(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2023
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
Date of event requiring this shell company report ____________
Commission file number 001-37889
TOP SHIPS INC.
(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)
1 Vasilisis Sofias and Megalou Alexandrou Str, 15124 Maroussi, Greece
(Address of principal executive offices)
Alexandros Tsirikos, (Tel) + 30 210 812 8107, info@topships.org
1 Vasilisis Sofias and Megalou Alexandrou Str, 15124 Maroussi, Greece
(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 each class
Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights
Trading Symbol(s)
TOPS
Name of each exchange
on which registered
Nasdaq Capital Market
Nasdaq Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of class)
NONE
(Title of class)
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, 2023, 4,626,197 shares of common stock, par value $0.01 per share, 100,000 Series D Preferred Shares, par value $0.01 per share, and 3,659,627 Series F Preferred
Shares, par value $0.01 per share, were outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
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No
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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
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No
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Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under
those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
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No
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
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No
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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.
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an
error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAP
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:
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Item 17
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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
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No
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(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court. N/A
Yes
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No
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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.
ITEM 16I.
ITEM 16J.
ITEM 16K.
PART III
ITEM 17.
ITEM 18.
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
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
INSIDER TRADING POLICIES
CYBERSECURITY
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995, or the PSLRA, provides safe harbor
protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are statements other than statements of
historical facts.
TOP Ships Inc. desires to take advantage of the safe harbor provisions of the PSLRA and is including this cautionary statement in connection with this safe harbor legislation.
This annual report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future
events and financial performance. When used in this annual report, statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include
words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “continue,” “possible,” “likely,” “may,” “should,” and similar
expressions 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 annual 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 risks, uncertainties and contingencies that are described more fully in “Item 3.
Key Information—D. Risk Factors”, 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.
In addition to these assumptions and matters discussed elsewhere herein and in the documents incorporated by reference herein, important factors that, in our view, could
cause actual results to differ materially from those discussed in the forward-looking statements include the following:
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our ability to maintain or develop new and existing customer relationships with major refined product importers and exporters, major crude oil companies and major
commodity traders, including our ability to enter into long-term charters for our vessels;
our future operating and financial results;
our future vessel acquisitions, our business strategy and expected and unexpected capital spending or operating expenses, including any dry-docking, crewing, bunker
costs and insurance costs;
our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate activities;
oil and chemical tanker industry trends, including fluctuations in charter rates and vessel values and factors affecting vessel supply and demand;
our ability to take delivery of, integrate into our fleet, and employ any newbuildings we may acquire or order in the future and the ability of shipyards to deliver vessels on a
timely basis;
the aging of our vessels and resultant increases in operation and dry-docking costs;
the ability of our vessels to pass classification inspections and vetting inspections by oil majors and big chemical corporations;
significant changes in vessel performance, including increased vessel breakdowns;
the creditworthiness of our charterers and the ability of our contract counterparties to fulfill their obligations to us;
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our ability to repay outstanding indebtedness, to obtain additional financing and to obtain replacement charters for our vessels, in each case, at commercially acceptable
rates or at all;
changes to governmental rules and regulations or actions taken by regulatory authorities and the expected costs thereof;
our ability to comply with additional costs and risks related to our environmental, social and governance policies;
potential liability from litigation and our vessel operations, including discharge of pollutants;
changes in general economic and business conditions;
general domestic and international political conditions, potential disruption of shipping routes due to accidents, political events, including “trade wars,” piracy, acts by
terrorists or other hostilities;
changes in production of or demand for oil and petroleum products and chemicals, either globally or in particular regions;
the strength of world economies and currencies, including fluctuations in charterhire rates and vessel values;
potential liability from future litigation and potential costs due to any environmental damage and vessel collisions;
the length and severity of public health threats, epidemics and pandemics, including the global outbreak of the novel coronavirus (“COVID-19”) (and various variants that
may emerge), and other disease outbreaks and their impact on the demand for commercial seaborne transportation and the condition of the financial markets and
governmental responses thereto; and
and other important factors discussed “Item 3. Key Information—D. Risk Factors” or described from time to time in the reports filed by us with the U.S. Securities and
Exchange Commission, or the SEC.
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. 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 All forward-looking statements in this annual report are qualified in their entirety by the cautionary statements contained in this annual report.
Any forward-looking statements contained herein are made only as of the date of this annual report, and except to the extent required by applicable law or regulation we
undertake no obligation to publicly update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events, 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. New factors emerge from time to time, and it is not possible for us to predict all or any of
these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be
materially different from those contained in any forward-looking statement.
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PART I
Unless the context otherwise requires, as used in this annual report, the terms “Company,” “we,” “us,” and “our” refer to TOP Ships Inc. and all of its subsidiaries, and
“TOP Ships Inc.” refers only to TOP Ships Inc. and not to its subsidiaries. We use the term deadweight ton, 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. References to our “Fleet Manager” or “CSI” are to
Central Shipping Inc., a related party of ours, which performs the day-to-day management of our fleet.
Throughout this annual report, the conversion from Euros, or €
, to U.S. dollars, or $, is based on the U.S. dollar/Euro exchange rate of 1.1052 as of December 29, 2023,
unless otherwise specified.
References in this annual report to our common shares and earnings per share amounts, as well as warrant shares eligible for purchase under our warrants and exercise
price of said warrants in this report, are adjusted to reflect the consolidation of our common shares through reverse stock splits, including the 20-to-1 reverse stock split which
became effective as of September 23, 2022 and the 12-to-1 reverse stock split which became effective as of September 29, 2023.
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.
B.
[Reserved]
Capitalization and Indebtedness
Not Applicable.
C.
Reasons for the Offer and Use of Proceeds
Not Applicable.
D.
Risk Factors
The following risks relate principally to the industry in which we operate and our business in general. The occurrence of any of these risks could materially and adversely affect
our business, financial condition or operating results and the trading price of our common shares.
Summary of Risk Factors
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The international tanker industry has historically been both cyclical and volatile.
The current state of the world financial market and current economic conditions could have a material adverse impact on our results of operations, financial condition and
cash flows.
Our financial results may be adversely affected by the outbreak of epidemic and pandemic diseases, such as COVID-19, and the related governmental responses thereto.
The market value of our vessels, and those we may acquire in the future, may fluctuate significantly, which could cause us to incur losses if we decide to sell them following
a decline in their market values or we may be required to write down their carrying value, which will adversely affect our earnings.
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An over-supply of tanker capacity may lead to reductions in asset prices, charter hire rates and profitability.
Volatility of SOFR could affect our profitability, earnings and cash flows.
We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Increasing growth of electric vehicles and renewable fuels could lead to a decrease in trading and the movement of crude oil and petroleum products worldwide.
Our vessels may suffer damage due to the inherent operational risks of the tanker industry.
We are subject to international safety regulations and requirements imposed by classification societies and the failure to comply with these regulations may subject us to
increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S. government or other governmental
authorities, it could lead to monetary fines or adversely affect our business, reputation and the market for our common shares.
Political instability, terrorist or other attacks, war, international hostilities and public health threats can affect the tanker industry, which may adversely affect our business.
Acts of piracy on ocean-going vessels could adversely affect our business.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results
of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
Our financing facilities contain restrictive covenants that may limit our liquidity and corporate activities, and could have an adverse effect on our financial condition and
results of operations.
Servicing current and future debt (including SLBs) will limit funds available for other purposes and could impair our ability to react to changes in our business.
Our President, Chief Executive Officer and Director has significant influence over us, and a trust established for the benefit of his family may be deemed to beneficially own,
directly or indirectly, 100% of our Series D Preferred Shares, and thereby to control the outcome of matters on which our shareholders are entitled to vote.
We have been subject to litigation in the past and may be subject to similar or other litigation in the future.
Any limitation in the availability or operation of our vessels could have a material adverse effect on our business, results of operations and financial condition.
We expect to be dependent on a limited number of customers for a large part of our revenues, and failure of such counterparties to meet their obligations could cause us to
suffer losses or negatively impact our results of operations and cash flows.
If we fail to manage our planned growth properly, we may not be able to successfully expand our market share.
Delays or defaults by the shipyards in the construction of newbuildings could increase our expenses and diminish our net income and cash flows.
Our ability to obtain additional debt financing may be dependent on our ability to charter our vessels, the performance of our charters and the creditworthiness of our
charterers.
The industry for the operation of tanker vessels and the transportation of oil, petroleum products and chemicals is highly competitive and we may not be able to compete for
charters with new entrants or established companies with greater resources.
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 may be unable to attract and retain key management personnel and other employees in the international tanker shipping industry, which may negatively impact the
effectiveness of our management and our results of operations.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows, financial condition and
available cash.
A drop in spot charter rates may provide an incentive for some charterers to default on their charters, which could affect our cash flow and financial condition.
An increase in operating costs could decrease earnings and available cash.
The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings.
Rising fuel prices may adversely affect our profits.
Unless we set aside reserves or are able to borrow funds for vessel replacement, our revenue will decline at the end of a vessel’s useful life, which would adversely affect
our business, results of operations and financial condition.
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Purchasing and operating secondhand vessels may result in increased operating costs and vessels off-hire, which could adversely affect our earnings.
Our anticipated acquisition of an interest in a megayacht entails certain risks and uncertainties associated with our entry into ownership of a new class of vessels, and we
cannot assure you that we will complete the acquisition or manage such risks successfully.
We may not have adequate insurance to compensate us if we lose any vessels that we acquire.
We may be subject to increased premium payments, or calls, as we obtain some of our insurance through protection and indemnity associations.
Increasing regulation as well as scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and
Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
Technological innovation and quality and efficiency requirements from our customers could reduce our charter hire income and the value of our vessels.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Maritime claimants could arrest our vessels or vessels we may acquire, which could interrupt our cash flow.
Governments could requisition our vessels or vessels we acquire during a period of war or emergency, resulting in loss of earnings.
U.S. federal tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
We may be subject to U.S. federal income tax on our U.S. source income, which would reduce our earnings.
We are a “foreign private issuer,” which could make our common shares less attractive to some investors or otherwise harm our stock price.
The market price and trading volume of our common shares may continue to be highly volatile, which could lead to a loss of all or part of a shareholder’s investment.
There is no guarantee of a continuing public market for you to resell our common shares.
Nasdaq may delist our common shares from its exchange which could limit your ability to make transactions in our securities and subject us to additional trading restrictions.
We have issued common shares in the past through various transactions and we may do so in the future without shareholder approval, which may dilute our existing
shareholders, depress the trading price of our securities and impair our ability to raise capital through subsequent equity offerings.
We may be unable to successfully consummate a planned spin-off of certain of our assets or to achieve some or all of the benefits that we expect to achieve from the spin-
off, and may incur significant risks associated with the spin-off.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and as a result, shareholders may have fewer
rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.
It may not be possible for investors to serve process on or enforce U.S. judgments against us.
Our By-laws provide that the High Court of the Republic of Marshall Islands shall be the sole and exclusive forum for certain disputes between us and our shareholders,
which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
We may not achieve the intended benefits of having a forum selection provision if it is found to be unenforceable.
Anti-takeover provisions in our organizational documents could have the effect of discouraging, delaying or preventing a merger, amalgamation or acquisition, which could
reduce the market price of our common shares.
Our Fleet Manager, on whom we are dependent to perform the day-to-day management of our fleet, may have conflicts of interest between us and its other clients and is a
privately held company and there may be limited or no publicly available information about it.
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RISKS RELATED TO OUR INDUSTRY
The international tanker industry has historically been both cyclical and volatile.
The international tanker industry in which we operate is cyclical, with attendant volatility in charter hire rates, vessel values and industry profitability. For tanker vessels, the
degree of charter rate volatility has varied widely. The Baltic Dirty Tanker Index, or the BDTI, a U.S. dollar daily average of charter rates issued by the Baltic Exchange that takes into
account input from brokers around the world regarding crude oil fixtures for various routes and oil tanker vessel sizes, has been volatile. In 2023, the BDTI reached a high of 1,642 and a
low of 713. The Baltic Clean Tanker Index, or BCTI, a comparable index to the BDTI but for petroleum product fixtures, has similarly been volatile. In 2023, the BCTI reached a high of
1,250 and a low of 563. Although the BDTI and BCTI were 1,159 and 1,194, respectively, as of March 25, 2024, there can be no assurance that the crude oil and petroleum products
charter market will continue to increase, and the market could again decline. Recent heightened volatility in charter prices has resulted primarily from the war in Ukraine and sanctions on
Russian exports of crude oil and petroleum products, and there is great uncertainty about the future impact of those events. More recently, the war between Israel and Hamas has
resulted in increased tensions in the Middle East region, including missile attacks by the Houthis on vessels in the Red Sea and Gulf of Aden. Such circumstances have had and could
in the future result in adverse consequences for the tanker industry. In general, volatility in charter rates depends, among other factors, on (i) supply and demand for tankers, (ii) the
demand for crude oil and petroleum products, (iii) the inventories of crude oil and petroleum products in the United States and in other industrialized nations, (iv) oil refining volumes,
(v) oil prices, and (vi) any restrictions on crude oil production imposed by the Organization of the Petroleum Exporting Countries, or OPEC, and non-OPEC oil producing countries.
Currently, all of our vessels are employed on time charters. However, changes in spot rates and time charter rates can affect the revenues we receive from operations in the
event our charterers default or seek to renegotiate the charter hire, as well as the value of our vessels, even if our vessels are employed under long-term time charters. Our ability to re-
charter our vessels on the expiration or termination of their time or bareboat charters and the charter rates payable under any renewal or replacement charters will depend upon, among
other things, economic conditions in the tanker markets and several other factors outside of our control and we cannot guarantee that any renewal or replacement charters we enter into
will be sufficient to allow us to operate our vessels profitably. If we are not able to obtain new contracts in direct continuation with existing charters or for newly acquired vessels, or if
new contracts are entered into at charter rates substantially below the existing charter rates or on terms otherwise less favorable compared to existing contracts terms, our revenues and
profitability could be adversely affected and we may not be able to comply with the financial covenants in our loan agreements. A decline in charter hire rates will also likely cause the
value of our vessels to decline which could lead us to record impairment adjustments to the carrying values of our fleet.
Fluctuations in charter rates and vessel values result from changes in the supply and demand for vessels and changes in the supply and demand for oil, chemicals and other
liquids our vessels carry. Factors affecting the supply and demand for our vessels are outside of our control and are unpredictable. The nature, timing, direction and degree of changes
in the tanker industry conditions are also unpredictable.
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Factors that influence demand for tanker vessel capacity include:
supply and demand for oil, petroleum products and chemicals carried;
changes in oil production and refining capacity resulting in shifts in trade flows for oil products;
oil prices;
the distance oil, petroleum products and chemicals are to be moved by sea;
any restrictions on crude oil production imposed by the OPEC and non-OPEC oil producing countries;
global and regional economic and political conditions, including “trade wars” and developments in international trade, national oil reserves policies, fluctuations in industrial
and agricultural production, armed conflicts and work stoppages;
increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing, or the development of new pipeline systems in markets we may
serve, or the conversion of existing non-oil pipelines to oil pipelines in those markets;
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worldwide and regional availability of refining capacity and inventories;
environmental and other legal and regulatory developments;
economic slowdowns caused by public health events such as the COVID-19 pandemic and its variants and efforts throughout the world to contain their spread, or
inflationary pressures and resultant governmental responses;
currency exchange rates;
weather, natural disasters and other acts of God;
increased use of renewable and alternative sources of energy;
competition from alternative sources of energy, other shipping companies and other modes of transportation; and
international sanctions, embargoes, import and export restrictions, nationalizations, piracy and wars or other conflicts, including the war in Ukraine, the war between Israel
and Hamas or the Houthi crisis in and around the Red Sea.
The factors that influence the supply of tanker capacity include:
the number of newbuilding deliveries;
current and expected newbuilding orders for vessels;
the scrapping rate of older vessels;
the availability of financing for new or secondhand tankers;
the price of steel;
speed of vessel operation;
vessel freight rates, which are affected by factors that may affect the rate of newbuilding, swapping and laying up of vessels;
the price of steel and vessel equipment;
technological advances in the design, capacity, propulsion technology, and fuel consumption efficiency of vessels;
potential conversion of vessels for alternative use;
changes in environmental and other regulations that may limit the useful lives of vessels;
port or canal congestion;
national or international regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnage;
environmental concerns and regulations, including ballast water management, low sulfur fuel consumption regulations, and reductions in CO2 emissions;
the number of vessels that are out of service at a given time, namely those that are laid-up, drydocked, awaiting repairs or otherwise not available for hire, including those
that are in drydock for the purpose of installing exhaust gas cleaning systems, known as scrubbers; and
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changes in global petroleum and chemical production.
The factors affecting the supply and demand for tankers have been volatile and are outside of our control, and the nature, timing and degree of changes in industry conditions
are unpredictable. Market conditions have been volatile in recent years and continued volatility may reduce demand for transportation of oil, petroleum products and chemicals over
longer distances and increase the supply of tankers, which may have a material adverse effect on our business, financial condition, results of operations, cash flows, ability to pay
dividends and existing contractual obligations.
The current state of the world financial market and current economic conditions could have a material adverse impact on our results of operations, financial condition and cash
flows.
Various macroeconomic factors, including rising inflation, higher interest rates, global supply chain constraints, and the effects of overall economic conditions and
uncertainties such as those resulting from the current and future conditions in the global financial markets, could adversely affect our results of operations, financial condition and
ability to pay dividends. Inflation and rising interest rates may negatively impact us by increasing our operating costs and our cost of borrowing. Interest rates, the liquidity of the credit
markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital on favorable terms, or at all. Adverse economic conditions
also affect demand for goods and oil. Reduced demand for these or other products could result in significant decreases in rates we obtain for chartering our vessels. In addition, the
cost for crew members, oils and bunkers, and other supplies may increase. Furthermore, we may experience losses on our holdings of cash and investments due to failures of financial
institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivable due to credit defaults. As a result, downturns in the
worldwide economy could have a material adverse effect on our business, results of operations, financial condition, and ability to pay dividends.
The world economy continues to face a number of challenges, including the war between Ukraine and Russia and between Israel and Hamas, tensions in and around the Red
Sea or Russia and NATO tensions, China and Taiwan disputes, United States and China trade relations, instability between Iran and the West, hostilities between the United States and
North Korea, political unrest and conflict in the Middle East, the South China Sea region, and other geographic countries and areas, terrorist or other attacks (including threats thereof)
around the world, war (or threatened war) or international hostilities, and epidemics or pandemics, such as COVID-19 and its variants, and banking crises or failures, such as the recent
Silicon Valley Bank, Signature Bank, and First Republic Bank failures. See also “—Our financial results may be adversely affected by the outbreak epidemic and pandemic diseases,
including COVID-19, and the related governmental responses thereto.” In addition, the continuing war in Ukraine, the length and breadth of which remains highly unpredictable, has led
to increased economic uncertainty amidst fears of a more generalized military conflict or significant inflationary pressures, due to the increases in fuel and grain prices following the
sanctions imposed on Russia. Furthermore, it is difficult to predict the intensity and duration of the war between Israel and Hamas or the Houthi rebel attacks on shipping in and around
the Red Sea and their impact on the world economy is uncertain. If such conditions are sustained, the longer-term net impact on our business would be difficult to predict with any
degree of accuracy. Such events may have unpredictable consequences and contribute to instability in the global economy or cause a decrease in worldwide demand for certain goods
and, thus, shipping.
In Europe, concerns regarding the possibility of sovereign debt defaults by European Union, or EU, member countries, although generally alleviated, have in the past disrupted
financial markets throughout the world, and may lead to weaker consumer demand in the European Union, the U.S. and other parts of the world. The withdrawal of the UK from the
European Union, or Brexit, further increases the risk of additional trade protectionism. Brexit, or similar events in other jurisdictions, could impact global markets, including foreign
exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could in turn adversely impact our business, operating
results, cash flows and financial condition.
In addition, the 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. China’s GDP growth rate for the year ended December 31, 2022, was approximately 3.0%, one of its lowest rates in 50 years, thought to be mainly caused by
the country’s zero-COVID policy and strict lockdowns. For the year ended December 31, 2023, China reported that its GDP growth rate recovered to 5.2%, but the economy continues to
be weighed down by the ongoing crisis in the property market. It is possible that China and other countries in the Asia Pacific region will continue to experience volatile, slowed or even
negative economic growth in the near future. Changes in the economic conditions of China, and changes in laws or policies adopted by its government or the implementation of these
laws and policies by local authorities, including with regards to tax matters and environmental concerns (such as achieving carbon neutrality), could affect vessels that are either
chartered to Chinese customers or that call to Chinese ports, vessels that undergo drydocking at Chinese shipyards and Chinese financial institutions that are generally active in ship
financing, and could have a material adverse effect on our business, operating results, cash flows and financial condition.
