the loan agreement with Alpha Bank A.E. in order to (i) defer from December 31, 2015, to July 1,
2017, the security requirement that the market value of M/V Leadership plus any additional security to loan outstanding (as defined in the loan facility) shall not be less than 125% and
(ii) defer part of the then next four installments to the final maturity date. Following the reduction of the four instalments that was added to the balloon instalment, 80% of M/V
Leadership's excess earnings (as defined in the loan agreement) during each financial year starting from 2016, shall be applied by Alpha Bank towards payment of the deferred amount
until same is fully repaid. The outstanding loan balance as of December 31, 2017 is repayable in consecutive quarterly installments being $250 each, along with a balloon installment of
$4,550 payable on the final maturity date, March 17, 2020.
On September 1, 2015, the Company entered into a loan agreement with HSH Nordbank AG, for a secured loan facility in an amount of $44,430. The loan was used to pay for the
acquisition of the vessels M/V Geniuship and M/V Gloriuship. The loan is repayable in twelve consecutive quarterly installments commencing on September 30, 2017, the first three
installments being approximately $1,049 each, the fourth installment being approximately $4,050, the next eight installments being approximately $1,049 each, along with a balloon
installment of $28,837 payable on the final maturity date, June 30, 2020. The loan bears interest of LIBOR plus margins between 3.4% and 3.6% with quarterly interest payments.
Following a mandatory prepayment of $3,000 on June 30, 2018, the margin will be reduced to 3.25%. The loan facility is secured by a first priority mortgage over the two vessels. On May
16, 2016, the Company entered into a supplemental letter to the senior secured loan facility with HSH Nordbank AG. Effective as of March 1, 2016, the supplemental letter has deferred
certain prepayments to June 30, 2018. On February 23, 2017, the Company reached an agreement with HSH Nordbank AG to (i) defer from October 1, 2017, to May 1, 2018, the security
coverage requirement that the market value of M/V Geniuship and M/V Gloriuship plus any additional security to total facility outstanding and any Swap Exposure (as defined in the
loan facility) not be less than 120%, (ii) defer from December 31, 2017, to June 30, 2018, the requirement that the Company, on a consolidated basis, maintains a percentage ratio of total
liabilities (excluding any shareholders' convertible notes) to total assets (less any activated goodwill) that does not exceed 75% and (iii) defer from the quarter ending December 31, 2017,
to the quarter ending June 30, 2018, of the requirement that the Company maintains a ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA"), excluding any
gains and losses on the disposal of subsidiaries or vessels and impairments on goodwill and vessels, to interest payments that is not less than 2:1.
F-21
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
On September 11, 2015, the Company entered into a facility agreement with UniCredit Bank AG, for a secured loan facility in an amount of $52,705. The loan was made available to
partially finance the acquisition of the vessels M/V Premiership, M/V Gladiatorship and M/V Guardianship. The loan is repayable in fifteen consecutive quarterly installments being
$1,552 each, commencing on June 26, 2017, along with a balloon installment of $29,425 payable on the final maturity date, December 28, 2020. The loan bears interest of LIBOR plus a
margin of 3.20% if the value to loan ratio is lower than 125%, 3.00% if the value to loan ratio is between 125% and 166.67% and 2.75% if the value to loan is higher than 166.67% with
quarterly interest payments. The loan is secured by a first priority mortgage over the three vessels. On June 3, 2016, the Company entered into a supplemental letter in order to split the
margin into a cash portion and a capitalized portion. The capitalized portion of the margin was repaid in full as of June 30, 2017. In addition, the application of certain covenants is
deferred to at least June 30, 2017. On July 29, 2016, the Company further entered into a supplemental letter pursuant to which effective as of December 11, 2015, the requirement for
Seanergy Maritime Holdings Corp., as guarantor, to maintain liquidity in a specified amount is delayed until July 1, 2017. On March 7, 2017, the Company reached an agreement with
UniCredit Bank AG to (i) defer from June 30, 2017, to May 1, 2018, the security coverage requirement that the market value of M/V Premiership, M/V Gladiatorship and M/V
Guardianship plus any additional security to total facility outstanding and the cost, if any, of terminating any transactions entered into under the Hedging Agreement (as defined in the
loan facility) shall not be less than 120%, (ii) defer from September 30, 2017, to June 30, 2018, the requirement that the Company maintain a leverage ratio (as defined in the loan facility)
that does not exceed 75%, and (iii) defer from September 30, 2017, to June 30, 2018, the requirement that the Company maintain a ratio of EBITDA to net interest expense (as defined in
the loan facility) that is not less than 2:1. On September 25, 2017, the Company entered into a supplemental letter in order to defer the installment due on September 25, 2017 to October 2,
2017. The installment was paid on October 2, 2017.
On November 4, 2015, the Company entered into a loan agreement with Alpha Bank A.E., for a secured loan facility in an amount of $33,750. The loan was used to partially finance the
acquisition of the M/V Squireship. On November 10, 2015, the Company drew down the $33,750. The loan is repayable in sixteen consecutive quarterly installments being approximately
$844 each, commencing on February 12, 2018, along with a balloon installment of $20,250 payable on the final maturity date, November 10, 2021. The loan bears interest of LIBOR plus a
margin of 3.50% with quarterly interest payments. The loan is secured by a first priority mortgage over the vessel. The facility places a restriction on the Company's ability to distribute
dividends to its shareholders. The amount of the dividends so declared shall not exceed 50% of the Company's net income except in case the cash and marketable securities are equal or
greater than the amount required to meet the Company's consolidated installment and debt interest payments for the following eighteen-month period. On July 28, 2016, the Company
further amended the loan agreement in order to defer certain liquidity covenants to July 1, 2017 and to also waive any event of non-compliance with such covenant that occurred post
December 31, 2015. On April 11, 2017, the Company also reached an agreement with Alpha Bank A.E. to defer from January 1, 2018, to May 1, 2018, of the security requirement that the
market value of M/V Squireship plus any additional security to the total facility outstanding shall not be less than 125%.
On December 2, 2015, the Company entered into a facility agreement with Natixis, for a secured loan facility in an amount of $39,412. The loan was used to partially finance the
acquisition of the M/V Championship. On December 7, 2015, the Company drew down the $39,412. The loan was repayable in fifteen consecutive quarterly installments being $985 each,
commencing on June 30, 2017, along with a balloon installment of $24,637 payable on the final maturity date, February 26, 2021. The loan bore interest of LIBOR plus a margin of 2.50%
with quarterly interest payments. The loan was secured by a first priority mortgage over the vessel. On March 7, 2017, the Company entered into a supplemental and a settlement
agreement with Natixis to the secured term loan facility dated December 2, 2015. Under the terms of the supplemental agreement the secured term loan was repayable in four
installments: $2,000 due April 28, 2017, $2,000 due June 30, 2017, $3,000 due September 29, 2017, and $32,412 due May 2, 2018. In addition, the supplemental agreement waived the
application of the minimum required security cover requirement and all the financial covenant requirements under the secured term loan facility until the termination date of the loan,
which was May 2, 2018. Under the terms of the settlement agreement, the Company
F-22
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
had an option, until September 29, 2017, to satisfy the full amount of the facility by making a prepayment of $28,000, which included any payments made in connection with the first
three installment payments. Upon such prepayment, the facility would be deemed satisfied in full. On September 29, 2017, Natixis entered into a deed of release and fully discharged the
$35,412 outstanding balance of the secured term loan facility obligations to the lender for a total settlement amount of $24,000 on September 29, 2017. The first-priority mortgage over the
M/V Championship and all other securities created in favour of Natixis were irrevocably and unconditionally released pursuant to the deed of release. The Company recognized a gain
from the Natixis refinancing of $11,392, net of $6 refinancing charges and $14 write-off of unamortized deferred financing charges.
On November 28, 2016, the Company entered into a $32,000 secured term loan facility with NSF to partly finance the acquisition of the two second hand Capesize vessels M/V Lordship
and M/V Knightship. The facility bears interest at 11% per annum, which is payable quarterly, and the principal is repayable in four consecutive quarterly installments of $900 each,
commencing on March 13, 2019 and a final payment of $28,400 due on December 13, 2019 (initial termination date). The facility may be extended twice so that the final termination date
shall never extend beyond the date falling on the fifth anniversary of the final drawdown date. The option to extend the facility for up to another two years from the initial termination
date is subject to an extension fee of 1.75% per extended year of each relevant loan outstanding amount. The borrowers must maintain restricted deposits of $1,500, each, as prepaid
interest to be applied equally against the first eight quarterly interest payments of the facility. As of December 13, 2016, the Company had drawn down the entire $32,000.