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Furthermore, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. There is significant
uncertainty about the future relationship between the United States, China, and other exporting countries, including with respect to trade policies, treaties, government regulations, and
tariffs. Protectionist developments, or the perception that 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 from 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, which could have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to
make timely charter hire payments to us and to employ our vessels. This could have a material adverse effect on our business, operating results, cash flows and financial condition.
Credit markets in the United States and Europe have in the past experienced significant contraction, deleveraging and reduced liquidity, and there is a risk that the U.S. federal
government and state governments and European authorities may continue to implement a broad variety of governmental action and/or introduce new financial market regulations.
Global financial markets and economic conditions have been, and continue to be, volatile and we face risks associated with 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, and reduced levels of growth, among other factors. Major market
disruptions and the current adverse changes in market conditions and regulatory climate worldwide may adversely affect our business, results or operations or impair our ability to
borrow under any future financial arrangements we may enter into contemplating borrowing from the public and/or private equity and debt markets. Many lenders have increased
interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced (or in some cases ceased to provide) funding to
borrowers and other market participants, including equity and debt investors and, in some cases, have been unwilling to provide financing on attractive terms or even at all. Due to
these factors, we cannot be certain that financing will be available if needed and to the extent required, on acceptable terms or at all. In the absence of available financing or financing in
favorable terms, we may be unable to complete vessel acquisitions, take advantage of business opportunities or respond to competitive pressures.
Our financial results may be adversely affected by the outbreak epidemic and pandemic diseases, including COVID-19, and the related governmental responses thereto.
Global public health threats, such as the COVID-19 outbreak, influenza and other highly communicable diseases or viruses, outbreaks which have from time to time occurred in
various parts of the world in which we operate, including China, could disrupt global financial markets and economic conditions and adversely impact our operations, the timing of
completion of any outstanding or future newbuilding projects, as well as the operations of our customers.
For example, the outbreak of COVID-19 caused severe global disruptions, with governments in affected countries imposing travel bans, quarantines and other emergency
public health measures. Companies have also taken precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses.
Although the incidence and severity of COVID-19 and its variants have diminished over time, similar restrictions, and future prevention and mitigation measures against outbreaks of
epidemic and pandemic diseases, are likely to have an adverse impact on global economic conditions, which could materially and adversely affect our future operations. As a result of
such measures, our vessels may not be able to call on, or disembark from ports located in regions affected by the outbreak. In addition, we may experience severe operational
disruptions and delays, unavailability of normal port infrastructure and services including limited access to equipment, critical goods and personnel, disruptions to crew changes,
quarantine of ships and/or crew, counterparty solidity, closure of ports and custom offices, as well as disruptions in the supply chain and industrial production, which may lead to
reduced cargo demand, among other potential consequences attendant to epidemic and pandemic diseases.
The extent to which our business, operating results, cash flows, financial condition, financings, value of our vessels or vessels we may acquire and ability to pay dividends
may be negatively affected by a resurgence of COVID-19 or future pandemics, epidemics or other outbreaks of infectious diseases is highly uncertain and will depend on numerous
evolving factors that we cannot predict, including, but not limited to (i) the duration and severity of the infectious disease outbreak; (ii) the imposition of restrictive measures to combat
the outbreak and slow disease transmission; (iii) the introduction of financial support measures to reduce the impact of the outbreak on the economy; (iv) shortages or reductions in the
supply of essential goods, services or labor; and (v) fluctuations in general economic or financial conditions tied to the outbreak, such as a sharp increase in interest rates or reduction
in the availability of credit. We cannot predict the effect that an outbreak of a new COVID-19 variant or strain, or any future infectious disease outbreak, pandemic or epidemic may have
on our business, operating results, cash flows and financial condition, which could be material and adverse.
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The market value of our vessels, and those we may acquire in the future, may fluctuate significantly, which could cause us to incur losses if we decide to sell them
following a decline in their market values or we may be required to write down their carrying value, which will adversely affect our earnings.
The fair market value of our vessels, or vessels we may acquire, may increase and decrease depending on the following factors:
general economic and market conditions affecting the shipping industry;
prevailing level of charter rates;
competition from other shipping companies;
types, sizes and ages of vessels;
the availability of other modes of transportation;
supply and demand for vessels;
shipyard capacity and slot availability;
cost of newbuildings;
price of steel;
exchange rate levels;
number of tankers scrapped;
governmental or other regulations; and
technological advances and the development, availability, and cost of nuclear power, natural gas, coal, renewable energy, and other alternative sources of energy.
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Dislocations in the supply of and demand for tankers as a result of the war in Ukraine and sanctions on Russian exports have resulted in greatly increased volatility in tanker
asset prices. Furthermore, the ongoing war between Israel and Hamas and the Houthi rebel attacks on shipping in the Red Sea have an uncertain impact on the supply and demand for
tankers. If we sell any of our vessels, or any vessel we may acquire, at a time when vessel prices have fallen, the sale price may be less than the vessel’s carrying amount in our financial
statements, in which case we will realize a loss. Vessel prices can fluctuate significantly, and in the case where the market value falls below the carrying amount, we will evaluate the
vessel for a potential impairment adjustment. If the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the vessel is less than its
carrying amount, we may be required to write down the carrying amount of the vessel to its fair value less costs to sell in our financial statements and incur a loss and a reduction in
earnings even if we do not immediately sell the vessel. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Estimates—Impairment
of Vessels.”
. In addition, our financing arrangements require us to satisfy financial covenants, including requirements based on the market value of our vessels and our liquidity. Declines
of market values of our vessels may affect our ability to comply with various covenants and could also limit the amount of funds we are permitted to borrow under our current or future
loan arrangements. If we breach the financial and other covenants under any of our financing arrangements, our financiers could accelerate our indebtedness and foreclose on vessels
in our fleet, which would significantly impair our ability to continue to conduct our business. If our indebtedness were accelerated in full or in part, it may be very difficult for us to
refinance our debt or obtain additional financing and we could lose our vessels if our financiers foreclose upon their liens, which would adversely affect our business, financial
condition, and ability to continue our business and pay dividends.
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An over-supply of tanker capacity may lead to reductions in asset prices, charter hire rates and profitability.
The market supply of tankers is affected by a number of factors such as demand for energy resources, crude oil, petroleum products and chemicals, as well as strong overall
economic growth of the world economy. In recent years, shipyards have produced a large number of new tankers. As of March 22, 2024, newbuilding orders have been placed for an
aggregate of approximately 8.2% of the existing global tanker fleet, with the bulk of deliveries expected during 2026. If the capacity of new tankers delivered exceeds the capacity of
tankers being scrapped and converted to non-trading tankers, tanker capacity will increase. If the supply of tanker capacity increases and the demand for tanker capacity does not
increase correspondingly, charter rates could materially decline, resulting in a decrease in the value of our vessels and the charter rates that we can obtain. A reduction in charter rates
and the value of our vessels may have a material adverse effect on our results of operations, our ability to pay dividends, and our compliance with current or future covenants with
respect to any of our financing arrangements.
The impact of the sanctions on Russian exports of crude oil and petroleum products is uncertain and has generated increased volatility in the supply of tankers available for
worldwide trade. If this volatility persists, we may not be able to find profitable charters for our vessels, or vessels we may acquire, which could have a material adverse effect on our
business, results of operations, cash flows, financial condition, our ability to pay dividends and our compliance with current or future covenants with respect to any of our financing
arrangements.
Volatility of SOFR could affect our profitability, earnings, and cash flows.
The calculation of interest in most financing agreements in our industry has been historically based on the London Interbank Offered Rate (“LIBOR”). LIBOR has been the
subject of national, international, and other regulatory guidance and proposals for reform. In response thereto, the Alternative Reference Rate Committee, a committee convened by the
Federal Reserve Board that includes major market participants, proposed the Secured Overnight Financing Rate, or “SOFR,” as an alternative rate to replace U.S. Dollar LIBOR. While
our financing arrangements previously used LIBOR, including during the fiscal years ended December 31, 2023, 2022 and 2021, in 2023 we amended such arrangements to transition from
LIBOR to SOFR. As a result, none of our financing arrangements currently utilizes LIBOR, and those that have a reference rate use SOFR, in line with current market practice.
An increase in SOFR, including as a result of the interest rate increases effected by the United States Federal Reserve and the United States Federal Reserve’s recent hike of
U.S. interest rates in response to rising inflation, would affect the amount of interest payable under our existing loan agreements, which, in turn, could have an adverse effect on our
profitability, earnings, cash flow and ability to pay dividends. Furthermore, as a secured rate backed by government securities, SOFR may be less likely to correlate with the funding
costs of financial institutions. As a result, parties may seek to adjust spreads relative to SOFR in underlying contractual arrangements. Therefore, the use of SOFR-based rates may
result in interest rates and/or payments that are higher or lower than the rates and payments that were expected when interest was based on LIBOR. If SOFR performs differently than
expected or if our lenders insist on a different reference rate to replace SOFR, that could increase our borrowing costs (and administrative costs to reflect the transaction), which would
have an adverse effect on our profitability, earnings, and cash flows. Alternative reference rates may behave in a similar manner or have other disadvantages or advantages in relation to
our future indebtedness and the transition to SOFR or other alternative reference rates in the future could have a material adverse effect on us.
In order to manage any future exposure to interest rate fluctuations, we may from time-to-time use interest rate derivatives to effectively fix any floating rate debt obligations.
No assurance can, however, be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate
derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral,
which may impact our free cash position, and have the potential to cause us to breach covenants in our loan agreements that require maintenance of certain financial positions and
ratios.
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We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international
regulations in force in the jurisdictions in which our vessels will operate or are registered, which can significantly affect the operation of our vessels. These regulations include, but are
not limited to the 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 International Convention on Load Lines of 1966, the International Convention on Civil Liability for Oil Pollution
Damage of 1969, generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or Bunker Convention, the International Convention for
the Safety of Life at Sea of 1974, or SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, the International
Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention, the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Water Act, the U.S. Clean Air Act, the U.S. Outer Continental Shelf Lands Act, the U.S. Maritime
Transportation Security Act of 2002, or the MTSA, and European Union regulations. Compliance with such laws, regulations and standards, where applicable, may require installation
of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and
future regulatory obligations, including, but not limited to, costs relating to air emissions, the management of ballast waters, maintenance and inspection, development and
implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. These costs could have a material adverse
effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties,
criminal sanctions or the suspension or termination of our operations.
Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to
whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-
mile exclusive economic zone around the United States. Events such as the 2010 explosion of the Deepwater Horizon and the subsequent release of oil into the Gulf of Mexico, or other
events, may result in further regulation of the shipping industry, and modifications to statutory liability schemes, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource
damages under other federal, state and local laws, as well as third-party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil
(including marine fuel) spills and other pollution incidents. Although insurance covers certain environmental risks, there can be no assurance that such insurance will be sufficient to
cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition and our ability to pay dividends, if
any, in the future.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the International Maritime Organization (“IMO”) have adopted, or are considering the adoption of,
regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap-and-trade regimes, carbon taxes, increased
efficiency standards and incentives or mandates for renewable energy. Since January 1, 2020, IMO regulations have required vessels to comply with a global cap on the sulfur in fuel oil
used on board of 0.5%, down from the previous cap of 3.5%. Pursuant to MEPC 80, in July 2023, IMO adopted the 2023 IMO Strategy on Reduction of GHG Emissions from Ships, which
identifies a number of levels of ambition, including (1) decreasing the carbon intensity from ships through the implementation of further phases of the Energy Efficiency Design Index
for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030; and (3) pursuing net-zero GHG emissions
by or around 2050.
Since January 1, 2020, ships have to either remove sulfur from emissions or buy fuel with low sulfur content, which may lead to increased costs and supplementary investments
for ship owners. The interpretation of “fuel oil used on board” includes use in main engine, auxiliary engines and boilers. Shipowners may comply with this regulation by (i) using 0.5%
sulfur fuels on board, which are available around the world but at a higher cost; (ii) installing scrubbers for cleaning of the exhaust gas; or (iii) by retrofitting vessels to be powered by
liquefied natural gas, which may not be a viable option due to the lack of supply network and high costs involved in this process. While currently all our vessels have scrubbers
installed, costs of compliance with these regulatory changes for any non-scrubber vessels we may acquire may be significant and may have a material adverse effect on our future
performance, results of operations, cash flows and financial position.
Additional greenhouse regulations may result in increased implementation and compliance costs and expenses, such as:
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IMO Data Collection System (DCS): in October 2016, at MEPC 70, the IMO adopted a mandatory data collection system, or the IMO DCS, which requires vessels
above 5,000 gross tons to report consumption data for fuel oil, hours under way and distance travelled. This IMO DCS covers any maritime activity carried out by
ships, including dredging, pipeline laying, and offshore installations. Data is reported annually to the flag state, which issues to the vessel a statement of compliance.
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Amendments to MARPOL Annex VI: MEPC 79 adopted amendments to MARPOL, Annex VI regarding reporting requirements in connection with the implementation of
the Energy Efficiency Existing Ship Index, or EEXI, and carbon intensity indicator, or CII, framework, which amendments are expected to become effective on May 1,
2024. Beginning in January 2023, Annex VI requires EEXI and CII certification. The first annual reporting was to be completed in 2023, with initial ratings given in 2024.
Net zero greenhouse emissions in the EU by 2050: in 2021, the EU adopted a European Climate Law (Regulation (EU) 2021/1119), establishing the aim of reaching net
zero greenhouse gas emissions in the EU by 2050, with an intermediate target of reducing greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels.
In July 2021, the European Commission launched the “Fit for 55” to support the climate policy agenda. As of January 2019, large ships calling at EU ports have been
required to collect and publish data on carbon dioxide emissions and other information.
Maritime emissions trading scheme in force on January 1, 2024: the maritime emissions trading scheme, or ETS, is to apply gradually over the period from 2024 to
2026. 40% of allowances would have to be surrendered in 2025 for the year 2024; 70% of allowances would have to be surrendered in 2026 for the year 2025; and 100%
of allowances would have to be surrendered in 2027 for the year 2026. Compliance is to be on a companywide (rather than per ship) basis and “shipping company” is
defined widely to capture both the ship owner and any contractually appointed commercial operator/ship manager/bareboat charterer who not only assume full
compliance for ETS but also under the ISM Code. If the latter contractual arrangement is entered into this needs to be reflected in a certified mandate signed by both
parties and presented to the administrator of the scheme. The cap under the ETS would be set by taking into account EU MRV system emissions data for the years
2018 and 2019, adjusted, from year 2021 and is to capture 100% of the emissions from intra-EU maritime voyages; 100% of emissions from ships at berth in EU ports
and 50% of emissions from voyages which start or end at EU ports (but the other destination is outside the EU). Furthermore, the newly passed EU Emissions Trading
Directive 2023/959/EC makes clear that all maritime allowances would be auctioned and there will be no free allocation. 78.4 million emissions allowances are to be
allocated specifically to maritime. New systems, personnel, data management systems, costs recovery mechanisms, revised service agreement terms and emissions
reporting procedures will have to be put in place to prepare for and manage the administrative aspect of ETS compliance. The cost of compliance, and of our future
EU emissions and costs to purchase an allowance for emissions (if we must purchase in order to comply) are unknown and difficult to predict, and are based on a
number of factors, including the size of our fleet, our trips within and to and from the EU, and the prevailing cost of allowances.
In addition, although the emissions of greenhouse gases from international shipping currently are not currently subject to the Kyoto Protocol to the United Nations Framework
Convention on Climate Change, which required adopting countries to implement national programs to reduce emissions of certain gases, or the Paris Agreement (discussed further
below), a new treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes in laws, regulations and obligations relating to climate
change affects the propulsion options in subsequent vessel designs and could increase our costs related to acquiring new vessels, operating and maintaining our existing vessels and
require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program.
Revenue generation and strategic growth opportunities may also be adversely affected.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also
adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in
the future or create greater incentives for use of alternative energy sources. In addition, the physical effects of climate change, including changes in weather patterns, extreme weather
events, rising sea levels, scarcity of water resources, may negatively impact our operations. Any long-term material adverse effect on the oil and gas industry could have a significant
financial and operational adverse impact on our business that we cannot predict with certainty at this time.
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Increasing growth of electric vehicles and renewable fuels could lead to a decrease in trading and the movement of crude oil and petroleum products worldwide.
The IEA noted in its Global EV Outlook 2023 that total electric cars sold annually worldwide grew from about 120,000 in 2012 to more than 10 million in 2022, bringing the total
number of electric cars to approximately 26 million, more than five times the number from 2018. Electric car sales in the first quarter of 2023 were 2.3 million, up 25% from the same quarter
of 2022. This was driven mainly by government subsidies and policy initiatives, such as the phasing-out of internal combustion engines and vehicle electrification targets, combined
with high oil prices in 2022 that further motivated prospective buyers. IEA forecasts are for electric vehicles (“EVs”) to grow from 17 million in 2021 to 240 million by 2030, which the IEA
forecasts would reduce worldwide demand for oil products by 5 million barrels per day in 2030. IEA estimates that EV operations in 2019 avoided the consumption of almost 0.7 million
barrels per day of oil products. According to the World Economic Forum, there were about 1.1 billion cars registered in 2015 and there will be about 2 billion cars registered by 2040.
According to the IEA and EIA, U.S. biodiesel production increased rapidly from 32,000 barrels per day in 2009 to 106,000 barrels per day in 2022, a growth of about 231%.
During the same period, diesel production from U.S. refineries grew from an average of 4.0 million barrels per day in 2009 to 4.8 million barrels per day in 2022, a growth of about 20%. A
growth in EVs or a slowdown in imports or exports of crude or petroleum products worldwide may result in decreased demand for our vessels and lower charter rates, which could have
a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to make cash distributions.
Our vessels may suffer damage due to the inherent operational risks of the tanker industry and we may experience unexpected dry-docking costs, which may adversely
affect our business and financial condition.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters,
bad weather and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy, diseases (such
as the outbreak of COVID-19), quarantine and other circumstances or events. These hazards may result in death or injury to persons, loss of revenues or property, the payment of
ransoms, environmental damage, higher insurance rates, damage to our customer relationships or delay or re-routing, which may also subject us to litigation. In addition, the operation
of tankers has unique operational risks associated with the transportation of oil or chemicals. An oil or chemical spill may cause significant environmental damage, and the costs
associated with a catastrophic spill could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by
fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil and chemicals transported in such tankers.
If our vessels suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock repairs are unpredictable and may be substantial. We may have to
pay dry-docking costs that our insurance does not cover in full. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs,
would decrease our earnings. In addition, space at dry-docking facilities is sometimes limited and not all dry-docking facilities are conveniently located. We may be unable to find space
at a suitable dry-docking facility or our vessels may be forced to travel to a dry-docking facility that is not conveniently located to our vessels’ positions. The loss of earnings while
these vessels are forced to wait for space or to travel to more distant dry-docking facilities would decrease our earnings.
We are subject to international safety regulations and requirements imposed by classification societies and the failure to comply with these regulations may subject us to
increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the United Nations’ International Maritime Organization’s International Management Code for the Safe
Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive “Safety
Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures
for dealing with emergencies. We expect that any vessels that we acquire in the future will be ISM Code-certified when delivered to us. The failure of a shipowner or bareboat charterer
to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a
denial of access to, or detention in, certain ports, including United States and European Union ports.
In addition, the hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the International Convention for Safety
of Life at Sea. If a vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be
unemployable, which will negatively impact our revenues and results from operations.
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If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S. government or other governmental
authorities, it could lead to monetary fines or adversely affect our business, reputation and the market for our common shares.
Our business could be adversely impacted if we are found to have violated economic sanctions under the applicable laws of the European Union, the United States or another
applicable jurisdiction against countries such as Iran, Syria, North Korea, and Cuba. U.S. economic sanctions, for example, prohibit a wide scope of conduct, target numerous countries
and individuals, and are frequently updated or changed.
Many economic sanctions relate to our business, including prohibitions on certain kinds of trade with countries, such as exportation or re-exportation of commodities, or
prohibitions against certain transactions with designated nationals who may be operating under aliases or through non-designated companies.
Additionally, the U.S. Iran Threat Reduction Act amended the Exchange Act, to require issuers that file annual or quarterly reports under Section 13(a) of the Exchange Act to
include disclosure in their annual and quarterly reports as to whether the issuer or its affiliates have knowingly engaged in certain activities prohibited by sanctions against Iran or
transactions or dealings with certain identified persons. We are subject to this disclosure requirement.
While our vessels have not called on ports located in countries or territories that are the subject of country-wide or territory-wide sanctions or embargoes imposed by the U.S.
government or other governmental authorities (“Sanctioned Jurisdictions”) in violation of applicable sanctions or embargo laws in 2023, and although we intend to maintain compliance
with all applicable sanctions and embargo laws, and we endeavor to take precautions reasonably designed to ensure compliance with such laws, it is possible that, in the future, our
vessels may call on ports in Sanctioned Jurisdictions in violation of applicable sanctions or embargo laws on charterers’ instructions and without our consent. If such activities result in
a violation of sanctions or embargo laws, we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our common shares could be
adversely affected.