On May 24, 2017, the Company entered into an up to $18,000 term loan facility with Amsterdam Trade Bank N.V., to partially finance the acquisition of the M/V Partnership. The loan
bears interest at LIBOR plus a margin of 4.65% per annum which is payable quarterly. The principal is repayable by twenty equal consecutive quarterly installments being $200 each and
a balloon installment of $14,000 due on the maturity date, May 26, 2022. On each quarterly repayment date, an additional repayment of at least $10, or an integral multiple of that amount,
of any excess cash standing in the vessel's operating account shall be applied towards reducing the balloon installment. Excess cash, as defined in the loan facility, is any amount above
$1,000. The aggregate amount of the additional repayments shall not exceed $3,600. On August 28, 2017, an additional repayment of $380 was made along with the first installment
payment. The loan was made available in two drawdowns: (i) $13,250 was drawn down on May 26, 2017 and (ii) $4,750 was drawn down on June 22, 2017. The loan facility requires that
the borrower shall maintain in aggregate $500 as minimum liquidity. The loan is secured by a first priority mortgage over the vessel.
On September 25, 2017, in order to partially fund the refinancing of the Natixis facility, the Amsterdam Trade Bank loan Facility was amended and restated, increasing the loan amount of
the facility by an additional tranche of $16,500, or Tranche B. The principal of Tranche B is repayable by nineteen consecutive quarterly installments, being $200 each of the first four
installments, $300 each of the subsequent four installments, and $400 each of the subsequent eleven installments, in addition to a balloon installment of any outstanding indebtedness
due on the maturity date, May 26, 2022. On each quarterly repayment date, an additional repayment of at least $10, or an integral multiple of that amount, of any excess cash standing to
the credit of the relevant vessel's operating account shall be applied towards reducing the balloon installment. Excess cash, as defined in the loan facility, is any amount above $1,000.
The aggregate amount of the additional repayments, with regard to Tranche B, shall not exceed $1,250. The loan facility requires that the borrower shall maintain in aggregate $500 as
minimum liquidity. The amendment and restatement of the facility did not alter the interest rate, the maturity date, the amortization and the repayment terms of the existing tranche under
the loan facility, or the financial covenants applicable to the Company as guarantor. The amended and restated loan facility is secured by first preferred mortgages and general
assignments covering earnings, insurances and requisition compensation over the M/V Partnership and M/V Championship, earnings account pledges, shares security deeds relating
to the shares of both vessels' owning subsidiaries, technical and commercial managers' undertakings and, where applicable, charter assignments.
F-23
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
The borrowers under each of the above six facilities are the applicable vessel owning subsidiaries, and five out six facilities are guaranteed by Seanergy Maritime Holdings Corp.
The weighted average interest rate of long-term debt as at December 31, 2017, 2016 and 2015, was 5.47%, 3.88% and 3.60%, respectively.
The annual principal payments required to be made after December 31, 2017, are as follows:
Year ended December 31,
2018
2019
2020
2021
2022
Total
8.
Financial Instruments:
Amount
19,578
48,881
77,046
26,025
24,920
196,450
(a)
Significant Risks and Uncertainties, including Business and Credit Concentration
The Company places its temporary cash investments, consisting mostly of deposits, primarily with high credit qualified financial institutions. The Company performs periodic
evaluations of the relative credit standing of those financial institutions that are considered in the Company's investment strategy. The Company limits its credit risk with accounts
receivable by performing ongoing credit evaluations of its customers' financial condition and generally does not require collateral for its accounts receivable and does not have any
agreements to mitigate credit risk.
(b)
Interest Rate Risk
Fair Value of Financial Instruments
The fair values of the financial instruments shown in the consolidated balance sheets as of December 31, 2017 and 2016, represent management's best estimate of the amounts that
would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements
maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement
reflects the Company's own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based
on the best information available in the circumstances.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
a.
b.
Cash and cash equivalents, restricted cash, accounts receivable trade, other current assets and trade accounts and other payables: the carrying amounts approximate fair value
because of the short maturity of these instruments. The carrying value approximates the fair market value for interest bearing cash classified as restricted cash, non-current.
Long-term debt: The carrying value of long-term debt with variable interest rates approximates the fair market value as the long-term debt bears interest at floating interest rate.
The fair value of fixed interest long-term debt is estimated using prevailing market rates as of the period end. The Company believes the terms of its fixed interest long-term debt
are similar to those that could be procured as of December 31, 2017, and the carrying value of $32,000 approximates the fair market value of $31,941. The fair value of the fixed
interest long-term debt has been
F-24
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
obtained through Level 2 inputs of the fair value hierarchy which includes observable inputs other than quoted prices included in Level 1.
9.
Commitments and Contingencies:
Contingencies
Various claims, lawsuits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition,
losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Company's vessels. Currently, management is not
aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure.
Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying
consolidated financial statements. The Company is covered for liabilities associated with the individual vessels' actions to the maximum limits as provided by Protection and Indemnity
(P&I) Clubs, members of the International Group of P&I Clubs.
Commitments
Future minimum contractual charter revenue, based on vessels committed to non-cancelable, time charter contracts as of December 31, 2017, will be $5,869 during 2018. These amounts
do not include any assumed off-hire.
The following table sets forth the Company's office rental obligations as at December 31, 2017:
Year ended December 31,
2018
2019
2020
2021
2022
Total
10.
Capital Structure:
(a) Common Stock
Amount
190
187
187
187
187
938
On January 8, 2016, the Company effected a one-for-five reverse stock split of the Company's issued common stock (Note 1). The reverse stock split ratio and the implementation and
timing of the reverse stock split were determined by the Company's Board of Directors. The reverse stock split did not change the authorized number of shares or par value of the
Company's common stock or preferred stock, but did effect a proportionate adjustment to the number of shares of common stock issuable upon the vesting of restricted stock awards,
and the number of shares of common stock eligible for issuance under the Plan. All applicable outstanding equity awards discussed below have been adjusted retroactively for the one-
for-five reverse stock split.
On August 5, 2016, the Company entered into a securities purchase agreement with an unaffiliated third party, which is an institutional investor, under which the Company sold
1,180,000 of its common shares in a registered direct offering at a price of $4.15 per share. On August 10, 2016, the Company completed the registered direct offering for net proceeds of
approximately $4,080. The net proceeds of this offering were used for general corporate purposes.
On November 18, 2016, the Company entered into a securities purchase agreement with unaffiliated third parties, which are institutional investors, under which the Company sold
1,305,000 of its common shares in a registered direct offering at a price of $2.75 per share. On November 23, 2016, the Company completed the registered direct offering for net proceeds
of approximately $3,210, which proceeds were used for general corporate purposes, including funding of vessel acquisitions.
On December 13, 2016, the Company completed its public offering of 10,000,000 of its common shares and 10,000,000 class A warrants to purchase an aggregate of 10,000,000 common
shares of the Company, at a combined price of $1.50 per share and class A warrant. The offering was in connection with the Company's form F-1 filed with the SEC on October 28, 2016,
which was further amended on November 29, 2016, December 5, 2016, December 6, 2016 and December 8, 2016. The net proceeds were approximately $13,081, which proceeds were used
to prepay
F-25
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
$6,900 of the Jelco loan facility (Note 3) and for general corporate purposes, including funding of vessel acquisitions.
On December 21, 2016, the Company completed the sale of an additional 1,300,000 of its common shares and 1,500,000 class A warrants to purchase 1,500,000 common shares of the
Company, at a price of $1.49 per share and $0.01 per class A warrant, respectively, pursuant to the exercise of the over-allotment option granted to the underwriters in the Company's
public offering that closed on December 13, 2016. The net proceeds were approximately $1,775, which proceeds were used for general corporate purposes, including funding of vessel
acquisitions.
On February 3, 2017, the Company entered into an Equity Distribution Agreement with Maxim Group LLC, or "Maxim", as sales agent, under which the Company would offer and sell,
from time to time through Maxim up to $20,000 of its common shares. The Company would determine, at its sole discretion, the timing and number of shares to be sold pursuant to the
Equity Distribution Agreement along with any minimum price below which sales would not be made. Maxim would make any sales pursuant to the Equity Distribution Agreement using
its commercially reasonable efforts consistent with its normal trading and sales practices. Sales of common shares, if any, would be made by means of ordinary brokers' transactions on
the Nasdaq Capital Market, in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933, as
amended, including sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. On June 27, 2017, the
Company and Maxim mutually terminated the Equity Distribution Agreement. As of June 27, 2017, the Company has sold a total of 2,782,136 of its common shares for aggregate net
proceeds of $2,597 in connection with this public at-the-market offering. Maxim has received aggregate compensation for such sales of $86 as of June 27, 2017.
On April 10, 2017, the Company issued 125,000 of its common shares to an unaffiliated third party for the provision of professional services related to the Company's internet-based
investor relations efforts. The related expense for the 125,000 shares granted amounted to $115 and is included under general and administrative expenses as stock based compensation.