The 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 expanded over time.
In particular, the ongoing war in Ukraine could result in the imposition of further economic sanctions by the United States and the European Union against Russia. Current or
future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the governments of the U.S., European
Union, and/or other international bodies. If we determine that such sanctions require us to terminate existing or future contracts to which we, or our subsidiaries, are party or if we are
found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, 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 shares may adversely affect the price at which our common shares trade. 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. Investor perception of the
value of our common shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in countries or territories that we
operate in.
Political instability, terrorist or other attacks, war, international hostilities and public health threats can affect the tanker industry, which may adversely affect our
business.
We conduct most of our operations outside of the United States and our business, operating results, cash flows, financial conditions, and available cash may be adversely
affected by changing economic, political, and governmental conditions in the countries and regions in which our vessels or other vessels we may acquire are employed or registered.
Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political uncertainty and armed conflicts, including the war between Ukraine
and Russia and between Israel and Hamas, Russia and NATO tensions, China and Taiwan disputes, United States and China trade relations, instability between Iran and the West,
hostilities between the United States and North Korea, political unrest and conflicts in the Middle East, the South China Sea region, the Red Sea region (including missile attacks
controlled by the Houthis on vessels transiting the Red Sea or Gulf of Aden), and other countries and geographic areas, geopolitical events, such as Brexit or another withdrawal from
the European Union, terrorist or other attacks (or threats thereof) around the world, and war (or threatened war) or international hostilities. Such events may contribute to further
economic instability in the global financial markets and international commerce, and could also adversely affect our ability to obtain additional financing on terms acceptable to us or at
all.
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The war between Russia and Ukraine may lead to further regional and international conflicts or armed action. This war has disrupted supply chains and caused instability in the
energy markets and the global economy, with effects on shipping freight rates, which have experienced volatility. The United States, the United Kingdom, and the European Union,
among other countries, have announced unprecedented economic sanctions and other penalties against certain persons, entities, and activities connected to Russia, including
removing Russian-based financial institutions from the Society for Worldwide Interbank Financial Telecommunication payment system and restricting imports of Russian oil, liquified
natural gas, and coal. These sanctions have caused supply disruptions in the oil and gas markets and could continue to cause significant volatility in energy prices, which could result
in increased inflation and may trigger a recession in the U.S. and China, among other regions. While much uncertainty remains regarding the global impact of the war in Ukraine, it is
possible that such tensions could adversely affect our business, financial condition, operating results, and cash flows. Moreover, we will be subject to additional insurance premiums in
case we transit through or call to any port or area designated as listed areas by the Joint War Committee or other organizations. These factors may also result in the weakening of the
financial condition of our charterers, suppliers, counterparties, and other agents in the shipping industry. As a result, our business, operating results, cash flows, and financial
condition may be negatively affected since our operations are dependent on the success and economic viability of our counterparties.
The ongoing war between Russia and Ukraine could result in the imposition of further economic sanctions by the United States, the United Kingdom, the European Union, or
other countries against Russia, trade tariffs, or embargoes with uncertain impacts on the markets in which we operate. In addition, the U.S. and certain other North Atlantic Treaty
Organization (NATO) countries have been supplying Ukraine with military aid. U.S. officials have also warned of the increased possibility of Russian cyberattacks, which could disrupt
the operations of businesses involved in the shipping industry, including ours, and could create economic uncertainty particularly if such attacks spread to a broad array of countries
and networks. Although Ukraine and Russia reached an agreement to extend an arrangement allowing shipment of grain from Ukrainian ports through a humanitarian corridor in the
Black Sea in November 2022, Russia terminated this agreement in July 2023. While much uncertainty remains regarding the global impact of the war in Ukraine, it is possible that such
tensions could adversely affect our business, financial condition, operating results, and cash flows.
The Russian Foreign Harmful Activities Sanctions program includes prohibitions on the import of certain Russian energy products into the United States, including crude oil,
petroleum, petroleum fuels, oils, liquefied natural gas and coal, as well as prohibitions on all new investments in Russia by U.S. persons, among other restrictions. Furthermore, the
United States, the EU and other countries have also prohibited a variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum
products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering. These
prohibitions took effect on December 5, 2022 with respect to the maritime transport of crude oil and took effect on February 5, 2023 with respect to the maritime transport of other
petroleum products. An exception exists to permit such services when the price of the seaborne Russian oil into non-EU countries does not exceed the relevant price cap; but
implementation of this price exception relies on a recordkeeping and attestation process that allows each party in the supply chain of seaborne Russian oil to demonstrate or confirm
that oil has been purchased at or below the price cap. Violations of the price cap policy or the risk that information, documentation, or attestations provided by parties in the supply
chain are later determined to be false may pose additional risks adversely affecting our business.
Furthermore, the intensity and duration of the recently declared war between Israel and Hamas is difficult to predict and its impact on the world economy and our industry is
uncertain. Beginning in late 2023, vessels in the Red Sea and Gulf of Aden have increasingly been subject to attempted hijackings and attacks by drones and projectiles characterized by
Houthi groups in Yemen as a response to the war between Israel and Hamas. An increasing number of companies have rerouted their vessels to avoid transiting the Red Sea, incurring
greater shipping costs and delays. For vessels transiting the region, war risk premium has increased substantially, and should these attacks continue, we could similarly experience a
significant increase in our insurance costs and we may not be adequately insured to cover losses from these incidents, however since currently all our vessels are on time charter these
increased war premiums if any will be paid by our charterers. While much uncertainty remains regarding the global impact of the war between Israel and Hamas, it is possible that such
tensions could result in the eruption of further hostilities in other regions, including in and around the Red Sea, and could adversely affect our business, financial conditions, operating
results, and cash flows.
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In the past, other political conflicts have also resulted in attacks on vessels, mining of waterways, and other efforts to disrupt international shipping, particularly in the Arabian
Gulf region. The ongoing war in Ukraine has previously resulted in missile attacks on commercial vessels in the Black Sea. The recent outbreak of conflict in and around the Red Sea has
also resulted in missile attacks on vessels. Acts of terrorism and piracy have also affected vessels trading in regions such as the Gulf of Guinea, the Red Sea, the Gulf of Aden off the
coast of Somalia, and the Indian Ocean. Any of these occurrences could have a material adverse impact on our future performance, operating results, cash flows, financial position, and
our ability to pay cash distributions to our shareholders.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the Red Sea, the Gulf of Aden off the coast of Somalia, the Indian Ocean,
and the Gulf of Guinea region off the coast of Nigeria, which has experienced increased incident of piracy in recent years. Sea piracy incidents continue to occur, particularly in the
South China Sea, the Indian Ocean, the Gulf of Guinea, and the Strait of Malacca, and there has been a recent resurgence of such incidents in the Gulf of Aden. Acts of piracy could
result in harm or danger to the crews that man our vessels and other vessels we may acquire. Additionally, if piracy attacks occur in regions in which our vessels and other vessels we
may acquire are deployed being characterized as “war risk” zones by insurers or if our vessels and other vessels we may acquire are deployed in Joint War Committee “war and strikes”
listed areas, premiums payable for insurance coverage could increase significantly and such insurance coverage may be more difficult to obtain, if available at all. In addition, crew and
security equipment costs, including costs that 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 charterparty, 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 and other vessels we may acquire, or an increase in cost or unavailability of insurance for our vessels and other vessels we may acquire could have a material adverse impact on
our business, financial condition, and operating results.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures can result in
the seizure of, delay in the loading, off-loading or delivery of, the contents of our vessels or the levying of customs duties, fines or other penalties against us. It is possible that changes
to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and
obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a
material adverse effect on our business, financial condition, and results of operations.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results
of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
The efficient operation of our business is dependent on computer hardware and software systems both onboard our vessels and at our onshore offices. Information systems
are vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry-accepted security measures and technology to securely maintain confidential and
proprietary information kept on our information systems. However, these measures and technology may not adequately prevent cybersecurity breaches, the access, capture or
alteration of information by criminals, the exposure or exploitation of potential security vulnerabilities, the installation of malware or ransomware, acts of vandalism, computer viruses,
misplaced data or data loss. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business
and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our
information systems or any significant breach of security could adversely affect our business, results of operations and financial condition, as well as our cash flows, including cash
available for dividends to our stockholders.
Additionally, any changes in the nature of cyber threats might require us to adopt additional procedures for monitoring cybersecurity, which could require additional expenses
and/or capital expenditures. Most recently, the war between Russia and Ukraine has been accompanied by cyber-attacks against the Ukrainian government and other countries in the
region. It is possible that these attacks could have collateral effects on additional critical infrastructure and financial institutions globally, which could adversely affect our operations. It
is difficult to assess the likelihood of such threat and any potential impact at this time.
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In July 2023, the SEC adopted rules requiring the mandatory disclosure of material cybersecurity incidents, as well as cybersecurity governance and risk management practices.
A failure to disclosure could result in the imposition of injunctions, fines and other penalties by the SEC. Complying with these obligations could cause us to incur substantial costs
and could increase negative publicity surrounding any cybersecurity incident.
RISKS RELATED TO OUR COMPANY
Our financing facilities contain restrictive covenants that may limit our liquidity and corporate activities, and could have an adverse effect on our financial condition and
results of operations.
Our financing facilities in the form of the bareboat charters in connection with the sale and leaseback agreements (“SLBs”) of our fleet contain, and any future financing facilities we may
enter into are expected to contain, customary covenants, events of default and termination event clauses, including cross-default provisions and restrictive covenants and performance
requirements that may affect our operational and financial flexibility. Such restrictions could affect, and in many respects limit or prohibit, among other things, our ability to incur
additional indebtedness, pay dividends, create liens, sell assets, or engage in mergers or acquisitions. These restrictions could also 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.
Our financing facilities require us to maintain specified financial ratios, satisfy financial covenants and contain cross-default clauses and other representations, including the
following:
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maintain a consolidated leverage ratio of not more than 75%;
maintain minimum free liquidity of $0.5 million per operating vessel but not less than $4.0 million in aggregate; and
assure no change of control of the company takes place, except with the lessor’s/lender’s prior written consent.
As of December 31, 2023, we are in compliance with all covenants in our financing facilities.
As a result of the restrictions in our financing facilities, or similar restrictions in our future financing facilities, we may need to seek permission from the owners of our leased
vessels or banks that finance our vessels in order to engage in certain corporate actions. Their 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 interest, 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 covenant requirements, could lead to defaults under our financing facilities or any future
financing facilities. If we are not in compliance with our covenants and we are not able to obtain covenant waivers or modifications, the current or future owners of our leased vessels or
the banks that finance our current or future vessels, as appropriate, could retake possession of our vessels or require us to pay down our indebtedness to a level where we are in
compliance with our covenants or sell vessels in our fleet. Events beyond our control, including changes in the economic and business conditions in the shipping markets in which we
operate, interest rate developments, changes in the funding costs of our banks, changes in vessel earnings and asset valuations and outbreaks of epidemic and pandemic of diseases,
such as the outbreak of COVID-19, may affect our ability to comply with these covenants. We could lose our vessels if we default on our financing facilities, which would negatively
affect our revenues, results of operations and financial condition.
Servicing current and future debt (including SLBs) will limit funds available for other purposes and could impair our ability to react to changes in our business.
We must dedicate a portion of our cash flow from operations to pay the principal and interest on our indebtedness. These payments limit funds otherwise available for working
capital, capital expenditures and other purposes. As of December 31, 2023, we had a total indebtedness of $246.2 million, excluding unamortized finance fees and debt discounts. Our
current or future debt could have other significant consequences on our operations. For example, it could:
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increase our vulnerability to general economic downturns and adverse competitive and industry conditions;
require us to dedicate a substantial portion, if not all, of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow
to fund working capital, capital expenditures and other general corporate purposes;
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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
place us at a competitive disadvantage compared to competitors that have less debt or better access to capital;
limit our ability to raise additional financing on satisfactory terms or at all; and
adversely impact our ability to comply with the financial and other restrictive covenants of our current or future financing arrangements, which could result in an event of
default under such agreements.
Furthermore, our current or future interest expense will increase if interest rates increase. If we do not have sufficient earnings, we may be required to refinance all or part of our
current or future debt, sell assets, borrow more money or sell more securities, and we cannot guarantee that the resulting proceeds therefrom, if any, will be sufficient to meet our
ongoing capital and operating needs. Because interest paid on loans is generally a margin plus a reference rate, such as SOFR, that is subject to change, our actual interest costs would
increase as the reference rate increases. During an inflationary period, such as one we are currently experiencing, the SOFR or similar reference rate will generally be increased, thus
costing us more money to service our debt obligations and reducing our results of operations and cash flow. Any event of default under a loan agreement pursuant to which we have
granted security could permit the relevant lender to exercise its rights as a secured lender and take the relevant collateral, which may include our vessels.
Our President, Chief Executive Officer and Director has significant influence over us, and a trust established for the benefit of his family may be deemed to beneficially
own, directly or indirectly, 100% of our Series D Preferred Shares, and thereby to control the outcome of matters on which our shareholders are entitled to vote.
As of the date of this annual report, Lax Trust, which is an irrevocable trust established for the benefit of certain family members of our President, Chief Executive Officer and
Director, Mr. Pistiolis, may be deemed to beneficially own, directly or indirectly, all of the 100,000 outstanding shares of our Series D Preferred Shares. Each Series D Preferred Share
carries 1,000 votes. 3 Sororibus Trust, an irrevocable trust established for the benefit of certain family members of Mr. Pistiolis, may be deemed to beneficially own 2,930,718 of our
common shares, and Mr. Pistiolis may be deemed to beneficially own 446,446 common shares based on a Schedule 13D/A filed by 3 Sororibus Trust and Mr. Pistiolis on February 14,
2024.
Based on the Lax Trust’s beneficial ownership of 100% of our Series D Preferred Shares as of the date of this annual report, and the reported beneficial ownership of common
shares by 3 Sororibus Trust and Mr. Pistiolis on February 14, 2024, the Lax Trust may be deemed to beneficially own 95.6% of our total voting power, and the Lax Trust together with the
3 Sororibus Trust and Mr. Pistiolis may be deemed to beneficially own 98.8% of our total voting power, and therefore to control the outcome of matters on which our shareholders are
entitled to vote, including the election of our directors and other significant corporate actions. The interests of the Lax Trust, 3 Sororibus Trust, the family of Mr. Pistiolis and Mr.
Pistiolis may be different from your interests.
As a prerequisite for the Navigare Lease (defined below), Mr. Pistiolis personally guaranteed the performance of the bareboat charters connected to the lease, under certain
circumstances, and in exchange, we, among other things, amended the Certificate of Designations governing the terms of the Series D Preferred Shares, to adjust the voting rights per
share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Pistiolis and the Lax Trust does not fall below a
majority of our total voting power, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in
connection with the Navigare Lease.
We have been subject to litigation in the past and we may be subject to similar or other litigation in the future.
We and certain of our current executive officers were defendants in purported class-action lawsuits in the U.S. District Court for the Eastern District of New York, brought on
behalf of our shareholders. The lawsuits alleged violations of Sections 9, 10(b), 20(a) and/or 20A of the Securities Exchange Act of 1934, as amended, or the Exchange Act and Rule 10b-
5 promulgated hereunder. In connection with these lawsuits, certain co-defendants requested that we indemnify and hold them harmless against all losses, including reasonable costs of
defense, arising from the litigation, pursuant to the provisions of the Common Stock Purchase Agreement between us and Kalani.
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On August 3, 2019 the Eastern District Court of New York dismissed the case with prejudice. On August 26, 2019, plaintiffs appealed the dismissal to the United States Court of
Appeals for the Second Circuit. We filed our response briefs on November 26 and November 27, 2019, and plaintiffs/appellants filed their reply brief on December 11, 2019. The Court of
Appeals held oral argument on March 10, 2020 and took the matter under advisement. On April 2, 2020, the Court of Appeals issued a summary order affirming the District Court’s
decision dismissing Plaintiffs’ claims and denying leave to amend and the case was finally concluded in our favor.
We may, from time to time, be a party to other litigation in the normal course of business. Monitoring and defending against legal actions, whether or not meritorious, is time-
consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, our legal fees and costs incurred in connection
with such activities and any legal fees of co-defendants for which we are deemed responsible may be significant and we could, in the future, be subject to judgments or enter into
settlements of claims for significant monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect
on our cash flow, results of operations and financial position.
With respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses we may suffer in contesting and
concluding such lawsuit. Furthermore, our insurance does not cover legal fees associated with co-defendants. Substantial litigation costs, including the substantial self-insured
retention that we are required to satisfy before any insurance applied to the claim, or an adverse result in any litigation may adversely impact our business, operating results or financial
condition.
As of the date of this annual report our operating fleet consists of eight tankers. Any limitation in the availability or operation of these vessels could have a material
adverse effect on our business, results of operations and financial condition.
As of the date of this annual report, our operating fleet consists of one 50,000 dwt MR product tanker, five 157,000 dwt Suezmax crude oil tankers, and two 300,000 dwt Very
Large Crude Carriers (VLCCs). Our MR product tanker is M/T Eco Marina Del Rey. Our Suezmax fleet consists of M/T Eco Bel Air, M/T Eco Beverly Hills, M/T Oceano CA, M/T Eco
Malibu and M/T Eco West Coast. Our VLCC fleet consists of M/T Julius Caesar and M/T Legio X Equestris. Furthermore, we have a 50% interest in M/T Eco Yosemite Park and M/T
Eco Joshua Park, two 50,000 dwt product tankers. If these vessels are unable to generate revenue as a result of off hire time, early termination of the applicable time charter or otherwise,
our business, results of operations, financial condition and ability to pay dividends on our common shares could be materially adversely affected.
We expect to be dependent on a limited number of customers for a large part of our revenues, and failure of such counterparties to meet their obligations could cause us
to suffer losses or negatively impact our results of operations and cash flows.
During 2023, 100% of our revenues derived from four charterers, Clearlake Shipping Pte Ltd (“Clearlake”), Trafigura Maritime Logistics Pte Ltd (“Trafigura”), Central Tankers
Chartering Inc (“Central Tankers Chartering”) and Cargill International SA (“Cargill”). Such agreements subject us to counterparty risks. The ability of such charterers to perform their
obligations under a contract 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 maritime industry, the overall financial condition of the counterparty, charter rates received for specific types of vessels, work stoppages or other labor disturbances and various
expenses. The combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities, and the lack of
availability of debt or equity financing may result in a significant reduction in the ability of charterers to make charter payments to us. In addition, in depressed market conditions,
charterers and customers may no longer need a vessel that is then under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and
customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should one of our counterparties fail to honor its
obligations under agreements with us, we could sustain significant losses that could have a material adverse effect on our business, financial condition, results of operations, and cash
flows.
If we fail to manage our planned growth properly, we may not be able to successfully expand our market share.
We intend to continue to grow our fleet in the future in line with our strategy. Our future growth will primarily depend on our ability to:
generate excess cash flow for investment 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;
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locate and acquire suitable vessels;
identify and consummate acquisitions or joint ventures;
integrate any acquired business successfully with our existing operations;
our manager’s ability to hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
enhance our customer base; and
manage expansion.
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel, managing
relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. Furthermore, our current operating and financial systems may not be
adequate if we implement a plan to expand the size of our fleet, and our attempts to improve those systems may be ineffective. We may not be successful in executing our growth plans
and we may incur significant additional expenses and losses in connection therewith.
Delays or defaults by the shipyards in the construction of newbuildings could increase our expenses and diminish our net income and cash flows.
As of the date of this annual report, we do not have any contracts for newbuilding vessels. We may enter into contracts for newbuilding vessels in the future. Vessel
construction projects are generally subject to risks of delay that are inherent in any large construction project, which may be caused by 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.
Significant delays could adversely affect our financial position, results of operations and cash flows. Additionally, failure to complete a project on time may result in the delay of
revenue from that vessel, and we may continue to incur costs and expenses related to delayed vessels, such as supervision expenses.
Our ability to obtain additional debt financing may be dependent on our ability to charter our vessels, the performance of our charters and the creditworthiness of our
charterers.
Our inability to re-charter our vessels, or vessels we may build or acquire, and the actual or perceived credit quality of our charterers, and any defaults by them, may materially
affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or maintain our existing fleet or may significantly increase our costs of
obtaining such capital. Our inability to obtain financing, or receiving financing at a higher than anticipated cost, may materially affect our results of operation and our ability to
implement our business strategy.
The industry for the operation of tanker vessels and the transportation of oil, petroleum products and chemicals is highly competitive and we may not be able to compete
for charters with new entrants or established companies with greater resources.
We will employ our tankers and any additional vessels we may acquire in a highly competitive market that is capital intensive and highly fragmented. The operation of tanker
vessels and the transportation of cargoes shipped in these vessels, as well as the shipping industry in general, is extremely competitive. Competition arises primarily from other vessel
owners, including major oil companies as well as independent tanker shipping companies, some of whom have substantially greater resources than we do. Competition for the
transportation of oil, petroleum products and chemicals can be 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 and operate larger fleets through consolidations or acquisitions that may be able
to offer better prices and fleets than us.
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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. Although concerns relating to the sovereign debt crisis have largely been allayed and Greece has emerged from its
bailout programs, the stand-alone financial strength of the banks and the anticipated additional pressures stemming from the legacy of the country’s multi-year debt crisis and the
COVID-19 pandemic continue to create uncertain economic prospects.
Additionally, only a small portion of cash balances are covered by insurance in the event of default by these financial institutions in Greece or elsewhere. Several banks,
including banks in the United States and Switzerland, have recently been subject to extraordinary resolution procedures or sale because of the risk of such a default. Furthermore, in the
event any of our banks do not allow us to withdraw funds in the time and amounts that we want, we may not timely comply with contractual provisions in any of our contracts or our
salary obligations, among other things. The occurrence of such a default of any of our banks could have a material adverse effect on our business, financial condition, results of
operations and cash flows, and we may lose part or all of our cash that we deposit with such banks.
We may be unable to attract and retain key management personnel and other employees in the international tanker shipping industry, which may negatively impact the
effectiveness of our management and our results of operations.
Our success depends to a significant extent upon the abilities and efforts of our management team. All of our executive officers are employees of Central Mare Inc., or Central
Mare, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, our President, Chief Executive Officer and Director, and we have entered into agreements with Central Mare
for the compensation of Mr. Evangelos J. Pistiolis, our Chief Executive Officer; Alexandros Tsirikos, our Chief Financial Officer and Director; Vangelis G. Ikonomou our Chief Operating
Officer and Konstantinos Patis, our Chief Technical Officer. 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. We do not maintain “key man” life insurance on any of our officers.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows, financial condition
and available cash.
Our Fleet Manager is responsible for recruiting, mainly through a crewing agent, the senior officers and all other crew members for our vessels and all other vessels we may
acquire. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could
have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
A drop in spot charter rates may provide an incentive for some charterers to default on their charters, which could affect our cash flow and financial condition.
When we enter into a time charter or bareboat charter, rates under that charter are fixed throughout the term of the charter. If the spot charter rates in the tanker shipping
industry become significantly lower than the time charter equivalent rates that some of our charterers are obligated to pay us under our then existing charters, the charterers may have
incentive to default under that charter or attempt to renegotiate the charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower
charter rates, and as a result we could sustain significant losses which could have a material adverse effect on our cash flow and financial condition, which would affect our ability to
meet our current or future loans or current leaseback obligations. If our current or future lenders choose to accelerate our indebtedness and foreclose their liens, or if the owners of our
leased vessels choose to repossess vessels in our fleet as a result of a default under the SLBs, our ability to continue to conduct our business would be impaired.
An increase in operating costs could decrease earnings and available cash.
Vessel operating costs include the costs of crew, fuel (for spot-chartered vessels), provisions, deck and engine spares and stores, insurance, and maintenance and repairs,
which depend on a variety of factors, many of which are beyond our control. Some of these costs, primarily relating to insurance and enhanced security measures, have been increasing.
If any of our vessels, or vessels we may acquire, suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-docking repairs are unpredictable and can be
substantial. Increases in any of these expenses could decrease our earnings and available cash.
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The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our fleet ages, operating and other costs will increase. In the
case of bareboat charters, operating costs are borne by the bareboat charterer. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to
charterers. Governmental regulations, including environmental regulations, safety or other equipment standards related to the age 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 our vessels may engage. As our fleet ages, market conditions might not justify those
expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
Rising fuel prices may adversely affect our profits.
Fuel is a significant, expense if vessels are under voyage charter or if consumed during ballast days. Moreover, the cost of fuel will affect the profit we can earn on the short-
term or spot market. Upon redelivery of vessels at the end of a time charter, we may be obliged to repurchase the fuel on board at prevailing market prices, which could be materially
higher than fuel prices at the inception of the time charter period. 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 events, supply and demand for oil and gas, actions by OPEC and other oil and gas producers,
war and unrest in oil producing countries and regions, regional production patterns, and environmental concerns. Further, fuel may become much more expensive in the future, which
may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.
Unless we set aside reserves or are able to borrow funds for vessel replacement, our revenue will decline at the end of a vessel’s useful life, which would adversely affect
our business, results of operations and financial condition.
Unless we maintain reserves or are able to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their
remaining useful lives. We estimate that our vessels have a useful life of up to 25 years from the date of their initial delivery from the shipyard. In case we acquire secondhand vessels,
they are depreciated from the date of their acquisition through their remaining estimated useful life. Our cash flows and income are dependent on the revenues earned by the chartering
of our vessels, or vessels we may acquire, to customers. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations,
and financial condition will be materially and adversely affected.
Purchasing and operating secondhand vessels may result in increased operating costs and vessels off-hire, which could adversely affect our earnings.
We may expand our fleet through the acquisition of secondhand vessels. While we rigorously inspect previously owned or secondhand vessels prior to purchase, this does
not normally provide us with the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and
operated exclusively by us. Accordingly, we may not discover defects or other problems with such vessels prior to purchase. Any such hidden defects or problems, when detected,
may be expensive to repair, and if not detected, may result in accidents or other incidents for which we may become liable to third parties. Also, when purchasing previously owned
vessels, we do not receive the benefit of warranties from the builders if the vessels we buy are older than one year. In general, the costs to maintain a vessel in good operating condition
increase with the age and type of the vessel. In the case of chartered-in vessels, we run the same risks.
Governmental regulations, safety or other equipment standards related to the age 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.
Our anticipated acquisition of an interest in a megayacht entails certain risks and uncertainties associated with our entry into ownership of a new class of vessels, and we
cannot assure you that we will complete the acquisition or manage such risks successfully.
We are in advanced discussions to acquire an interest in a company that owns a 47-meter megayacht from an affiliate of our Chief Executive Officer. We anticipate that we will
fund the acquisition, if completed, with cash on hand. We believe market conditions are favorable for investments in this sector and are evaluating additional similar investment
opportunities. However, there can be no assurance that we will complete this acquisition or successfully identify any similar opportunities in the future.
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Any megayacht we acquire is expected to be employed on short-term charters. We expect that management services, including commercial and technical management, for any
yacht we acquire will be provided by CSI.
Our management team and CSI do not have experience in the megayacht sector. We believe that the experience of our management and CSI in the ownership and operation of
tanker and other vessels provides relevant expertise and qualifications in the evaluation of megayacht acquisition opportunities and operation of megayachts.
We may not have adequate insurance to compensate us if we lose any vessels that we acquire.
There are a number of risks associated with the operation of ocean-going vessels, including mechanical failure, collision, fire, human error, war, terrorism, piracy, loss of life,
contact with floating objects, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. Any of
these events may result in loss of revenues, increased costs and decreased cash flows. In addition, the operation of any vessel is subject to the inherent possibility of marine disaster,
including oil spills and other environmental mishaps.
We carry insurance for all vessels we acquire against those types of risks commonly insured against by vessel owners and operators. These insurances include hull and
machinery insurance, protection and indemnity insurance (which includes environmental damage and pollution insurance coverage), freight demurrage and defense and war risk
insurance. Reasonable insurance rates can best be obtained when the size and the age/trading profile of the fleet is attractive. As a result, rates become less competitive as a fleet
downsizes.
We do not currently maintain strike or off-hire insurance, which would cover the loss of revenue during extended vessel off-hire periods, such as those that occur during an
unscheduled drydocking due to damage to the vessel from accidents except in cases of loss of hire up to a limited number of days due to war or a piracy event. Other events that may
lead to off-hire periods include natural or man-made disasters that result in the closure of certain waterways and prevent vessels from entering or leaving certain ports. Accordingly, any
extended vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our business and our results of operations and operating cash flow.
Changes in the insurance markets attributable to the risk of terrorism in certain locations around the world could make it difficult for us to obtain certain types of coverage. In
addition, the insurance that may be available to us may be significantly more expensive than our existing coverage.
We may not be adequately insured to cover losses against all risks, which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular
claims and our insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with applicable maritime
regulatory organizations. Any significant uninsured or underinsured loss or liability could have a material adverse effect on our business, results of operations, cash flows, financial
condition, and ability to pay dividends. It may also result in protracted legal litigation.
In the future, we may not be able to obtain adequate insurance coverage at reasonable rates for the vessels we acquire. The insurers may not pay particular claims. Our
insurance policies also contain deductibles for which we will be responsible as well as limitations and exclusions that may increase our costs or lower our revenue.
We may be subject to increased premium payments, or calls, as we obtain some of our insurance through protection and indemnity associations.
We may be subject to increased premium payments, or calls, in amounts based on our claim records and the claim records of our Fleet Manager as well as the claim records of
other members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our
protection and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could result in significant expense to us, which
could have a material adverse effect on our business, results of operations and financial condition.
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Increasing regulation as well as scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and
Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds,
lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their
investments. The increased focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit
capital as a result of their assessment of a company’s ESG practices. Companies which do not adapt to or comply with investor, lender or other industry shareholder expectations and
standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to
do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.
We may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy
practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and
future investors and lenders remain invested in us and make further investments in us. If we do not meet these standards, our business and/or our ability to access capital could be
harmed.
On March 6, 2024, the SEC adopted final rules to enhance and standardize climate-related disclosures by public companies and in public offerings. The final rules will become
effective 60 days following publication of the adopting release in the Federal Register. As a non-accelerated filer, we will be required to provide the enhanced climate-related disclosures
in our annual reports for the year ending December 31, 2027. On March 15, 2024, the Fifth Circuit Court of Appeals stayed application of these rules pending further judicial review, but
on March 25, 2024, the Fifth Circuit Court of Appeals ordered the transfer of the petition to the Eighth Circuit Court of Appeals and the dissolution of the administrative stay. The
impact of the ongoing litigation with respect to these rules on the content of these rules or the timing of their effectiveness is uncertain. Costs of compliance with these new rules may
be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Additionally, certain investors and lenders may exclude shipping companies, such as us, from their investing portfolios altogether due to environmental, social and governance
factors. These limitations in both the debt and equity capital markets may affect our ability to develop as our plans for growth may include accessing the equity and debt capital
markets. If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business
strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness. Further, it is likely that we
will incur additional costs and require additional resources to monitor, report and comply with wide ranging ESG requirements. The occurrence of any of the foregoing could have a
material adverse effect on our business and financial condition.
Moreover, from time to time, we may establish and publicly announce goals and commitments in respect of certain ESG items. While we may create and publish voluntary
disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may
not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are
necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying,
measuring and reporting on many ESG matters. If we fail to achieve or improperly report on our progress toward achieving our environmental goals and commitments, the resulting
scrutiny from market participants or regulators could adversely affect our reputation and/or our access to capital.
Technological innovation and quality and efficiency requirements from our customers could reduce our charter hire income and the value of our vessels.
Our customers, in particular those in the oil industry, have a high and increasing focus on quality and compliance standards with their suppliers across the entire supply chain,
including the shipping and transportation segment. Our continued compliance with these standards and quality requirements is vital for our operations. Charter hire rates and the value
and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy
and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a
vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new vessels are built that are more efficient or more
flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we
receive for our vessels, and the resale value of our vessels could significantly decrease which may have a material adverse effect on our future performance, results of operations, cash
flows and financial position.
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The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels may call in ports where smugglers may attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our
vessels are found with contraband, whether inside or attached to the hull of our vessels and whether with or without the knowledge of any of our crew, we may face governmental or
other regulatory claims which could have an adverse effect on our business, results of operations, cash flows, and financial condition, as well as our ability to maintain cash flows,
including cash available for distributions to pay dividends to our shareholders. Under some jurisdictions, vessels used for the conveyance of illegal drugs could result in forfeiture of
the subject vessel to the government of such jurisdiction.
Maritime claimants could arrest our vessels or vessels we may acquire, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts,
claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by “arresting” or “attaching” a vessel through foreclosure proceedings. The arrest or attachment of
one or more of our vessels or vessels we acquire could result in a significant loss of earnings for the related off-hire period. In addition, in jurisdictions where the “sister ship” theory of
liability applies, a claimant may arrest 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. In countries with “sister ship” liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we own.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government could requisition for title or hire our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. 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. Although we would be entitled to compensation in the event of a requisition, the amount and timing of payment of such compensation is uncertain. Government requisition
of any of our vessels or vessels we acquire could negatively impact our revenues should we not receive adequate compensation.
U.S. federal tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S.
shareholders.
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, 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. Income derived from the performance of services does
not constitute “passive income” for this purpose. 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.
We believe that we were not a PFIC for our 2014 through 2023 taxable years and do not expect to be treated as a PFIC in subsequent taxable years. In this regard, we intend to
treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from
our time chartering activities does not constitute “passive income,” and the assets that we own and operate in connection with the production of that income do not constitute passive
assets. There is substantial legal authority supporting this position including case law and United States 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 United States Internal Revenue
Service, or IRS, or a court of law will accept our 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 there were to be changes in the nature and extent of our operations.
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Our U.S. shareholders may face adverse U.S. federal income tax consequences and certain information reporting obligations as a result of us being treated as a PFIC. Under the
PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders, as discussed below
under “Taxation—U.S. Federal Income Taxation of U.S. Holders—Passive Foreign Investment Company Status and Significant Tax Consequences”), 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 common
shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the common shares. See “Taxation—U.S. Federal Income Taxation of
U.S. Holders—Passive Foreign Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the U.S. federal income tax consequences to
U.S. shareholders as a result of our status as a PFIC.
We may be subject to U.S. federal income tax on our U.S. source income, which would reduce our earnings.
Under the U.S. Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and
our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source shipping income
and such income is 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.
We did not qualify for the tax exemption under Section 883 of the Code for our 2021 taxable year. Therefore, we and our subsidiaries were subject to an effective 2% U.S. federal
income tax on the gross shipping income we derived during 2021 that was attributable to the transport of cargoes to or from the United States. The amount of this tax for our 2021
taxable year was $152,000.
We took the position for U.S. federal income tax reporting purposes that we were not subject to U.S. federal income taxation for the 2022 taxable year and intend to take the
same position for the 2023 taxable year. However, there are factual circumstances beyond our control that could cause us to lose the benefit of the exemption and thereby become
subject to U.S. federal income tax on our U.S. source shipping income. Due to the factual nature of the issues involved, we may not qualify for exemption under Section 883 of the Code
for any future taxable year.
We are a “foreign private issuer,” which could make our common shares 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 of 1933, as amended, or 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 shares 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 shares less attractive to some investors or otherwise
harm our stock price.
RISKS RELATED TO OUR COMMON SHARES
The market price and trading volume of our common shares may continue to be highly volatile, which could lead to a loss of all or part of a shareholder’s investment.
The market price of our common shares has fluctuated widely since our common shares began trading in July of 2004 on Nasdaq.
The market price of our common shares is affected by a variety of factors, including:
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fluctuations in interest rates;
fluctuations in the availability or the price of oil and chemicals;
fluctuations in foreign currency exchange rates;
announcements by us or our competitors;
changes in our relationships with customers or suppliers;
actual or anticipated fluctuations in our semi-annual and annual results and those of other public companies in our industry;
changes in United States or foreign tax laws;
international sanctions, embargoes, import and export restrictions, nationalizations, piracy and wars or other conflicts, including the war in Ukraine.
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actual or anticipated fluctuations in our operating results from period to period;
shortfalls in our operating results from levels forecast by securities analysts;
market conditions in the shipping industry and the general state of the securities markets;
business interruptions caused by the outbreak of COVID-19 or the war in Ukraine;
mergers and strategic alliances in the shipping industry;
changes in government regulation;
a general or industry-specific decline in the demand for, and price of, shares of our common shares resulting from capital market conditions independent of our operating
performance;
the loss of any of our key management personnel;
our failure to successfully implement our business plan;
issuance of shares; and
stock splits / reverse stock splits.
In addition, over the last few years, the stock market has experienced price and volume fluctuations, including due to factors relating to the outbreak of COVID-19 and the war
in Ukraine, and this volatility has sometimes been unrelated to the operating performance of particular companies. As a result, there is a potential for rapid and substantial decreases in
the price of our common shares, including decreases unrelated to our operating performance or prospects. During 2023, the closing price of our common shares experienced a high of
$19.80 in February and a low of $5.86 in November. This market and share price volatility relating to general economic, market or political conditions, has and could further reduce the
market price of our common shares in spite of our operating performance and could also increase our cost of capital, which could prevent us from accessing debt and equity capital on
terms acceptable to us or at all.
In addition, the market price and trading volume of our common shares have very recently and at certain other times in the past exhibited, and may continue to exhibit, extreme
volatility, including within a single trading day. We believe certain past instances of trading volatility reflect market and trading dynamics unrelated to our operating business or
prospects and outside of our control. Such volatility could cause purchasers of our common shares to incur substantial losses. We are unable to predict when such instances of trading
volatility will occur or how long such dynamics may last. Under these circumstances, we would caution you against investing in our common shares unless you are prepared to incur
the risk of incurring substantial losses.
A portion of our common shares may be traded by short sellers which may put pressure on the supply and demand for our common shares, creating further price volatility. In
particular, a possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to sudden extreme price volatility in our common
shares. Investors may purchase our common shares to hedge existing exposure in our common shares or to speculate on the price of our common shares. Speculation on the price of our
common shares may involve long and short exposures. To the extent aggregate short exposure exceeds the number of common shares available for purchase in the open market,
investors with short exposure may have to pay a premium to repurchase our common shares for delivery to lenders of our common shares. Those repurchases may in turn, dramatically
increase the price of our common shares until investors with short exposure are able to purchase additional common shares to cover their short position. This is often referred to as a
“short squeeze.” Following such a short squeeze, once investors purchase the shares necessary to cover their short position, the price of our common shares may rapidly decline. A
short squeeze could lead to volatile price movements in our shares that are not directly correlated to the performance or prospects of our company and could cause purchasers of our
common shares to incur substantial losses.
Further, shareholders may institute securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial
costs and our resources and the attention of management could be diverted from our business.
There is no guarantee of a continuing public market for you to resell our common shares.
Our common shares currently trade on the Nasdaq Capital Market. We cannot assure you that an active and liquid public market for our common shares will continue and you
may not be able to sell your common shares in the future at the price that you paid for them or at all. The price of our common shares may be volatile and may fluctuate due to factors
such as:
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actual or anticipated fluctuations in our results and those of other public companies in our industry;
mergers and strategic alliances in the shipping industry;
market conditions in the shipping industry and the general state of the securities markets;
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changes in government regulation;
shortfalls in our operating results from levels forecast by securities analysts; and
announcements concerning us or our competitors.
Further, a lack of trading volume in our stock may affect investors’ ability to sell their shares. Our common shares have periodically had low daily trading volumes in the market.
As a result, investors may be unable to sell all or any of their shares in the desired time period, or may only be able to sell such shares at a significant discount to the previous closing
price.
Nasdaq may delist our common shares from its exchange which could limit your ability to make transactions in our securities and subject us to additional trading
restrictions.
We are required to meet certain qualitative and financial tests (including a minimum bid price for our common shares of $1.00 per share, at least 500,000 publicly held shares, at
least 300 public holders, a market value of publicly held securities of $1 million and Stockholders’ Equity of $2.5 million), as well as other corporate governance standards, to maintain
the listing of our common shares on the Nasdaq Capital Market, or Nasdaq. It is possible that we could fail to satisfy one or more of these requirements. There can be no assurance that
we will be able to maintain compliance with the minimum bid price, shareholders’ equity, number of publicly held shares, market value of publicly held securities or other listing
standards in the future. We may receive notices from Nasdaq that we have failed to meet its requirements, and proceedings to delist our stock could be commenced. We have received
in the past, and most recently on April 21, 2023 we received a written notification from Nasdaq indicating that because the closing bid price of our common shares for the last 30
consecutive business days was below $1.00 per share, we no longer met the minimum bid price requirement under Nasdaq rules. On some occasions we were able to regain compliance
within the grace period prescribed by Nasdaq pursuant to a reverse stock split. For example, on September 29, 2023, we effectuated a 12-to-1 reverse stock split in order to regain
compliance with Nasdaq Listing Rule 5450(a)(1) on October 16, 2023. For more information, please see “Item 4. Information on the Company—A. History and Development of the
Company.”
A continued decline in the closing price of our common shares on Nasdaq could result in suspension or delisting procedures in respect of our common shares. The
commencement of suspension or delisting procedures by an exchange remains, at all times, at the discretion of such exchange and would be publicly announced by the exchange. If a
suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, our ability to raise additional necessary capital
through equity or debt financing would be greatly impaired. Furthermore, with respect to any suspended or delisted common shares, we would expect decreases in institutional and
other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute
trades with respect to such common shares. A suspension or delisting would likely decrease the attractiveness of our common shares to investors and constitutes a breach under
certain of our credit agreements as well as constitutes an event of default under certain classes of our preferred stock and would cause the trading volume of our common shares to
decline, which could result in a further decline in the market price of our common shares.