On May 18, 2017, the Company was notified by NASDAQ that it was no longer in compliance with NASDAQ Listing Rule 5550(a)(2) because the closing bid price of the Company's
common stock for 30 consecutive business days, from April 5, 2017 to May 17, 2017, was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq
Capital Market. This notification had no effect on the listing of the Company's common stock, and the applicable grace period to regain compliance is 180 days, expiring on November
14, 2017. The Company can cure this deficiency if the closing bid price of its common stock is $1.00 per share or higher for at least ten consecutive business days during the grace
period. In the event the Company does not regain compliance within the 180-day grace period and it meets all other listing standards and requirements, the Company may be eligible for
an additional 180-day grace period. On September 5, 2017, the Company received a letter from The Nasdaq Stock Market confirming that it has regained compliance with the minimum bid
price requirement.
(b) Warrants
On December 13, 2016, in connection with the public offering of December 13, 2016, the Company granted 10,000,000 class A warrants with an exercise price of $2.00 each. In connection
with the offering, the Company also issued the representative of the underwriters a warrant ("Warrant I)" to purchase 500,000 of its common shares ("Warrant Shares"). The purchase
price of one Warrant Share, which will be received by the Company, is equal to $1.875. Exercise of the purchase rights represented by Warrant I may be made, in whole or in part. The
class A warrants were approved for listing on the Nasdaq Capital Market and trade under the ticker symbol "SHIPW" beginning on December 8, 2016. The class A warrants are
immediately exercisable and expire on December 13, 2021. The Warrant I is exercisable beginning June 6, 2017 and expires on December 7, 2019. If and only if an effective registration
statement covering the issuance of the common shares under the class A warrants is not
F-26
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
available, the class A warrants may be exercised, at the holder's option, pursuant to the "cashless exercise" clause of the class A warrant agreement. Under the "cashless exercise", the
holder will receive a net number of common shares determined according to class A warrant agreement. Similarly, if and only if an effective registration statement covering the issuance
of the common shares under Warrant I is not available, the Warrant I may be exercised, at the holder's option, pursuant to the "cashless exercise" clause of the representative's warrant
agreement. Under the "cashless exercise", the holder will receive a net number of common shares determined according to representative's warrant agreement. The Company may call
the class A warrants for cancellation upon ten trading days prior written notice commencing thirteen months after issuance, subject to certain conditions, including the volume
weighted average price of the Company's common shares exceeding $7.00 for a period of ten consecutive trading days.
On December 21, 2016, in connection with the exercise of the over-allotment option granted to the underwriters in the public offering of December 13, 2016, the Company granted an
additional 1,500,000 class A warrants at a price of $0.01 per class A warrant with an exercise price of $2.00 each. In connection with the offering, the Company also issued the
representative of the underwriters a warrant ("Warrant II)" to purchase 65,000 of its common shares ("Warrant Shares"). The purchase price of one Warrant Share, which will be
received by the Company, is equal to $1.875. Exercise of the purchase rights represented by Warrant II may be made, in whole or in part. The class A warrants are immediately
exercisable and expire on December 13, 2021. If and only if an effective registration statement covering the issuance of the common shares under the class A warrants is not available,
the class A warrants may be exercised, at the holder's option, pursuant to the "cashless exercise" clause of the class A warrant agreement. Under the "cashless exercise", the holder will
receive a net number of common shares determined according to class A warrant agreement. Similarly, if and only if an effective registration statement covering the issuance of the
common shares under Warrant II is not available, the Warrant II may be exercised, at the holder's option, pursuant to the "cashless exercise" clause of the representative's warrant
agreement. Under the "cashless exercise", the holder will receive a net number of common shares determined according to representative's warrant agreement. The Warrant II is
exercisable beginning June 6, 2017 and expires on December 7, 2019.
As of December 31, 2017, the Company had outstanding warrants, including both the class A warrants and Warrant I and Warrant II issued to the representative of the underwriters,
exercisable to purchase an aggregate of 12,065,000 shares of the Company's common shares.
11.
Interest and Finance Costs:
Interest and finance costs are analyzed as follows:
Interest on long-term debt
Amortization of debt issuance costs
Other
Total
2017
Year ended December 31,
2016
2015
11,698
518
61
12,277
6,943
265
27
7,235
1,353
72
35
1,460
F-27
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
Interest and finance costs-related party are analyzed as follows:
Interest on long-term debt - related party
Amortization of debt issuance costs related party
Convertible notes interest expense
Convertible notes amortization of debt discount
Gain on extinguishment of convertible notes
Total
12.