Finally, if the volatility in the market continues or worsens, it could have a further adverse effect on the market price of our common shares, regardless of our operating
performance.
We have issued common shares in the past through various transactions and we may do so in the future without shareholder approval, which may dilute our existing
shareholders, depress the trading price of our securities and impair our ability to raise capital through subsequent equity offerings.
We have already sold large quantities of our common shares and securities convertible into common shares, pursuant to previous public and private offerings of our equity
and equity-linked securities. We currently have an effective registration statement on Form F-3 (333-267170), for the registered sale of $200 million of our securities, of which we have
sold $13.6 million.
In addition, the outstanding October 2022 Warrants (defined below) are exercisable to purchase up to 89,393 common shares at an exercise price of $81.00 per share, the
outstanding Class C Warrants (defined below) are exercisable to purchase up to 561,991 common shares at an exercise price of $16.20 per share and the outstanding February 2023
Warrants (defined below) are exercisable to purchase up to 837,094 common shares at an exercise price of $16.20 per share.
Purchasers of the common shares we sell, as well as our existing shareholders, will experience significant dilution if we sell shares at prices significantly below the price at
which they invested. In addition, we may issue additional common shares or other equity securities of equal or senior rank in the future in connection with, among other things, debt
prepayments, future vessel acquisitions, or any future equity incentive plan, without shareholder approval, in a number of circumstances. Our existing shareholders may experience
significant dilution if we issue shares in the future at prices below the price at which previous shareholders invested.
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Our issuance of additional shares of common shares or other equity securities of equal or senior rank would have the following effects:
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our existing shareholders’ proportionate ownership interest in us will decrease;
the amount of cash available for dividends payable on the shares of our common shares may decrease;
the relative voting strength of each previously outstanding common share may be diminished; and
the market price of the shares of our common shares may decline.
The market price of our common shares could decline due to sales, or the announcements of proposed sales, of a large number of common shares in the market, including sales
of common shares by our large shareholders or by holders of securities convertible into common shares, or the perception that these sales could occur. These sales or the perception
that these sales could occur could also depress the market price of our common shares and impair our ability to raise capital through the sale of additional equity securities or make it
more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate. We cannot predict the effect that future sales of common shares or
other equity-related securities would have on the market price of our common shares.
Our Third Amended and Restated Articles of Incorporation, as amended, authorizes our Board of Directors to, among other things, issue additional shares of common or
preferred stock or securities convertible or exchangeable into equity securities, without shareholder approval. We may issue such additional equity or convertible securities to raise
additional capital. The issuance of any additional shares of common or preferred stock or convertible securities could be substantially dilutive to our shareholders. Moreover, to the
extent that we issue restricted stock units, stock appreciation rights, options or warrants to purchase our common shares in the future and those stock appreciation rights, options or
warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution. Holders of shares of our common shares have no preemptive rights that
entitle such holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our
shareholders.
We may be unable to successfully consummate a planned spin-off of certain of our assets or to achieve some or all of the benefits that we expect to achieve from the spin-
off, and may incur significant risks associated with the spin-off.
On June 21, 2023, one of our wholly-owned subsidiaries, Rubico Inc., or Rubico, filed a registration statement on Form 20-F with the SEC in connection with its potential spin-
off from us. On August 18, 2023, Rubico withdrew its registration statement. We are evaluating alternatives to consummate a spin-off of certain of our assets to Rubico. Depending on
the assets we spin off, we will require the consent of some or even all of our financiers, which may or may not be granted and if granted may require we maintain our corporate guarantee
in respect of the spun off assets. The intended benefits of any spin-off may not be realized, and we may incur significant risks if we proceed with any spin-off. The spin-off, even if not
completed successfully, may require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our business.
Rubico may be unable to successfully establish the infrastructure or implement the changes necessary to operate as an independent public company or may incur additional costs to do
so. Rubico may not have access to financing on acceptable terms and conditions in the future. A listing on a national securities exchange may not be obtained and a liquid trading
market in the shares of Rubico may not develop and the market price of Rubico shares may be highly volatile. As a result of these or other risks, if the spin-off is not completed, or is
completed and does not achieve its intended benefits, the value of an investment in our common shares may be negatively affected.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law, and as a result, shareholders may have fewer
rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.
Our corporate affairs are governed by our Third Amended and Restated Articles of Incorporation, as amended, our 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 law 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 United States 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, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would
shareholders of a corporation incorporated in a United States jurisdiction.
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As a Marshall Islands corporation with principal executive offices in Greece and subsidiaries in the Marshall Islands and other offshore jurisdictions, our operations
may be subject to economic substance requirements.
The Council of the European Union, or the Council, routinely publishes a list of “non-cooperative jurisdictions” for tax purposes, which includes countries that the Council
believes need to improve their legal framework and to work towards compliance with international standards in taxation. In February 2023, the Republic of the Marshall Islands, among
others, was placed by the EU on the list of non-cooperative jurisdictions for lacking in the enforcement of economic substance requirements, and was subsequently removed from such
list in October 2023. EU member states have agreed upon a set of measures, which they can choose to apply against the listed countries, including increased monitoring and audits,
withholding taxes, and non-deductibility of costs, and although we are not currently aware of any such measures being adopted they can be adopted by one or more EU members states
in the future. The European Commission has stated it will continue to support member states’ efforts to develop a more coordinated approach to sanctions for the listed countries. EU
legislation prohibits certain EU funds from being channeled or transited through entities in non-cooperative jurisdictions.
We are a Marshall Islands corporation with principal executive offices in Greece. The Marshall Islands has enacted economic substance regulations with which we may be
obligated to comply. Those regulations require certain entities that are not otherwise tax resident elsewhere that carry out particular activities to comply with an economic substance
test whereby the entity must show that it (i) is directed and managed in the Marshall Islands in relation to that relevant activity, (ii) carries out core income-generating activity in relation
to that relevant activity in the Marshall Islands (although it is being understood and acknowledged by the regulators that income-generated activities for shipping companies will
generally occur in international waters), and (iii) having regard to the level of relevant activity carried out in the Marshall Islands, has (a) an adequate amount of expenditures in the
Marshall Islands, (b) adequate physical presence in the Marshall Islands, and (c) an adequate number of qualified employees in the Marshall Islands.
If we fail to comply with our obligations under this legislation or any similar law applicable to us in any other jurisdictions, we could be subject to financial penalties and
spontaneous disclosure of information to foreign tax officials or with respect to the Marshall Islands economic substance requirements, revocation of the formation documents and
dissolution of the applicable non-compliant Marshall Islands entity or struck from the register of companies in related jurisdictions. Any of the foregoing could be disruptive to our
business and could have a material adverse effect on our business, financial conditions, and operating results. Accordingly, any implementation of, or changes to, any of the economic
substance regulations that impact us could increase the complexity and costs of carrying on business in these jurisdictions, and thus could adversely affect our business, financial
condition or results of operations.
We do not know what actions the Marshall Islands may take, if any, to remove itself from the list of “non-cooperative jurisdictions” if it should be placed back on the list; how
quickly the EU would react to any changes in regulations of the Marshall Islands; or how EU banks or other counterparties will react while we or our subsidiaries remain as entities
organized and existing under the laws of the Marshall Islands during a period if the Marshall Islands is again placed on the list of “non-cooperative jurisdictions.” The effect of the EU
list of non-cooperative jurisdictions, and any noncompliance by us with legislation or regulations adopted by the Marshall Islands to achieve removal from the list, could have a material
adverse effect on our business, financial conditions and operating results.
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, all 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.
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Our By-laws provide that the High Court of the Republic of Marshall Islands shall be the sole and exclusive forum for certain disputes between us and our shareholders,
which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our By-laws provide that, unless the Company consents in writing to the selection of an alternative forum, the High Court of the Republic of Marshall Islands shall be the sole
and exclusive forum for (i) any shareholders’ derivative action or proceeding brought on behalf of the Corporation, including any such action arising under the Exchange Act or the
Securities Act (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s
shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Business Corporations Act of the Republic of the Marshall Islands, or (iv) any action asserting a
claim governed by the internal affairs doctrine. This forum selection provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with
us or our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
We may not achieve the intended benefits of having a forum selection provision if it is found to be unenforceable.
Our Bylaws include a forum selection provision as described under the section herein entitled “Item 10. Additional Information—B. Memorandum and Articles of Association”.
However, the enforceability of similar forum selection provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that in
connection with any action a court could find the forum selection provision contained in our Bylaws to be inapplicable or unenforceable in such action. In particular, Section 27 of the
Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In
addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or
the rules and regulations thereunder. Shareholders’ derivative actions, including those arising under the Exchange Act or Securities Act, are subject to our forum selection provision.
To the extent that the exclusive forum provision would apply to restrict the courts in which our shareholders may bring claims arising under the Exchange Act or the Securities Act and
the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such a provision. Investors cannot waive compliance with the federal securities laws and
the rules and regulations promulgated thereunder. If a court were to find the forum selection provision to be inapplicable to, or unenforceable in respect of, one or more of the specified
types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial
condition and results of operations.
Anti-takeover provisions in our organizational documents could have the effect of discouraging, delaying or preventing a merger, amalgamation or acquisition, which
could reduce the market price of our common shares.
Several provisions of our Third Amended and Restated Articles of Incorporation, as amended, and Amended and Restated By-laws could make it difficult for our shareholders
to change the composition of our Board of Directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage,
delay or prevent a merger or acquisition that shareholders may consider favorable.
These provisions include:
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authorizing our Board of Directors to issue “blank check” preferred stock without stockholder approval;
providing for a classified Board of Directors with staggered, three-year terms;
prohibiting cumulative voting in the election of directors;
authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of at least 80% of the outstanding shares of our capital stock entitled to
vote for the directors;
prohibiting shareholder action by written consent unless the written consent is signed by all shareholders entitled to vote on the action;
limiting the persons who may call special meetings of shareholders;
establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by shareholders at
shareholder meetings; and
restricting business combinations with interested shareholders.
In addition, we have entered into a stockholders rights agreement that makes it more difficult for a third party to acquire a significant stake in the Company without the support
of our Board of Directors. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights Agreement.”
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The above anti-takeover provisions and the provisions of our stockholders rights agreement 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 your ability to realize any potential change of control premium.
RISKS RELATED TO OUR RELATIONSHIP WITH OUR FLEET MANAGER AND ITS AFFILIATES
We are dependent on our Fleet Manager to perform the day-to-day management of our fleet.
Our executive management team, provided by Central Mare, consists of Evangelos J. Pistiolis our Chief Executive Officer; Alexandros Tsirikos, our Chief Financial Officer and
Director; Vangelis G. Ikonomou our Chief Operating Officer and Konstantinos Patis, our Chief Technical Officer. We subcontract the day-to-day vessel management of our fleet,
including crewing, maintenance and repair to our Fleet Manager. Furthermore, upon delivery of any vessels we may acquire, we expect to subcontract their day-to-day management to
our Fleet Manager. Our Fleet Manager is a related party affiliated with the family of Mr. Pistiolis. We are dependent on our Fleet Manager for the technical and commercial operation of
our fleet as well as for all accounting and reporting functions and the loss of our Fleet Manager’s services or its failure to perform obligations to us could materially and adversely affect
the results of our operations. If our Fleet Manager suffers material damage to its reputation or relationships it may harm our ability to:
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continue to operate our vessels and service our customers;
renew existing charters upon their expiration;
obtain new charters;
obtain financing on commercially acceptable terms;
obtain insurance on commercially acceptable terms;
maintain satisfactory relationships with our customers and suppliers; and
successfully execute our growth strategy.
Our Fleet Manager is a privately held company and there may be limited or no publicly available information about it.
Our Fleet Manager is a privately held company. The ability of our Fleet Manager to provide services for our benefit will depend in part on its own financial strength.
Circumstances beyond our control could impair our Fleet Manager’s financial strength, and there may be limited publicly available information about its financial condition. As a result,
an investor in our common shares might have little advance warning of problems affecting our Fleet Manager, even though these problems could have a material adverse effect on us.
Our Fleet Manager may have conflicts of interest between us and its other clients.
We subcontract the day-to-day vessel management of our fleet, including crewing, maintenance and repair to our Fleet Manager. Our Fleet Manager may provide similar
services for vessels owned by other shipping companies, and it also may provide similar services to companies with which our Fleet Manager is affiliated. These responsibilities and
relationships could create conflicts of interest between our Fleet Manager’s performance of its obligations to us, on the one hand, and our Fleet Manager’s performance of its
obligations to its other clients, on the other hand. These conflicts may arise in connection with the crewing, supply provisioning and operations of the vessels in our fleet versus
vessels owned by other clients of our Fleet Manager. In particular, our Fleet Manager may give preferential treatment to vessels owned by other clients whose arrangements provide for
greater economic benefit to our Fleet Manager. These conflicts of interest may have an adverse effect on our results of operations.
ITEM 4.
INFORMATION ON THE COMPANY
A.
History and Development of the Company
Our predecessor, Ocean Holdings Inc., was formed as a corporation in January 2000 under the laws of the Republic of the Marshall Islands and renamed Top Tankers Inc. in
May 2004. In December 2007, Top Tankers Inc. was renamed TOP Ships Inc. Our common shares are currently listed on Nasdaq under the symbol “TOPS.” The current address of our
principal executive office is 1 Vasilisis Sofias and Megalou Alexandrou Str, 15124 Maroussi, Greece. The telephone number of our registered office is +30 210 812 8107. The SEC
maintains a website that contains reports, proxy and information statements, and other information that we file electronically at http://www.sec.gov. Our website is
https://www.topships.org. The information contained on, or that can be accessed through, these websites is not incorporated by reference herein and does not form part of this annual
report.
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On January 8, 2021, we announced the sale of the three shipowning companies that owned M/T Eco Van Nuys (Hull No 2789), M/T Eco Santa Monica (Hull No 2790) and M/T
Eco Venice Beach (Hull No 2791) to a related party affiliated with Mr. Evangelos J. Pistiolis in exchange for:
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$10.0 million in cash.
100% ownership in a Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted Suezmax Tanker (to be named M/T Eco
Oceano CA) delivered from Hyundai Samho shipyard in March 2022. The shipowning company was party to a time charter, starting from the vessel’s delivery, with Central
Tankers Chartering, a company affiliated with Mr. Evangelos J. Pistiolis, for a firm duration of five years at a gross daily rate of $32,450, with a charterer’s option to extend for
two additional years at $33,950 and $35,450.
35% ownership in one Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker (to be named M/T Julius
Caesar) delivered from Hyundai Heavy Industries shipyard in January 2022. The shipowning company was party to a time charter, starting from the vessel’s delivery, with
Trafigura, for a firm duration of three years at a gross daily rate of $36,000, with a charterer’s option to extend for two additional years at $39,000 and $41,500.
35% ownership in one Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker (to be named M/T Legio X
Equestris) delivered from Hyundai Heavy Industries shipyard in March 2022. The shipowning company was party to a time charter, starting from the vessel’s delivery, with
Trafigura, for a firm duration of three years at a gross daily rate of $35,750, with a charterer’s option to extend for two additional years at $39,000 and $41,500.
A forgiveness of $1.2 million in payables to the buyer.
The buyer would remain the guarantor on the shipbuilding contracts towards the shipyard and in addition, the buyer provided us with an option for a credit line up to 10% of
the total shipbuilding cost at market terms, to be negotiated when such option was to be exercised, amounting to $23.8 million.
On March 18, 2021, we entered into a credit facility with ABN Amro for $36.8 million for the financing of the vessel M/T Eco West Coast (see “Item 5. Operating and Financial
Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Prepayments of senior secured loans—ABN Facility”). The facility bore interest at LIBOR plus a margin
of 2.50%. From June 23, 2023, ABN Amro switched the facility’s variable rate from LIBOR to Compounded SOFR. On December 14, 2023, this facility was fully prepaid using part of the
proceeds from the 3rd AVIC SLB (see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Financings Committed under Sale
and Leaseback Agreements—3rd AVIC Sale and Leaseback”).
On March 26, 2021, we took delivery of the vessel M/T Eco West Coast from the Hyundai Heavy Industries shipyard in South Korea.
On May 6, 2021, we entered into a senior debt facility with Alpha Bank of $38 million for the financing of the vessel M/T Eco Malibu (see “Item 5. Operating and Financial
Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Prepayments of senior secured loans—Alpha Bank Facility”). The facility bore interest at LIBOR plus a
margin of 3.00%. From June 9, 2023, Alpha Bank switched the facility’s variable rate from LIBOR to Term SOFR. On December 21, 2023, this facility was fully prepaid through part of the
proceeds from the Huarong SLB (see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Financings Committed under Sale
and Leaseback Agreements—Huarong Sale and Leaseback”).
On May 11, 2021, we took delivery of the vessel M/T Eco Malibu from the Hyundai Heavy Industries shipyard in South Korea.
On September 1, 2021, we sold the M/T Nord Valiant to unaffiliated third parties for gross proceeds of $26.4 million, part of which were used to fully prepay the respective loan
for which the vessel was collateral.
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On September 8, 2021, we purchased from a company affiliated with Mr. Evangelos J. Pistiolis (the “Seller”) for a consideration of $29.8 million an additional 65% ownership
interest in each of Julius Caesar Inc. and Legio X Inc. (the “VLCC Companies”), each a party to shipbuilding contracts for VLCC Julius Caesar (Hull No. 3213) and VLCC Legio X
Equestris (Hull No. 3214), respectively. Following this transaction (the “VLCC Transaction”), we became 100% owner of the VLCC Companies. The Seller remained the guarantor on the
shipbuilding contracts towards the shipyard and in addition the Seller provided a financing option to the Company by remaining responsible to the shipyard for up to 20% of the
shipbuilding cost per vessel (increased from 10%, as previously agreed on January 6, 2021), at our option, exercisable until each vessel’s delivery date. On September 8, 2021 we issued
2,188 Series E Shares to Family Trading, as partial settlement of $2.2 million of the consideration outstanding from the VLCC Transaction.
On November 23, 2021, we entered into a credit facility with China Merchants Bank Financial Leasing Co. Ltd. (“CMBFL”) for $108.0 million for the financing of the newbuilding
vessels Julius Caesar (Hull No. 3213) and Legio X Equestris (Hull No. 3214). We drew down $54.0 million from the facility in January 2022 for the financing of the delivery of the M/T
Julius Caesar and another $54.0 in March 2022 for the financing of the delivery of the M/T Legio X Equestris. For each of the vessels the credit facility is repayable in 32 consecutive
quarterly installments of $0.7 million and a balloon payment of $32.4 million payable together with the last installment. The credit facility bears interest at SOFR plus a margin of 2.60%.
On November 24, 2021, we agreed to sell the M/T Eco Los Angeles and M/T Eco City of Angels to unaffiliated third parties for net proceeds after debt repayment of $18.6
million, with the closings taking place on February 28 and March 15, 2022 respectively.
On January 5, 2022, we entered into an unsecured credit facility for up to $20 million with Central Mare Inc. (the “Central Mare Unsecured Bridge Loan”), an affiliate of our CEO,
in order to finance part of the shipbuilding cost of the two VLCCs. A total of $9 million was drawn down and subsequently repaid from proceeds from the sale of M/T Eco Los Angeles
and the facility is now terminated. The maturity date of the loan was December 31, 2022. The principal terms of the loan included an arrangement fee of 2%, interest of 12% per annum
and a commitment fee of 1.00% on the undrawn part of the facility.
On January 17, 2022, we entered into a stock purchase agreement with Africanus Inc, owned by 3 Sororibus Trust, an irrevocable trust established for the benefit of certain
family members of Mr. Pistiolis, for the sale of up to 7,560,759 newly-issued Series F Non-Convertible Perpetual Preferred Shares (“Series F Preferred Shares”), in exchange for (i) the
assumption by Africanus Inc of an amount of $47.6 million of shipbuilding costs for its newbuilding vessels M/T Eco Oceano CA (Hull No. 871), M/T Julius Caesar (Hull No. 3213) and
M/T Legio X Equestris (Hull No. 3214), and (ii) settlement of the Company’s remaining payment obligations relating to the VLCC Transaction, in an amount of up to $27.6 million. At
total of 7,200,000 Series F Preferred Shares were issued in connection with the deliveries of M/T Julius Caesar, M/T Legio X Equestris and M/T Eco Oceano CA and the settlement of
$24.4 million of payment obligations relating to the VLCC Transaction.
On January 17, 2022, we took delivery of the vessel M/T Julius Caesar from the Hyundai Heavy Industries shipyard in South Korea.
On January 26, 2022, we received a notice from the Nasdaq Stock Market indicating that because the closing bid price of our common shares for the preceding 30 consecutive
business days was below $1.00 per share, we no longer met the minimum bid price requirement for the Nasdaq Capital Market. We regained compliance on March 22, 2022.
On February 14, 2022, we entered into time charter employment agreements with a major oil trader for M/T Eco Beverly Hills and for M/T Eco Bel Air, according to which upon
completion of their current charters, the M/T Eco Beverly Hills and M/T Eco Bel Air will enter into a time charter for a minimum period of 20 months and a maximum period of 26 months
(at charterers option) at daily rate of $24,000 per vessel. Charterers also have the option to further extend the time charter until December 1, 2025 for M/T Eco Beverly Hills and December
10, 2025 for M/T Eco Bel Air (which option for the M/T Eco Bel Air was exercised on February 29, 2024). The daily rate for the entire period for both vessels is $24,000, including
charterer optional periods.
On February 22, 2022 we announced an amendment of a previously agreed time charter with an affiliate of Evangelos Pistiolis which commenced upon delivery of M/T Eco
Oceano CA from Hyundai Samho shipyard, on March 4, 2022. According to the amendment, the firm period of the time charter employment is increased from five years to 15 years and
the daily rate is reduced from $32,450 to $24,500.
On March 2, 2022, we took delivery of the vessel M/T Legio X Equestris from the Hyundai Heavy Industries shipyard in South Korea.
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On March 2, 2022 we entered into a sale and leaseback with AVIC International Leasing Co., Ltd (“AVIC”), for our newbuilding vessel Eco Oceano CA (Hull No. 871) for total
proceeds of $48.2 million. Consummation of the sale and leaseback took place on March 4, 2022. Following the sale, we have bareboat chartered back the vessel for a period of ten years
at bareboat hire rates comprising of 40 consecutive quarterly installments of $0.68 million and a balloon payment of $21.1 million payable together with the last installment, plus interest
based on the three months LIBOR plus 3.50%. As part of this transaction, we have continuous options to buy back the vessels at purchase prices stipulated in the bareboat agreements
depending on when the option will be exercised and at the end of the ten year period we have an obligation to buy back the vessel at a cost represented by the balloon payment.
On March 4, 2022, we took delivery of the vessel M/T Eco Oceano CA from the Hyundai Samho shipyard in South Korea.
On April 15, 2022, we entered into an Equity Distribution Agreement with Maxim Group LLC, as sales agent, under which we would offer and sell, from time to time through
Maxim Group LLC, up to $19,700,000 of our common shares, par value $0.01 per share. On October 6, 2022, we announced that we had terminated the Equity Distribution Agreement. We
sold 10,786 common shares pursuant to the Equity Distribution Agreement for aggregate net proceeds of approximately $2.0 million.
On May 18, 2022, we received a written notification from Nasdaq indicating that because the closing bid price of our common shares for the last 30 consecutive business days
was below $1.00 per share, we no longer met the minimum bid price requirement under Nasdaq rules. On September 23, 2022 we effectuated a 20-to-1 reverse stock split in order to regain
compliance with Nasdaq Listing Rule 5450(a)(1). As a result, we regained compliance on October 7, 2022.
On June 3, 2022, we entered into a securities purchase agreement with a single unaffiliated institutional investor to purchase approximately $7.2 million of our common shares
(or pre-funded warrants in lieu thereof) in a registered direct offering and warrants to purchase common shares in a concurrent private placement. On June 7, 2022, we issued 19,583 of
our common shares and pre-funded warrants to purchase 40,012 common shares in the registered direct offering, and 14,303,000 warrants (the “June 2022 Warrants”) to purchase 59,595
common shares in the concurrent private placement for a purchase price of $120.00 per common share and June 2022 Warrants and $119.976 per pre-funded warrant and June 2022
Warrant. The June 2022 Warrants were immediately exercisable, with an expiration date of five years from the date of issuance and had an exercise price of $120.00 per common share.
Maxim Group LLC acted as the sole placement agent in connection with the offering. In July 2022, pre-funded warrants were exercised to purchase 21,787 common shares, and in
September 2022, pre-funded warrants were exercised to purchase 18,225 common shares.
On July 8, 2022, we redeemed 865,558 of our Series F Preferred Shares for an aggregate amount of approximately $10.4 million, payable in cash.
On September 23, 2022, we effected a 20-to-1 reverse stock split of our common shares, which was authorized at our annual meeting of shareholders held on September 5, 2022.
There was no change in the number of our authorized common shares. All share amounts in this report, not including amounts incorporated by reference, have been retroactively
adjusted to reflect this reverse stock split.
On October 10, 2022, we entered into a warrant exercise inducement letter agreement (“Inducement Letter”) with an accredited investor that was an existing holder of June 2022
Warrants, wherein the investor agreed to exercise all of the June 2022 Warrants at an exercise price reduced from $120.00 per share to $81.00 per share, in consideration for the issuance
of new warrants (the “October 2022 Warrants”) to purchase up to an aggregate of 89,393 common shares for a purchase price of $81.00 per common share. The October 2022 Warrants
were immediately exercisable upon issuance at an exercise price of $81.00 per common share and will expire on June 7, 2027. The net proceeds of the exercise of the October 2022
Warrants to the Company, after deducting estimated expenses and fees, were approximately $4.5 million. We granted customary registration rights covering the resale of the common
shares issuable upon exercise of the October 2022 Warrants.
On December 6, 2022, we closed a public offering of 562,500 units, each consisting of one of our common shares and Class C Common Stock Purchase Warrants (“Class C
Warrants”) to purchase one common share, at a price of $24.00 per unit. Each Class C Warrant was immediately exercisable for one common share at an exercise price of $24.00 per share
with an expiration date of five years after the issuance date. The gross proceeds of the offering to us, before discounts and commissions and estimated offering expenses, were
approximately $13.5 million.
On December 7, 2022, we entered into a time charter agreement with WECO Tankers A/S for the M/T Marina Del Rey for a firm period of three years at a daily rate of $20,500
and an optional year at a daily rate of $22,500 at the charterer’s option.
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On December 30, 2022, we redeemed 483,694 of our Series F Preferred Shares for an aggregate amount of approximately $5.8 million, payable in cash.
On January 13, 2023, March 6, 2023 and April 19, 2023, we redeemed 1,000,000, 1,016,667 and 174,454 of our Series F Preferred Shares for an aggregate amount of approximately
$12.0 million, $12.2 million and $2.1 million, payable in cash respectively.
On February 14, 2023, we entered into a securities purchase agreement with several institutional investors to purchase approximately $13.6 million of our units in a registered
direct offering at a price of $16.20 per unit. Each unit consisted of one common share and warrants to purchase one common share (the “February 2023 Warrants”). The February 2023
Warrants are immediately exercisable, will expire five years from the date of issuance and have an exercise price of $16.20 per common share. Additionally, pursuant to the terms of our
Class C Warrants issued to investors on December 6, 2022, we agreed to reduce the exercise price per common share under the Class C Warrants to $16.20 per common share from an
original exercise price of $24.00 per common share. The offering closed on February 16, 2023.
On March 1, 2023, we announced that for the period commencing from March 1, 2023 to December 31, 2023 we will not conduct any new equity offerings, public or private, we
will not conduct any reverse stock splits (except to the extent our Board of Directors deems advisable for the sole purpose of remaining compliant with Nasdaq continued listing
requirements), we will not pay any bonuses to our executive management and that neither the CEO nor his affiliates will sell any common shares.
On April 21, 2023, we received a written notification from Nasdaq indicating that because the closing bid price of our common shares for the last 30 consecutive business days
was below $1.00 per share, we no longer met the minimum bid price requirement under Nasdaq rules. On September 29, 2023 we effectuated a 12-to-1 reverse stock split in order to regain
compliance with Nasdaq Listing Rule 5450(a)(1). As a result, we regained compliance on October 16, 2023.
On June 21, 2023, one of our wholly-owned subsidiaries, Rubico Inc., or Rubico, filed a registration statement on Form 20-F with the SEC in connection with its potential spin-
off from us. On August 18, 2023, Rubico withdrew its registration statement. We are evaluating alternatives to consummate a spin-off of certain of our assets to Rubico.
On July 12, 2023 we entered into an agreement to extend the duration of the time charter parties with Clearlake Shipping Pte Ltd for a fixed term of a minimum of 30 months and a
maximum of 36 months for the vessels M/T Eco West Coast and M/T Eco Malibu. The daily rate of the extended period was agreed at $32,850.
On September 29, 2023, we effected a 12-to-1 reverse stock split of our common shares, which was authorized at our annual meeting of shareholders held on September 5, 2022.
There was no change in the number of our authorized common shares. All share amounts in this report, not including amounts incorporated by reference, have been retroactively
adjusted to reflect this reverse stock split.
On November 22, 2023, we announced our agreement to extend the duration of the time charter parties for the vessels M/T Julius Caesar and M/T Legio X
Equestris. Specifically, the firm period was extended for approximately three years at a daily rate of $41,500 per vessel with two additional years at the charterer’s option.
On December 7, 2023, we announced the issuance of 2,930,718 common shares following the conversion of all of our Series E Preferred shares held by the Lax Trust. Following
this conversion, we currently have no Series E Preferred Shares outstanding.
On December 10, 2023, our board of directors granted to our Chief Executive Officer a bonus of $5.0 million as incentive compensation. The bonus was paid to our Chief
Executive Officer on January 26, 2024.
On December 14, 2023, we announced the launch of our share repurchase program (the “Program”), under which the Company could repurchase up to $4 million of its
outstanding common shares, for a period of three months. No shares were repurchased under the Program, which expired on March 14, 2024.
On December 14, 2023, we consummated a SLB with AVIC in the amount of $41.0 million, for the purpose of refinancing the indebtedness secured over the M/T Eco West
Coast. For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Financings Committed under Sale and
Leaseback Agreements—3rd AVIC Sale and Leaseback.”
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On December 20, 2023, we consummated a SLB with China Huarong Shipping Financial Leasing Co Ltd. in the amount of $41.0 million, for the purpose of refinancing the
indebtedness secured over the M/T Eco Malibu. For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt
Facilities—Financings Committed under Sale and Leaseback Agreements—Huarong Sale and Leaseback.”
Recent Developments
On January 16 and January 23, 2024, we exercised our purchase options under the CMBFL SLB and took full ownership of M/Ts Julius Caesar and Legio X Equestris for $48.6
million and $49.3 million respectively. Following the purchase of the vessels that was funded with cash and a short-term revolving bridge loan from HSBC (the “HSBC Bridge”), on
January 18 and January 25, 2024 we concluded SLBs (the “New CMBFL SLBs”) for the financing of M/Ts Julius Caesar and Legio X Equestris respectively from the same institution
(CMBFL). The consideration from the New CMBFL SLBs amounted to $125 million ($62.5 million per vessel). For more information, see “Item 5. Operating and Financial Review and
Prospects—B. Liquidity and Capital Resources—Debt Facilities—Financings Committed under Sale and Leaseback Agreements—Huarong Sale and Leaseback.”
On February 6, 2024, we redeemed 3,659,627 of our Series F Preferred Shares (representing all of our outstanding Series F Preferred Shares) for an aggregate amount of
approximately $43.9 million, payable in cash. Following completion of this redemption, as of the date hereof, no Series F Preferred Shares remain outstanding.
We are in advanced discussions to acquire an interest in a company that owns a 47-meter megayacht from an affiliate of our Chief Executive Officer. We anticipate that we will
fund the acquisition, if completed, with cash on hand. We believe market conditions are favorable for investments in this sector and are evaluating additional similar investment
opportunities. However, there can be no assurance that we will complete this acquisition or successfully identify any similar opportunities in the future. Any megayacht we acquire is
expected to be employed on short-term charters. We expect that management services, including commercial and technical management, for any yacht we acquire will be provided by
CSI.
B.
Business Overview
We are an international owner and operator of modern, fuel efficient eco tanker vessels focusing on the transportation of crude oil, petroleum products (clean and dirty) and
bulk liquid chemicals. Our operating fleet has a total capacity of 1,435,000 deadweight tons (“dwt”). As of the date of this annual report, our operating fleet consists of one 50,000 dwt
product/chemical tanker, Marina Del Rey, five 157,000 dwt Suezmax tankers, the M/T Eco Bel Air, M/T Eco Beverly Hills, M/T Oceano CA, M/T Eco Malibu and M/T Eco West Coast,
two 300,000 dwt Very Large Crude Carriers (VLCCs), M/T Julius Caesar and M/T Legio X Equestris, and we also own 50% interest in two 50,000 dwt product tankers, M/T Eco Yosemite
Park and M/T Joshua Park. All of our vessels are IMO-certified and are capable of carrying a wide variety of oil products including chemical cargos which we believe make our vessels
attractive to a wide base of charterers.
For more information, please see “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments.”
We intend to continue to review the market in order to identify potential acquisition targets in line with our strategy.
We believe we have established a reputation in the international ocean transport 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 of tankers and who have strong ties to
a number of national, regional and international oil companies, charterers and traders.
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Our Fleet
The following tables present our fleet list as of the date of this annual report:
Operating MR Tanker Vessels on SLBs (treated as financings):
Name
Deadweight
Charterer
M/T Eco Marina Del Rey
50,000
Cargill / WECO Tankers
A/S
End of firm
period
Charterer’s
Optional Periods
May 2024 / May 2027
- / 1 year
Gross Rate fixed period/
options
Cargill: $15,100 /
WECO Tankers A/S: $20,500 / $22,500
Operating Suezmax Vessels on SLBs (treated as operating leases):
Name
M/T Eco Bel Air
M/T Eco Beverly Hills
Deadweight
157,000
157,000
Charterer
Trafigura
Trafigura
End of firm
period
December 10, 2025
July 2024
Charterer’s
Optional Periods
-
16 months
Gross Rate fixed period/
options
$24,000
$24,000 / $24,000
Operating Suezmax Vessels on SLBs (treated as financings):
Name
Deadweight
Charterer
M/T Eco Oceano CA
157,000
Central Tankers Chartering
End of firm
period
March 2037
Charterer’s
Optional Periods
none
Gross Rate fixed period/
options
$24,500
Operating Suezmax Vessels financed via senior loan facilities:
Name
M/T Eco West Coast
M/T Eco Malibu
Deadweight
157,000
157,000
Charterer
Clearlake
Clearlake
End of firm
period
January 2027
March 2027
Charterer’s Optional Periods
1+1 years
1+1 years
Gross Rate fixed
period/ options
$32,850 / $34,750 / $36,750
$32,850 / $34,750 / $36,750
Operating VLCC Vessels on SLBs (treated as financings):
Name
M/T Julius Caesar
M/T Legio X Equestris
Deadweight
300,000
300,000
Charterer
Trafigura
End of firm
period
January 2028
Charterer’s Optional
Periods
1+1 years
Trafigura
March 2028
1+1 years
Gross Rate fixed period/
options
$36,000 up to January 2025 and $41,500
afterwards / $44,000 / $46,000
$35,750 up to March 2025 and $41,500
afterwards / $44,000 / $46,000
Operating Joint Venture MR Tanker fleet (50% owned):
Name
M/T Eco Yosemite Park
M/T Eco Joshua Park
Deadweight
50,000
50,000
Charterer
Clearlake
Clearlake
End of firm period
March 2025
March 2025
Charterer’s
Optional Periods
5+1+1 years
5+1+1 years
Gross Rate fixed period/
options
$17,400 / $18,650 / $19,900
$17,400 / $18,650 / $19,900
All the vessels in our fleet are equipped with engines of modern design with improved Specific Fuel Oil Consumption (SFOC) and in compliance with the latest emission
requirements, fitted with energy saving improvements in the hull, propellers and rudder as well as equipment that further reduces fuel consumption and emissions certified with an
improved Energy Efficiency Design Index (Phase 2 compliance level as minimum). Vessels with this combination of technologies, introduced from certain shipyards, are commonly
referred to as eco vessels. We believe that recent advances in shipbuilding design and technology makes these latest generation vessels more fuel-efficient than older vessels in the
global fleet that compete with our vessels for charters, providing us with a competitive advantage. Furthermore, all of our vessels are fitted with ballast water treatment equipment and
exhaust gas cleaning systems (scrubbers).
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Management of our Fleet
Our Fleet Manager provides all operational, technical and commercial management services for our fleet. Please see “Item 18. Financial Statements—Note 5—Transactions with
Related Parties”.
Officers, Crewing and Employees
As of the date of this annual report we do not employ any shore-based employees. Our executive officers and a number of administrative employees are provided according to
an agreement with Central Mare. Please see “Item 18. Financial Statements—Note 5—Transactions with Related Parties”. In addition, our Fleet Manager is responsible for recruiting,
mainly through a crewing agent, the senior officers and all other crew members for our vessels. We believe the streamlining of crewing arrangements will ensure that all our vessels will
be crewed with experienced seamen that have the qualifications and licenses required by international regulations and shipping conventions.
The International Shipping Industry
The seaborne transportation industry is a vital link in international trade, with ocean going vessels representing the most efficient and often the only method of transporting
large volumes of basic commodities and finished products. Demand for tankers is dictated by world oil demand and trade, which is influenced by many factors, including international
economic activity; geographic changes in oil production, processing, and consumption; oil price levels; inventory policies of the major oil and oil trading companies; and strategic
inventory policies of countries such as the United States, China and India.
Shipping demand, measured in ton-miles, is a product of (a) the amount of cargo transported in ocean going vessels, multiplied by (b) the distance over which this cargo is
transported. The distance is the more variable element of the ton-mile demand equation and is determined by seaborne trading patterns, which are principally influenced by the locations
of production and consumption. Seaborne trading patterns are also periodically influenced by geo-political events that divert vessels from normal trading patterns, as well as by inter-
regional trading activity created by commodity supply and demand imbalances. Tonnage of oil shipped is primarily a function of global oil consumption, which is driven by economic
activity as well as the long-term impact of oil prices on the location and related volume of oil production. Tonnage of oil shipped is also influenced by transportation alternatives (such
as pipelines) and the output of refineries.
Demand for tankers and tonnage of oil shipped is primarily a function of global oil consumption, which is driven by economic activity, as well as the long-term impact of oil
prices on the location and related volume of oil production. Global oil demand returned to limited growth in 2010 and has since been expanding at a modest pace, as a steady rise in Asia
has outweighed decreasing demand in Europe and in the United States, with a notable exception for 2020 and 2021 in which years the COVID 19 epidemic dramatically reduced oil
demand. According to the International Energy Agency, global oil demand increased to 101.7 million barrels/day in 2023, compared to 100.8 million barrels/day for 2022.
We strategically monitor developments in the tanker industry on a regular basis and, subject to market demand, will seek to enter into shorter or longer time or bareboat
charters according to prevailing market conditions.
We will compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an operator. We will arrange our time
charters and bareboat charters through the use of brokers, who negotiate the terms of the charters based on market conditions. We will compete primarily with owners of tankers in the
MR Product Tanker, Suezmax and VLCC class sizes. Ownership of tankers is highly fragmented and is divided among major oil companies and independent vessel owners.
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Seasonality
Historically, oil and oil products trade and, therefore, charter rates increased in the winter months and eased in the summer months as demand for oil and oil products in the
Northern Hemisphere rose in colder weather and fell in warmer weather. The tanker industry, in general, has become less dependent on the seasonal transport of heating oil than a
decade ago as new uses for oil and oil products have developed, spreading consumption more evenly over the year. This is most apparent from the higher seasonal demand during the
summer months due to energy requirements for air conditioning and motor vehicles. This seasonality may affect operating results. However, to the extent that our vessels are chartered
at fixed rates on a long-term basis, seasonal factors will not have a significant direct effect on our business.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to
political circumstances in foreign countries, piracy incidents, 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 shipowners,
operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability
insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all risks
can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and
freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we consider it appropriate),
which covers business interruptions that result in the loss of use of a vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or “P&I Associations,” and covers our third-party liabilities in connection
with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, 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. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.”
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 12 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. The International Group’s website
states that the Pool provides a mechanism for sharing all claims in excess of US $10 million up to, currently, approximately US$8.9 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 associations based on our claim records as well as the claim records of all other members of the individual
associations and members of the shipping pool of P&I Associations comprising the International Group.
Environmental and Other Regulations in the Shipping Industry
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.
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Increasing environmental concerns have created a demand for vessels that conform to 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 frequently change 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.
International Maritime Organization (IMO)
The IMO, the United Nations agency for maritime safety and the prevention of pollution by vessels, 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,” 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”) and International Convention on Standards of Training,
Certification and Watchkeeping for Seafarers (“STCW”). 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 dry bulk, tanker and LNG carriers, among other vessels,
and is divided 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.
Since 2014, the IMO’s Marine Environmental Protection Committee, or the “MEPC,” amendments to MARPOL Annex I Condition Assessment Scheme, or “CAS” have required
compliance with the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, or “ESP Code,” which provides for enhanced
inspection programs. Effective July 1, 2024, amendments to the ESP Code will become effective, addressing inconsistencies on examination of ballast tanks at annual surveys for bulk
carriers and oil tankers.