Loss per Share:
The calculation of net loss per common share is summarized below:
Net loss
2017
Year ended December 31,
2016
2015
1,182
13
1,800
2,127
-
5,122
155
-
1,298
1,163
-
2,616
-
-
265
334
(200)
399
For the years ended December 31,
2016
2017
2015
(3,235)
(24,623)
(8,956)
Weighted average common shares outstanding – basic
Net loss per common share – basic
35,845,890
20,553,007
10,773,404
$
(0.09)
$
(1.20)
$
(0.83)
As of December 31, 2017, 2016 and 2015, securities that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS, because to do so would
have anti-dilutive effect, are any incremental shares of non-vested equity incentive plan shares (Note 13) and of unexercised warrants (Note 10), both calculated with the treasury stock
method, as well as shares assumed to be converted with respect to the convertible promissory notes (Note 3) calculated with the if-converted method.
F-28
(All amounts in footnotes in thousands of US Dollars, except for share and per share and warrants data, unless otherwise stated)
Seanergy Maritime Holdings Corp.
Notes To The Consolidated Financial Statements
13. Equity Incentive Plan:
On December 15, 2016, the Compensation Committee granted an aggregate of 772,800 restricted shares of common shares, pursuant to the 2011 Equity Incentive Plan. Of the total
772,800 shares, 274,800 shares were granted to the Company's board of directors, 448,000 shares were granted to certain of the Company's other employees and 50,000 shares were
granted to the sole director of the Company's commercial manager, a non-employee. As of December 31, 2017, 45,534 shares remained reserved for issuance under the Company's Equity
Incentive Plan.
Restricted shares during 2017, 2016 and 2015 is analyzed as follows:
Outstanding at December 31, 2014
Granted
Vested
Outstanding at December 31, 2015
Granted
Vested
Forfeited
Outstanding at December 31, 2016
Vested
Outstanding at December 31, 2017
Number of
Shares
Weighted
Average Grant
Date Price
-
189,000
(37,000)
152,000
772,800
(264,100)
(8,000)
652,700
(275,100)
377,600
$
$
$
$
-
3.70
3.70
3.70
1.30
1.69
3.70
1.67
1.77
1.60
The fair value of the restricted shares has been determined with reference to the closing price of the Company's common share on the date the agreements were signed. The aggregate
compensation cost is being recognized ratably in the consolidated statement of loss over the respective vesting periods. The related expense for shares granted to the Company's board
of directors and certain of its employees for the years ended December 31, 2017, 2016 and 2015, amounted to $591, $604 and $178, respectively, and is included under general and
administration expenses. The unrecognized cost for the non-vested shares granted to the Company's board of directors and certain of its employees as of December 31, 2017 and 2016
amounted to $242 and $833, respectively. The related expense for shares granted to non-employees for the years ended December 31, 2017, 2016 and 2015, amounted to $24, $20 and
$NIL, respectively, and is included under voyage expenses. At December 31, 2017, the weighted-average period over which the total compensation cost related to non-vested awards
granted to the Company's board of directors and its other employees not yet recognized is expected to be recognized is 1.57 years.
14. Subsequent Events:
a) On January 12, 2018, the Company exercised its option to defer the final repayment date from January 28, 2018 to January 28, 2019 relating to the Jelco Loan Facility originally dated
October 4, 2016.
b) On February 1, 2018, the Compensation Committee granted an aggregate of 1,260,000 restricted shares of common stock pursuant to the Plan. Of the total 1,260,000 shares issued,
575,000 shares were granted to the board of directors, 665,000 shares were granted to certain of the Company's employees and 20,000 shares were granted to the sole director of the
Company's commercial manager, a non-employee. The fair value of each share on the grant date was $1.035. All the shares will vest over a period of two years. 420,024 shares
vested on February 1, 2018, 419,988 shares will vest on October 1, 2018 and 419,988 shares will vest on October 1, 2019.
c)
In February and March 2018, the Company has received approval from the credit committees of certain of its lenders to amend the applicable thresholds or further defer the
application date of certain financial covenants and security requirements of its credit facilities for the next twelve months. This approval is subject to completion of definitive
documentation.