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 vessels, 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 Marine Environment Protection Committee, or “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. Effective January 1, 2020, there has been a global limit of 0.5% m/m sulfur oxide emissions (reduced from
3.50%). This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels or exhaust gas cleaning systems (or EGCS). Ships are required to obtain bunker delivery notes
and International Air Pollution Prevention (“IAPP”) Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the
carriage of bunkers above 0.5% sulfur on ships became effective on March 1, 2020. Fuels with higher sulfur content than required by Reg. 14 of Annex VI can still be delivered to a ship,
provided the ship uses equivalent measures, such as an EGCS. Additional amendments to Annex VI revising, among other terms, the definition of “Sulphur content of fuel oil” and
“low-flashpoint fuel” and pertaining to the sampling and testing of onboard fuel oil, became effective in April 2022. These regulations subject ocean-going vessels to stringent
emissions controls, and may cause us to incur substantial costs.
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Sulfur content standards are even stricter within certain “Emission Control Areas,” or (“ECAs”). As of January 1, 2015, ships operating within an ECA were not permitted to
use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including
specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean Sea area. Furthermore, in December 2022, the Committee adopted Resolution
MEPC.361(79) establishing a new Emission Control Area (ECA) for the Mediterranean Sea as a whole. These amendments will enter into force on 1 May 2024, however, ships operating
in this ECA will be exempted from compliance with the 0.10% m/m sulfur content standard for fuel oil, during the first 12 months immediately following entry into force of the amendment
until July 1, 2025. Ocean-going vessels in these areas will be subject to stringent emission controls and ocean-going vessels trading in ECAs are subject to increased operational costs
due to the significantly higher price of the fuel with very low Sulphur content (0.1%m/m) or due to the additional cost entailed by the use of an EGCS. Amendments to Annex VI
requiring bunker delivery notes to include a flashpoint of fuel oil or a statement that the flashpoint has been measured at or above 70°C as mandatory information, will become effective
May 1, 2024. 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.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. Now Annex VI
provides for a three-tier reduction in NOx emissions from marine diesel engines, with the final tier (or Tier III) to apply to engines installed on vessels constructed on or after January 1,
2016 and which operate in the North American ECA or the U.S. Caribbean Sea ECA as well as ECAs designated in the future by the IMO. At MEPC 70 and MEPC 71, the MEPC
approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions
standards in late 2009. Additionally, amendments to Annex II, which strengthen discharge requirements for cargo residues and tank washings in specified sea areas (including North
West European waters, Baltic Sea area, Western European waters and Norwegian Sea), came into effect in January 2021.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect
and report annual data on fuel oil consumption to an IMO database, with the first year of data collection commencing on January 1, 2019. The IMO used such data as the first step in its
roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy
Efficiency Management Plans (“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 (“EEDI”). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014. Additionally, MEPC 75 adopted amendments to
MARPOL Annex VI which brought forward the effective date of the EEDI’s “phase 3” requirements from January 1, 2025, to April 1, 2022, for several ship types, including gas carriers,
general cargo ships, and LNG carriers.
Additionally, MEPC 76 adopted amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. The revised Annex VI entered into
force in November 2022, and includes requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon
intensity of international shipping. The requirements include (1) a technical requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (or EEXI), and
(2) operational carbon intensity reduction requirements based on a new operational carbon intensity indicator (or CII). The attained EEXI is required to be calculated for ships of 400
gross tonnage and above, in accordance with different values set for ship types and categories. With respect to the CII, which took effect from January 1, 2023, ships of 5,000 gross
tonnage to document and verify their actual annual operational CII achieved against a determined required annual operational CII. All ships that fall under the new CII regime have to
have a CII rating of C or above in order to be compliant. Ships that have a CII rating of D for three consecutive years or E, are required to submit a corrective action plan, to show how
the required index (C or above) would be achieved or else they will be deemed non-compliant. The EEXI and CII certification requirements entered into effect on January 1, 2023.
Additionally, MEPC 76 adopted amendments requiring ships of 5,000 gross tonnage and above to revise their SEEMP to include methodology for calculating the ship’s
attained annual operation CII and the required annual operational CII, on or before June 1, 2023. MEPC 76 also approved amendments to MARPOL Annex I to prohibit the use and
carriage for use as fuel of heavy fuel oil (or HFO) by ships in Arctic waters on and after July 1, 2024. For ships subject to Regulation 12A (oil fuel tank protection), the prohibition will
become effective on or after July 1, 2029.
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MEPC 77 adopted a non-binding resolution which urges EU member states and ship operators to voluntarily use distillate or other cleaner alternative fuels or methods of
propulsion that are safe for ships and could contribute to the reduction of black carbon emissions from ships when operating in or near the Arctic.
MEPC 79 adopted amendments to Annex VI on the reporting of mandatory values related to the implementation of the IMO short-term GHG reduction measure, including
attained EEXI, CII and rating values to the IMO DCS, which will become effective May 1, 2024. MEPC 80 adopted the 2023 IMO Strategy on Reduction of GHG Emissions from Ships
with enhanced targets to mitigate harmful emissions. The revised IMO GHG Strategy comprises a common ambition to ensure an uptake of alternative zero and near-zero GHG fuels by
2030 and to achieve net-zero emissions from international shipping by 2050. MEPC 81 will take place in spring 2024 in which the IMO will decide on the market-based mechanism to
reach the emission reduction targets– either through a global emissions trading scheme for shipping or a global carbon levy.
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 our vessels are in substantial compliance with
SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”), our
operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety
management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels
safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for
compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available
insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a Safety Management Certificate (or SMC) 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 (or DOC), issued by each flag state (or Recognized Organization (“RO”) on behalf of the flag administration), under the ISM Code. We have obtained
applicable DOC for our offices and safety management certificates for all of our vessels. The DOCs & SMCs are renewed as required.
Amendments to SOLAS chapter II-2, intended to prevent the supply of oil fuel not complying with SOLAS flashpoint requirements, requiring that ships carrying oil fuel must,
prior to bunkering, be provided with a declaration certifying that the oil fuel supplied is in conformity with SOLAS regulation II-2/4.2.1, will enter into effect January 1, 2026.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity, and
stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, and from July 1, 2016 with respect to new oil
tankers and bulk carriers. Regulation II-1/3-10 requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the building contract is placed on or after July 1,
2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers,
or GBS Standards. Effective July 1, 2024, amendments to the International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, 2011 will
become effective, addressing inconsistencies on examination of ballast tanks at annual surveys for bulk carriers and oil tankers.
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime
Dangerous Goods Code (“IMDG Code”). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from
the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods and (3) new mandatory training requirements. Amendments
which took effect on January 1, 2020, also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO
type 9 tank, (2) new abbreviations for segregation groups; and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas. Amendments to
the IMDG Code relating to segregation requirements for certain substances, and classification and transport of carbon came into effect in June 2022. Updates to the IMDG Code, in line
with the updates to the United Nations Recommendations on the Transport of Dangerous Goods, which set the recommendations for all transport modes, became effective January 1,
2024.
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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.
Actions 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, effective January 2021, cyber-risk management systems must be incorporated by ship-owners and
managers. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of
such regulations is hard to predict at this time.
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 globally on September 8, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless or avoid the uptake or
discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international
ballast water management certificate.
Specifically, 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. For most ships,
compliance with the D-2 standard involves installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include
systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in
accordance with IMO Guidelines (Regulation D-3). Pursuant to the BWM Convention amendments that entered into force in October 2019, BWMS installed on or after October 28, 2020
shall be approved in accordance with BWMS Code, while BWMS installed before October 23, 2020 must be approved taking into account guidelines developed by the IMO or the
BWMS Code. As of October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect requiring all ships to meet the D-2 standard by September 8, 2024. Costs of
compliance with these regulations may be substantial. The cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many
countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges.
The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain
reporting requirements. Amendments to the BWM Convention concerning commissioning testing of BWMS and the form of the International Ballast Water Management Certificate
became effective in June 2022. All the vessels of our fleet have Ballast Water Treatment Systems that ensure compliance with the new environmental regulations.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in
2000, the CLC. Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly
liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on
liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on
liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused
by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to
maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental
incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable signatory states to issue certificates. We will ensure that our vessels are
in possession of a CLC State issued certificate attesting that the required insurance coverage is in force as required by law.
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The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”) to impose strict liability on ship owners
(including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The
Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable
national or international limitation regime (but not exceeding the amount calculated in accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of
oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the Bunker
Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling Convention,” which entered into force in
September 2008, and prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons
engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti-fouling System Certificate is
issued for the first time; and subsequent surveys when the anti-fouling systems are altered or replaced. We have obtained Anti-fouling System Certificates for all of our vessels that are
subject to the Anti-fouling Convention. MEPC 76 adopted amendments to the Anti-fouling Convention to include controls on the biocide cybutryne; ships shall not apply or re-apply
anti-fouling systems containing that substance from January 1, 2023. The amendments require ships to remove, or apply a coating to anti-fouling systems with this substance, at the
next scheduled renewal of the anti-fouling system after January 1, 2023.
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 as well as other regional and
national authorities in a number of countries (“ISM Code Compliant Countries”) have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be
prohibited from trading in U.S., European Union and ISM Code Compliant Countries 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.
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 within 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:
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(i)
(ii)
injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
injury to, or economic losses resulting from, the destruction of real and personal property;
(iii)
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;
(iv)
loss of subsistence use of natural resources that are injured, destroyed or lost;
(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. On December 23, 2022, the USCG adjusted the limits of OPA liability for
a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,500 per gross ton or $21,521,000 for a single-hull tank vessel, over 3,000 gross tons
to the greater of $4,000 per gross ton or $29,591,300; and for a non-tank vessel, over to the greater of $1,300 er gross ton or $1,076,000 (subject to periodic adjustment for inflation)
(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 as required by law where the responsible 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 the same, and health assessments or health effects studies. There is no liability if the
discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per
gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering
the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or
the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible
person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA 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 comply and plan to comply going forward with the USCG’s financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations
regarding offshore oil and gas drilling and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For
example, the U.S. Bureau of Safety and Environmental Enforcement’s (“BSEE”) revised Production Safety Systems Rule (“PSSR”), effective December 27, 2018, modified and relaxed
certain environmental and safety protections under the 2016 PSSR. Additionally, in August 2023, the BSEE released a final Well Control Rule, which strengthens testing and
performance requirements, and may affect offshore drilling operations. Compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of
our vessels could negatively impact the cost of our operations and adversely affect our business.
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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 vessel owners’ responsibilities under
these laws. The Company intends to comply with all applicable state regulations in the ports where our 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, that could have an adverse effect on our business and results of operation.
Other United States Environmental Initiatives
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. In 2015, the EPA expanded the definition of “waters of the United States” (“WOTUS”), thereby expanding
federal authority under the CWA. On December 30, 2022, the EPA and U.S. Army Corps of Engineers announced the final revised WOTUS rule, which was published on January 18,
2023. In August 2023, the EPA and Department of the Army issued a final rule to amend the revised WOTUS definition to conform the definition of WOTUS to the U.S. Supreme Court’s
interpretation of the Clean Water Act in its decision dated May 25, 2023. The final rule became effective September 8, 2023 and operates to limit the Clean Water Act.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast
water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from
entering U.S. Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters
pursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018 and requires that the USCG develop implementation, compliance and
enforcement regulations regarding ballast water. On October 26, 2020, the EPA published a Notice of Proposed rulemaking for Vessel Incidental Discharge National Standards of
Performance under VIDA, and in November 2020, held virtual public meetings. On October 18, 2023, the EPA published a Supplemental Notice to the Vessel Incidental Discharge
National Standards of Performance, which shares new ballast water information that the EPA received from the USCG. Comments to the Supplemental Notice were due by December 18,
2023. Under VIDA, all provisions of the VGP 2018 and the USCG ballast water regulations remain in force and effect as currently written until the EPA publishes standard. Currently
Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act, or NISA, require mid-ocean ballast exchange programs and installation of
approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. Until new USCG regulations are final and enforceable, non-
military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or
retention of a PARI form and submission of annual reports. We have submitted NOIs for all our vessels where required. Compliance with the EPA, U.S. Coast Guard and state
regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial
cost, or may otherwise restrict our vessels from entering U.S. waters. Our vessels are equipped with ballast water treatment systems, which are subject to functionality monitoring and
treated ballast water sampling and analysis, in compliance with the requirements stipulated in EPA VGP 2013.
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European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if
committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the
discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or
where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757
of the European Parliament and of the Council of 29 April 2015 (amended by Regulation (EU) 2016/2071 with respect to methods of calculating, inter alia, emission and consumption)
governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross
tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses relating to increased monitoring and verification services. As of
January 2019, large ships calling at EU ports have been required to collect and publish data on carbon dioxide emissions and other information. The system entered into force on 1
March 2018. July 2020 saw the European Parliament’s Committee on Environment, Public Health and Food Safety vote in favor of the inclusion of vessels of 5,000 gross tons and above
in the EU Emissions Trading System (in addition to voting for a revision to the monitoring, reporting and verification of CO2 emissions). In September 2020, the European Parliament
adopted the proposal from the European Commission to amend the regulation on monitoring carbon dioxide emissions from maritime transport.
Similarly to the EU, the UK adopted its own UK MRV (Monitoring, Reporting and Verification) scheme applicable to all vessels over 5,000 gross tonnage on voyages between
UK and non-European Economic Area (EEA) ports and vice versa, between UK ports, and at berth in a UK port.
On July 14, 2021, the European Commission published a package of draft proposals as part of its ‘Fit for 55’ environmental legislative agenda and as part of the wider EU Green
Deal growth strategy. There are two key initiatives relevant to maritime arising from the proposals: (a) a bespoke emissions trading scheme for maritime (Maritime ETS) which
commenced in 2024 and applies to all ships above a gross tonnage of 5,000; and (b) a FuelEU draft regulation which seeks to require all ships above a gross tonnage of 5,000 to carry on
board a ‘FuelEU certificate of compliance’ from 30 June 2025 as evidence of compliance with the limits on the greenhouse gas intensity of the energy used on-board by a ship and with
the requirements on the use of on-shore power supply (OPS) at berth. More specifically, Maritime ETS is to apply gradually over the period from 2024-2026. “Shipping
companies” (defined to include the ship owner or the entity that contractually assumes responsibility for compliance with ETS) will have to surrender allowances for 40% of their
emissions in 2025 for the year 2024; 70% in 2026 for the year 2025; and 100% in 2027 for the year 2026. It is intended that the polluter pays principle is applied by way of the ETS costs
clause. The EU has mandated its member states to introduce national laws which enable the ship owners to pass on the costs of ETS allowances to the actual commercial
users/operators of the ships. Also, the cap under the ETS would be set by taking into account EU MRV system emissions data for the years 2018 and 2019, adjusted, from year 2021 and
is to capture 100% of the emissions from intra-EU maritime voyages; 100% of emissions from ships at berth in EU ports; and 50% of emissions from voyages which start or end at EU
ports (but the other destination is outside the EU). More recent proposed amendments signal that 100% of non-EU emissions may be caught if the IMO does not introduce a global
market-based measure by 2028. Furthermore, the MRV system is also being revised such that the scope of ships to be monitored will now extend to those that are 400GT and more. The
reason for this is because the ETS will apply to ships that are between 400GT and 5,000GT from circa 2027. Maritime allowances will be auctioned and there will be no free allocation. The
ETS final form was agreed in December 2022. From a risk management perspective, new systems, including data management systems, personnel, cost recovery mechanisms, revised
service agreement terms, and emissions reporting procedures will have to be put in place, at significant cost, to prepare for and manage the administrative aspects of ETS compliance.
The FuelEU regulation was passed into law on July 25, 2023 and will apply from January 1, 2025.
Responsible recycling and scrapping of ships is becoming an increasingly important issue for shipowners and charterers alike as the industry strives to replace old ships with
cleaner, more energy efficient models. The recognition of the need to impose recycling obligations on the shipping industry is not new. In 2009, the IMO oversaw the creation of the
Hong Kong Ship Recycling Convention (the “Hong Kong Convention”), which sets standards for ship recycling. Concerned at the lack of progress in satisfying the conditions needed
to bring the Hong Kong Convention into force, the EU published its own Ship Recycling Regulation 1257/2013 (SRR) in 2013, with a view to facilitating early ratification of the Hong
Kong Convention both within the EU and in other countries outside the EU. SRR requires that, from 31 December 2020, all existing ships sailing under the flag of EU member states and
non-EU flagged ships calling at an EU port or anchorage must carry on-board an Inventory of Hazardous Materials (IHM) with a certificate or statement of compliance, as appropriate.
For EU-flagged vessels, a certificate (either an Inventory Certificate or Ready for Recycling Certificate) will be necessary, while non-EU flagged vessels will need a Statement of
Compliance. Now that the Hong Kong Convention has been ratified and will enter into force on June 26, 2025, it is expected the EU Ship Recycling Regulation will be reviewed in light of
this.
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. Since January 1, 2015, vessels have been required to burn fuel with sulfur content not exceeding 0.1% while within EU
member states’ territorial seas, exclusive economic zones and pollution control zones that are included in “SOx Emission Control Areas.” EU Directive (EU) 2016/802 establishes limits on
the maximum sulfur content of gas oils and heavy fuel oil and contains fuel-specific requirements for ships calling at EU ports.
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EU Directive 2004/35/CE (as amended) regarding the prevention and remedying of environmental damage addresses liability for environmental damage (including damage to
water, land, protected species and habitats) on the basis of the “polluter pays” principle. Operators whose activities caused the environmental damage are liable for the damage (subject
to certain exceptions). With regard to specified activities causing environmental damage, operators are strictly liable. The directive applies where damage has already occurred and
where there is an imminent threat of damage. The directive requires preventative and remedial actions, and that operators report environmental damage or an imminent threat of such
damage.
In 2021, the EU adopted a European Climate Law (Regulation (EU) 2021/1119), establishing the aim of reaching net zero greenhouse gas emissions in the EU by 2050, with an
intermediate target of reducing greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. In July 2021, the European Commission launched the Fit for 55 (described
above) to support the climate policy agenda.
International Labor 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 tonnage or over and are either engaged in
international trade. We believe that all our vessels are in substantial compliance with and are certified to meet MLC 2006 and its amendments.
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 (this task hanging been delegated to the IMO), which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs
to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions
on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-
binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on
November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The United States rejoined the Paris Agreement in February 2021.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from
ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. In July 2023, the
IMO adopted the 2023 IMO Strategy on Reduction of GHG Emissions from Ships, which identifies a number of levels of ambition, including (1) decreasing the carbon intensity from
ships through implementation of further phases of energy efficiency for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international
shipping, by at least 40% by 2030; and (3) pursuing net-zero GHG emissions by or around 2050. These regulations could cause us to incur additional substantial expenses.
As noted above, the 70th MEPC meeting in October 2016 adopted a mandatory data collection system (DCS) which requires ships above 5,000 gross tons to report
consumption data for fuel oil, hours under way and distance travelled. Unlike the EU MRV (see below), the IMO DCS covers any maritime activity carried out by ships, including
dredging, pipeline laying, ice-breaking, fish-catching and off-shore installations. The SEEMPs of all ships covered by the IMO DCS must include a description of the methodology for
data collection and reporting. After each calendar year, the aggregated data are reported to the flag state. If the data have been reported in accordance with the requirements, the flag
state issues a statement of compliance to the ship. Flag states subsequently transfer this data to an IMO ship fuel oil consumption database, which is part of the Global Integrated
Shipping Information System (GISIS) platform. IMO will then produce annual reports, summarizing the data collected. Thus, currently, data related to the GHG emissions of ships above
5,000 gross tons calling at ports in the European Economic Area (EEA) must be reported in two separate, but largely overlapping, systems: the EU MRV – which applies since 2018 –
and the IMO DCS – which applies since 2019. The proposed revision of Regulation (EU) 2015/757 adopted on 4 February 2019 aims to align and facilitate the simultaneous
implementation of the two systems however it is still not clear when the proposal will be adopted.
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IMO’s MEPC 76 adopted amendments to Annex VI that will require ships to reduce their greenhouse gas emissions. The Revised MARPOL Annex VI entered into force on
November 1. 2022. The revised Annex VI includes carbon intensity measures (requirements for ships to calculate their Energy Efficiency Existing Ship Index (EEXI) following technical
means to improve their energy efficiency and to establish their annual operational carbon intensity indicator and rating. MEPC 76 also adopted guidelines to support implementation of
the amendments.
In 2021, the EU adopted a European Climate Law (Regulation (EU) 2021/1119), establishing the aim of reaching net zero greenhouse gas emissions in the EU by 2050, with an
intermediate target of reducing greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. In July 2021, the European Commission launched the Fit for 55 (described
above) to support the climate policy agenda.
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. The EPA or individual U.S. states could enact environmental
regulations that could negatively affect our operations. On November 2, 2021, the EPA issued a proposed rule under the CAA designed to reduce methane emissions from oil and gas
sources. In November 2022, the EPA issued a supplemental proposal that would achieve more comprehensive emissions reductions and add proposed requirements for sources not
previously covered. The EPA held a public hearing in January 2023 on the proposal. In December 2023, the EPA announced a final rule to reduce methane and other air pollutants from
the oil and natural gas industry. The rule includes “Emissions Guidelines” for states to follow as they develop plans to limit methane emissions from existing sources.