F-29
Schedule I- Condensed Financial Information of Seanergy Maritime Holdings Corp. (Parent Company Only)
Balance Sheets
December 31, 2017 and 2016
(In thousands of US Dollars, except for share and per share data)
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Other current assets
Total current assets
Non-current assets:
Investments in subsidiaries*
Total non-current assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of convertible promissory notes
Trade accounts and other payables
Accrued liabilities
Total current liabilities
Non-current liabilities:
Due to related parties, noncurrent
Long-term portion of convertible promissory notes
Total liabilities
Commitments and contingencies
STOCKHOLDERS EQUITY
Preferred stock, $0.0001 par value; 25,000,000 shares authorized; none issued
Common stock, $0.0001 par value; 500,000,000 authorized shares as at December 31, 2017 and 2016; 36,979,346 and 34,072,210
shares issued and outstanding as at December 31, 2017 and 2016, respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
* Eliminated in consolidation
F-30
1,988
50
323
2,361
64,121
64,121
66,482
-
257
785
1,042
17,342
6,785
25,169
-
-
8,809
50
-
8,859
29,998
29,998
38,857
200
167
683
1,050
5,878
1,097
8,025
-
-
3
383,007
(341,697)
41,313
66,482
3
369,291
(338,462)
30,832
38,857
Schedule I- Condensed Financial Information of Seanergy Maritime Holdings Corp. (Parent Company Only)
Statements of Loss
For the years ended December 31, 2017, 2016 and 2015
(In thousands of US Dollars, except for share and per share data)
Expenses:
General and administration expenses
Operating loss
Other (expenses) / income, net:
Interest and finance cost – related party
Gain on debt refinancing
Other, net
Total other income / (expenses), net
Equity in loss of subsidiaries*
Net loss
Net loss per common share
Basic
Weighted average common shares outstanding
Basic
* Eliminated in consolidation
2017
2016
2015
(2,642)
(2,642)
(5,122)
11,392
(29)
6,241
(6,834)
(3,235)
(2,115)
(2,115)
(2,621)
-
(18)
(2,639)
(19,869)
(24,623)
(1,256)
(1,256)
(399)
-
(9)
(408)
(7,292)
(8,956)
(0.09)
(1.20)
(0.83)
35,845,890
20,553,007
10,773,404
F-31
Schedule I- Condensed Financial Information of Seanergy Maritime Holdings Corp. (Parent Company Only)
Statements of Cash Flows
For the years ended December 31, 2017, 2016 and 2015
(In thousands of US Dollars)
Net cash provided by / (used in) operating activities
Cash flows used in investing activities:
Investments in subsidiaries
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuance of common stock
Proceeds from convertible promissory notes
Proceeds from related party debt
Repayments of related party debt
Repayments of convertible promissory notes
Net cash provided by financing activities
Net (decrease) / increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest
Non cash financing activities:
Conversion of related party debt into convertible promissory note
F-32
2017
2016
2015
6,314
(2,441)
(1,202)
(40,972)
(40,972)
2,637
9,000
16,200
-
-
27,837
(6,821)
8,859
2,038
(28,734)
(28,734)
22,606
9,400
12,800
(6,900)
-
37,906
6,731
2,128
8,859
2,773
1,176
(4,750)
-
(28,633)
(28,633)
13,820
15,765
-
-
(200)
29,385
(450)
2,578
2,128
222
-
Schedule I- Condensed Financial Information of Seanergy Maritime Holdings Corp. (Parent Company Only)
Notes To The Condensed Financial Statements
(All amounts in footnotes in thousands of US Dollars)
1. Basis of Presentation
In the parent-company-only condensed financial statements, the Parent Company's (the "Company") investment in subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries. The Parent Company did not receive cash dividends from its subsidiaries during the years ended December 31, 2017, 2016 and 2015.
The parent-company-only condensed financial statements should be read in conjunction with the Company's consolidated financial statements.
2. Transactions with Related Parties
Convertible Promissory Notes
On March 12, 2015, the Company issued a convertible promissory note of $4,000 to Jelco for general corporate purposes. At Jelco's option, the outstanding principal amount under the
convertible note may be paid at any time in common shares at a conversion price of $0.90 per share.
On September 7, 2015, the Company issued a revolving convertible promissory note of up to $6,765 to Jelco for general corporate purposes. As amended, the maximum principal amount
available to be drawn was increased to $21,165. At Jelco's option, the Company's obligation to repay the principal amount under the revolving convertible note may be paid in common
shares at a conversion price of $0.90 per share.
On September 27, 2017, the Company issued a convertible promissory note of $13,750 to Jelco. At Jelco's option, the outstanding principal amount under the convertible note may be
paid at any time in common shares at a conversion price of $0.90 per share. Of the $13,750 under the note, $4,750 were used to make a mandatory prepayment under the May 24, 2017
Jelco Loan Facility.
See Note 3 "Transactions with Related Parties" to the consolidated financial statements for further information.
Loan Agreements
On October 4, 2016, the Company entered into a $4,150 loan facility with Jelco to finance the initial deposits for the vessels M/V Lordship and the M/V Knightship. On November 17,
2016 and November 28, 2016, the Company entered into amendments to this facility, which, among other things, increased the aggregate amount that may be borrowed under the facility
to up to $12,800. On December 14, 2016, the Company prepaid Jelco a total of $6,900 in accordance with the facility provisions.
On March 28, 2017, the Company entered into a $47,500 secured loan agreement with Jelco. Under the terms of this agreement, Jelco would have made available this facility to the
Company in the event that the Company was not able to secure third party financing to partly fund a couple of the its transactions. This facility was terminated on September 27, 2017,
and no amounts were drawn down under this facility.
On May 24, 2017, the Company entered into an up to $16,200 loan facility with Jelco to partially finance the acquisition of the M/V Partnership. The Company drew down the $16,200 on
May 24, 2017. On June 22, 2017 and on August 22, 2017, the Company entered into supplemental letters with Jelco to amend the terms of this loan facility, whereby a mandatory
repayment of $4,750 was deferred until September 29, 2017. On September 27, 2017, the facility was amended and restated. The mandatory repayment of $4,750 was financed by the
convertible promissory note to Jelco on September 27, 2017.
See Note 3 "Transactions with Related Parties" to the consolidated financial statements for further information.
F-33
Schedule I- Condensed Financial Information of Seanergy Maritime Holdings Corp. (Parent Company Only)
Notes To The Condensed Financial Statements
(All amounts in footnotes in thousands of US Dollars)
3. Guarantee
The Company has guaranteed the payment of principal and interest under the terms of the following loan agreements: the March 6, 2015 loan agreement with Alpha Bank A.E., the
September 1, 2015 loan agreement with HSH Nordbank AG, the September 11, 2015 facility agreement with UniCredit Bank AG, the November 4, 2015 loan agreement with Alpha Bank
A.E. and the May 24, 2017 facility agreement with Amsterdam Trade Bank N.V. In the event of a default under these loan agreements, the Company will be directly liable to the lenders.
These facilities mature at various times between 2020 and 2022. The maximum potential amount that the Company could be liable for under these guarantee as of December 31, 2017 is
$164,450.
See Note 7 "Long-Term Debt" to the consolidated financial statements for further information.
4. Restrictions Which Limit the Payment of Dividends
Restrictions on Payment of Dividends
The Alpha Bank A.E. loan facility dated March 6, 2015 places a restriction on the Company's ability to distribute dividends to its shareholders. The amount of the dividends so declared
shall not exceed 50% of Seanergy's net income except in case the cash and marketable securities are equal or greater than the amount required to meet Seanergy's consolidated
installment and debt interest payments for the following eighteen-month period.
The Alpha Bank A.E. loan facility dated November 4, 2015 places a restriction on the Company's ability to distribute dividends to its shareholders. The amount of the dividends so
declared shall not exceed 50% of Seanergy's net income except in case the cash and marketable securities are equal or greater than the amount required to meet Seanergy's consolidated
installment and debt interest payments for the following eighteen-month period.
Restricted Net Assets of Consolidated Subsidiaries
As of December 31, 2017, the negative restricted net assets of the vessel owning subsidiaries of M/V Geniuship and M/V Gloriuship that have entered into the September 1, 2015 loan
agreement with HSH Nordbank AG amounted to $1,742 and $1,090, respectively. The HSH loan agreement places a restriction on the vessel owning subsidiaries' ability to distribute
dividends to the Company, in case the market values of M/V Geniuship and M/V Gloriuship plus any additional security is less than 145% of total facility outstanding and the cash
balance of the borrowers after distribution of dividends is less than $3,000. The $3,000 condition on payment of dividends does not apply after June 30, 2018.
As of December 31, 2017, the restricted net assets of the vessel owning subsidiaries of M/V Lordship and M/V Knightship that have entered into the November 28, 2016 loan agreement
with NSF amounted to $4,520 and $4,697, respectively. The NSF loan agreement places a restriction on each vessel owning subsidiary's ability to distribute dividends to the Company or
make any other form of distribution or effect any return of share capital if the vessel owning subsidiary maintains a balance in its earnings account that when aggregated with a minimum
liquidity amount is less than $1,000.
As of December 31, 2017, the restricted net assets of the vessel owning subsidiaries of M/V Championship and M/V Partnership that have entered into the May 24, 2017 loan
agreement with Amsterdam Trade Bank N.V., ATB, as amended and restated in September 25, 2017, amounted to $24,703 and $15,543, respectively. The ATB loan agreement places a
restriction on the vessel owning subsidiaries' ability to distribute dividends to the Company, unless additional repayments in an aggregate amount of $4,850 have been made. In
addition, neither borrower, shall enter into any agreement or arrangement for the sharing of any earnings other than the purposes of the ATB loan agreement.
F-34