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 expenditures which we cannot
predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level
changes or certain weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime
Transportation Security Act of 2002 (“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship
and Port 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 will be
refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic
identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on
a ship’s identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on
shore and our Fleet Manager; the development of vessel security plans; ship identification number to be permanently marked on a vessel’s hull; a continuous synopsis record kept
onboard showing a vessel’s history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s
identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and compliance with flag state security certification
requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels
have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a
significant negative financial impact on us. All the vessels in our fleet comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
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The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the
Gulf of Aden, Arabian Sea area and the West Africa area including the Gulf of Guinea. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or
additional security measures, and the risk of uninsured losses could significantly and negatively affect our business. Costs may be incurred in taking additional security measures in
accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
European Mandatory Non-Financial Reporting Regulations
On November 28, 2022, the EU Parliament adopted the Corporate Sustainability Reporting Directive (“CSRD”). EU member states have 18 months from July 6, 2024 to integrate
CSRD into national law. CSRD will create new, detailed sustainability reporting requirements and will significantly expand the number of EU and non-EU companies subject to the EU
sustainability reporting framework. The required disclosures will go beyond environmental and climate change reporting to include social and governance matters (e.g., respect for
employee and human rights, anti-corruption and bribery, corporate governance, and diversity and inclusion). In addition, it will require disclosure regarding the due diligence processes
implemented by a company in relation to sustainability matters and the actual and potential adverse sustainability impacts of an in-scope company’s operations and value chain. CSRD
will begin to apply on a phased basis starting from financial year 2024 through 2028, applicable to large EU and non-EU undertakings with substantial presence in the EU, subject to
certain financial and employee thresholds being met. New systems, including data management systems, personnel, and reporting procedures will have to be put in place, at significant
cost, to prepare for and manage the administrative aspects of CSRD compliance.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a
vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a
condition for insurance coverage and lending that a vessel be certified “in class” by a classification society which is a member of the International Association of Classification
Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or “the Rules,” which apply to oil tankers and bulk carriers constructed on or after July 1, 2015. The
Rules attempt to create a level of consistency between IACS Societies. All of our vessels are certified as being “in class” by all the applicable Classification Societies (e.g., DNV GL,
American Bureau of Shipping, Lloyd’s Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, dry-dockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous
survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of
the underwater parts of the vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable
to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry
cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
C.
Organizational Structure
We are a Marshall Islands corporation with principal executive offices located at 1 Vasilisis Sofias and Megalou Alexandrou Str, 15124 Maroussi, Greece. Our significant wholly
owned subsidiaries as of December 31, 2023 are listed in Exhibit 8.1 to this annual report on Form 20-F.
D.
Property, Plants and Equipment
For a list of the vessels of our fleet, please see “Item 4. Information on the Company—B. Business Overview—Our Fleet” above and for a description of our major
encumbrances on our fleet please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities”.
We do not own any real estate property.
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ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following presentation of management’s discussion and analysis is intended to discuss our financial condition, changes in financial condition and results of operations,
and should be read in conjunction with our historical consolidated financial statements and their notes included in this annual report.
For a discussion of our results for the year ended December 31, 2022 compared to the year ended December 31, 2021, please see “Item 5. Operating and Financial Review and
Prospects – A. Operating Results – Results of Operations for the Fiscal Years Ended December 31, 2021 and 2022” contained in our annual report on Form 20-F for the year ended
December 31, 2022, filed with the Securities and Exchange Commission on April 3, 2023.
This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in “Item 3. Key Information—Risk Factors” and elsewhere in
this report.
A.
Operating Results
Factors Affecting our Results of Operations
We believe that the important measures for analyzing trends in the results of our operations consist of the following:
Calendar days. We define calendar days as the total number of days the vessels were in our possession for the relevant period. Calendar days are an indicator of the size
of our fleet during the relevant period and affect both the amount of revenues and expenses that we record during that period.
Available days. We define available days as the number of calendar days less the aggregate number of days that our vessels are off-hire due to scheduled repairs, or
scheduled guarantee inspections in the case of newbuildings, vessel upgrades or special or intermediate surveys and the aggregate amount of time that we spend
positioning our vessels. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be
capable of generating revenues. Our calculation of Available Days may not be comparable to that reported by other companies due to differences in methods of
calculation.
Operating days. We define operating days as the number of available days in a period less the aggregate number of days that our vessels are off-hire due to unforeseen
technical circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period that our vessels actually generate revenues.
Our calculation of Operating Days may not be comparable to that reported by other companies due to differences in methods of calculation.
Fleet utilization. We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. The shipping
industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-
hire for reasons other than scheduled repairs or scheduled guarantee inspections in the case of newbuildings, vessel upgrades, special or intermediate surveys and vessel
positioning. We believe monitoring Fleet utilization assists management in making decisions regarding areas where we may be able to improve efficiency and increase
revenue and as such provides useful information to investors regarding the efficiency of our operations.
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TCE Revenues / TCE Rates. We define TCE, or time charter equivalent, revenues as revenues minus voyage expenses. Voyage expenses primarily consist of port, canal
and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions. We believe that
presenting revenues net of voyage expenses neutralizes the variability created by unique costs associated with particular voyages or the deployment of vessels on the
spot market and facilitates comparisons between periods on a consistent basis. We calculate daily TCE rates by dividing TCE revenues by operating days for the relevant
time period. TCE revenues include demurrage revenue, which represents fees charged to charterers associated with our spot market voyages when the charterer exceeds
the agreed upon time required to load or discharge a cargo. The company’s calculation of TCE may not be similar to other method of calculation of other companies.
In the shipping industry, economic decisions are based on vessels’ deployment upon anticipated TCE rates, and industry analysts typically measure shipping freight rates in
terms of TCE rates. This is because under time-charter and bareboat contracts the customer usually pays the voyage expenses, while under voyage charters the ship-owner usually
pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Consistent with industry practice, we use TCE rates because it provides a means of
comparison between different types of vessel employment and, therefore, assists our decision-making process.
In evaluating our financial condition, we focus on the below measures to assess our historical operating performance and we use future estimates of the same measures to
assess our future financial performance. In assessing the future performance of our fleet, the greatest uncertainty relates to future charter rates at the expiration of a vessel’s present
period employment, whether under a time charter or a bareboat charter. Decisions about future purchases and sales of vessels are based on the availability of excess internal funds, the
availability of financing and the financial and operational evaluation of such actions and depend on the overall state of the shipping market and the availability of relevant purchase
candidates.
The following table sets forth our selected other operating data for the periods indicated.
FLEET DATA
Total number of vessels at end of period (including leased vessels)
Average number of vessels(1)
Total calendar days for fleet
Total available days for fleet
Total operating days for fleet
Total time charter days for fleet
Total spot (voyage) days for fleet
Fleet utilization
AVERAGE DAILY RESULTS
Time charter equivalent(2)
Vessel operating expenses(3)
General and administrative expenses(4)
2022
2023
8
8
2,912
2,901
2,893
2,893
-
99.72%
2022
$
$
$
27,310
6,397
555
$
$
$
8
8
2,920
2,920
2,920
2,920
-
100.00%
2023
27,856
6,345
2,293
(1) Average number of vessels is the number of vessels that constituted our fleet (including chartered in vessels) for the relevant period, as measured by the sum of the number of
days each vessel was a part of our fleet during the period divided by the number of calendar days in that period.
(2) Time charter equivalent rate, or TCE rate, is a measure of the average daily revenue performance of a vessel. Our definition of TCE may not be the same as reported by other
companies in the shipping industry or other industries. Our method of calculating TCE rate is determined by dividing TCE revenues by operating days for the relevant time period.
TCE revenues are revenues minus voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise
be paid by the charterer under a time charter contract, but are payable by us in the case of a voyage charter, as well as commissions. TCE revenues and TCE rate, non-U.S. GAAP
measures, are standard shipping industry performance measures that provide additional supplemental information in conjunction with shipping revenues, the most directly
comparable U.S. GAAP measure. We use TCE rates and TCE revenues to compare period-to-period changes in our performance and it assists investors and our management in
evaluating our financial performance. The following table reconciles our net revenues from vessel to TCE rate.
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(3) Operating expenses include crew wages and related costs, insurance, repairs and maintenance, spares and consumable stores, tonnage taxes and value added tax, or VAT, and
other miscellaneous expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period. Our ability
to control our fixed and variable expenses, including our daily vessel operating expenses, also affects our financial results.
(4) Daily general and administrative expenses are calculated by dividing general and administrative expenses by fleet calendar days for the relevant time period.
U.S. dollars in thousands, except average daily time charter equivalent and total operating days
On a consolidated basis
Total Revenues
Less:
Voyage expenses
Time charter equivalent revenues
Total operating days
2022
2023
80,656
(1,648)
79,008
2,893
82,949
(1,609)
81,340
2,920
Average Daily Time Charter Equivalent (TCE)
$
27,310
$
27,856
EBITDA*
U.S. dollars in thousands
EBITDA
*Non-US GAAP Measures
2022
46,554
2023
43,058
This report describes Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), which is not a measure prepared in accordance with U.S. GAAP (i.e., a “Non-
US GAAP” measure). We define EBITDA as earnings before interest, taxes, depreciation, and amortization.
EBITDA is a non-U.S. GAAP financial measure that is used as a supplemental financial measure by management and external users of financial statements, such as investors,
to assess our financial and operating performance. We believe that this non-U.S. GAAP financial measure assists our management and investors by increasing the comparability of our
performance from period to period. This is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, depreciation and
amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect
net income between periods. We believe that including EBITDA as a measure of operating performance benefits investors in (a) selecting between investing in us and other investment
alternatives and (b) monitoring our ongoing financial and operational strength.
EBITDA is not a measure of financial performance under U.S. GAAP, does not represent and should not be considered as an alternative to net income, operating income, cash
flow from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. EBITDA as presented below may not be comparable to similarly
titled measures of other companies. See below for a reconciliation of EBITDA to Net Income, the most directly comparable U.S. GAAP measure.
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Reconciliation of Net Income to EBITDA
(Expressed in thousands of U.S. Dollars)
Net income
Add: Vessel depreciation
Add: Interest and finance costs
Less: Interest income
EBITDA
Time Charter Revenues
2022
2023
18,948
13,289
14,365
(48)
46,554
6,066
14,349
22,989
(346)
43,058
Our Time charter revenues are driven primarily by the number and size of vessels in our fleet, the number of operating days during which our vessels generate revenues and
the amount of daily charterhire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and
disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in dry-dock undergoing repairs, maintenance and upgrade work, the
duration of the charter, the age, condition and specifications of our vessels, levels of supply and demand in the global transportation market for oil and oil products and other factors
affecting spot market charter rates such as vessel supply and demand imbalances.
Vessels operating on period charters, time charters or bareboat charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the
short-term, or spot, charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market, either directly or through a pool
arrangement, could generate revenues that are less predictable, but could enable us to capture increased profit margins during periods of improvements in charter rates, although we
could be exposed to the risk of declining charter rates, which could have a materially adverse impact on our financial performance. If we employ vessels on period charters, future spot
market rates may be higher or lower than the rates at which we have employed our vessels on period time charters.
Under a time charter, the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal
charges. We remain responsible for paying the chartered vessel’s operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares
and consumable stores, tonnage taxes and other miscellaneous expenses, and we also pay commissions to CSI, one or more unaffiliated ship brokers and to in-house brokers associated
with the charterer for the arrangement of the relevant charter.
Under a bareboat charter, the vessel is chartered for a stipulated period of time, which gives the charterer possession and control of the vessel, including the right to appoint
the master and the crew. Under bareboat charters, all voyage and operating costs are paid by the charterer.
As of the date of this annual report, all of our vessels are bareboat chartered-in under our SLB arrangements which are accounted for as financings with the exception of two
suezmax crude oil tankers which are accounted for as operating leases. We may in the future operate vessels in the spot market until the vessels have been chartered under appropriate
medium to long-term charters.
Voyage Expenses
Voyage expenses primarily consist of port charges, including canal dues, bunkers (fuel costs) and commissions. All these expenses, except commissions, are paid by the
charterer under a time charter or bareboat charter contract. The amount of voyage expenses are primarily driven by the routes that the vessels travel, the amount of ports called on, the
canals crossed and the price of bunker fuels paid.
Operating Lease Expenses
Operating lease expenses represent operating lease payments for vessels we have bareboat chartered-in via operating lease agreements.
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Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable
stores, tonnage taxes and VAT, and other miscellaneous expenses. We analyze vessel operating expenses on a U.S. dollar per day basis. Additionally, vessel operating expenses can
fluctuate due to factors beyond our control, such as unplanned repairs and maintenance attributable to damages or regulatory compliance and factors which may affect the shipping
industry in general, such as developments relating to insurance premiums, or developments relating to the availability of crew.
Dry-docking Costs
Dry-docking costs relate to regularly scheduled intermediate survey or special survey dry-docking necessary to preserve the quality of our vessels as well as to comply with
international shipping standards and environmental laws and regulations. Dry-docking costs can vary according to the age of the vessel, the location where the dry-dock takes place,
shipyard availability, local availability of manpower and material, and the billing currency of the yard. Please see “Item 18. Financial Statements—Note 2—Significant Accounting
Policies.” In the case of tankers, dry-docking costs may also be affected by new rules and regulations. For further information please see “Item 4. Information on the Company—B.
Business Overview—Environmental Regulations.”
Management Fees—Related Parties
As from January 1, 2019, we have outsourced to CSI a related party controlled by the family of Mr. Evangelos J. Pistiolis, all operational, technical and commercial functions
relating to the chartering and operation of our vessels. We outsourced the above functions pursuant to a letter agreement between CSI and Top Ships Inc. and management agreements
between CSI and our vessel-owning subsidiaries on the same date, and each new vessel that entered our fleet after that date entered into a management agreement with CSI. See “Item7.
Major shareholders and related party transactions — B. Related Party Transactions”.
General and Administrative Expenses
Our general and administrative expenses include executive compensation paid to Central Mare for the compensation of our executive officers and a number of administrative
staff, office rent, legal and auditing costs, regulatory compliance costs, other miscellaneous office expenses, non-cash stock compensation, and corporate overhead. Central Mare
provides the services of the individuals who serve in the position of Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technical Officer as well as a
number of administrative employees. For further information please see “Item 18. Financial Statements—Note 5—Transactions with Related Parties.”
A portion of our general and administrative expenses are denominated in Euros and are therefore affected by the conversion rate of the U.S. dollar versus the Euro.
Inflation
Although inflation has had a moderate impact on our vessel operating expenses and corporate overheads, management does not consider inflation to be a significant risk to
direct costs in the current and foreseeable economic environment. Oil transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased
demand for qualified crew and this could lead to inflationary pressure on crew costs. However, in a shipping downturn, costs subject to inflation can usually be controlled because
shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers to lower rates and prices in the event of a downturn.
Interest and Finance Costs
We incur interest expense on outstanding indebtedness under our loans and SLBs, which we include in interest and finance costs. We also incur finance costs in establishing
those debt facilities and SLBs which are deferred and amortized over the period of the respective facility. The amortization of the finance costs is presented in interest and finance costs.
Main components of managing our business and main drivers of profitability
The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main
components:
• management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts;
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• management of our accounting system and records and financial reporting;
•
• management of the relationships with our service providers and customers.
administration of the legal and regulatory requirements affecting our business and assets; and
The principal factors that affect our profitability, cash flows and shareholders’ return on investment include:
•
•
•
•
•
•
charter rates and periods of charter hire for our tankers;
utilization of our tankers (earnings efficiency);
levels of our tanker’s operating expenses and dry-docking costs;
depreciation and amortization expenses;
financing costs; and
fluctuations in foreign exchange rates.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022 AND 2023
The following table depicts changes in the results of operations for 2023 compared to 2022.
(Expressed in thousands of U.S. Dollars)
Total charter revenues
Voyage expenses
Operating lease Expense
Vessel operating expenses
Vessel depreciation
Management fees-related parties
General and administrative expenses
Gain on sale of vessels
Operating income
Interest and finance costs
Interest income
Equity gain/(loss) in unconsolidated joint ventures
Total other expenses, net
Net income
Year on Year Comparison of Operating Results
1. Vessel depreciation
Year Ended December 31,
2023
2022
change
YE23 v YE22
$
80,656
1,648
10,840
18,628
13,289
2,093
1,617
(78)
32,619
(14,365)
48
646
(13,671)
18,948
82,949
1,609
10,840
18,527
14,349
2,200
6,697
-
28,727
(22,989)
346
(18)
(22,661)
6,066
2,293
(39)
-
(101)
1,060
107
5,080
78
(3,892)
(8,624)
298
(664)
(8,990)
(12,882)
%
3 %
-2 %
0 %
-1 %
8 %
5 %
314 %
-100 %
-12 %
60 %
621 %
-103 %
66 %
-68 %
During the year ended December 31, 2023, Vessel depreciation increased by $1.1 million, or 8%, compared to the same period in 2022, mainly due to the fact that M/Ts Eco
Oceano CA, Julius Caesar and Legio X Equestris were delivered in March, January and March 2022, respectively, and we therefore incurred $0.4 million, $0.2 million and $0.5 million
respectively less depreciation expense in 2022 when compared to the same period in 2023.
2. General and administrative expenses
During the year ended December 31, 2023, our general and administrative expenses increased by $5.1 million, or 314%, compared to the year ended December 31, 2022, mainly
due to $5.0 million of bonuses declared in 2023 (with no bonuses being declared in 2022), a $0.1 million increase in legal and consulting fees and expenses, a $0.1 million increase in
auditor fees and a $0.1 million increase in foreign currency losses. These increases were offset by a $0.2 million decrease in utilities.
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3.
Interest and Finance Costs
During the year ended December 31, 2023, interest and finance costs increased by $8.6 million, or 60%, compared to the same period in 2022 mainly due to:
•
•
•
a $7.3 million increase in interest costs mainly due to a) the increase in the variable interest rate of our credit facilities (LIBOR and SOFR) which increased from 4.74%
in January 2023 to 5.62% in December 2023, while LIBOR ranged from 0.10% in January 2022 to 4.74% in December 2022, and b) the three new SLBs for M/Ts Eco
Oceano CA, Julius Caesar and Legio X Equestris that we closed in March, January and March 2022 respectively for an aggregate amount of $156.2 million, that where
incurring interest expense for the whole year ended December 31, 2023. These increases were offset by a $0.9 million decrease in interest and finance costs relating to
M/Ts Eco Los Angeles and Eco City of Angels that were sold on February 28 and March 15, 2022;
$3.5 million of amortization of debt discount relating to the Cargill facility (please see “Item 18. Financial Statements—Note 7—Debt”) that commenced in 2023; and
an offsetting $1.3 million decrease in amortization of deferred financing fees mainly due to the acceleration of the amortization of $1.9 million of unamortized balances
of deferred financing fees relating to the sale of M/Ts Eco Los Angeles and Eco City of Angels and the prepayment of our Unsecured Bridge Loan in 2022. By
comparison, in 2023 we accelerated $0.6 million of deferred financing fees relating to the prepayment of the ABN and the Alpha Bank facilities (see “—B. Liquidity
and Capital Resources—Debt Facilities— Prepayments of senior secured loans)”.
4. Equity gain/(loss) in unconsolidated joint ventures
During the year ended December 31, 2023, equity gain in unconsolidated joint ventures turned into a loss resulting in a year on year change of $0.7 million or 103%. This was
mainly due to the sharp increase of interest rates that materially affected interest and finance costs of the joint venture entities.
Our Fleet—Illustrative Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels
In Note 2 to our consolidated financial statements included herein we discuss our policy for impairing the carrying values of our vessels. During the past few years, the market
values of vessels have experienced particular volatility, with substantial declines in many vessel classes. As a result, the charter-free market value, or basic market value, of certain of
our vessels may have declined below those vessels’ carrying value. However, we would not impair those vessels’ carrying value under our accounting impairment policy due to our
belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels’ carrying amounts. Furthermore, since from 2021
tanker values have been constantly increasing there was no need to follow through with an undiscounted cash flows analysis due to the absence of impairment indications for all the
vessels of our fleet.
As of December 31, 2023, we believe that the basic charter-free market values of our owned operating vessels are higher than the vessels carrying value by approximately
52.8%.
Our estimates of basic charter-free market value assume that our vessels are 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 the estimated market values for the vessels received from third-party independent shipbrokers approved by our
financing providers. Vessel values are highly volatile. Accordingly, our estimates may not be indicative of the current or future basic market value of the vessels or prices that could be
achieved if the vessels were to be sold.
Please see “Item 3. Key Information—D. Risk Factors—Risks Related to our Industry—The international oil tanker industry has historically been both cyclical and volatile”
and the discussion herein under the heading “Item 3. Key Information—D. Risk Factors—Risks Related to Our Industry.”
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B.
Liquidity and Capital Resources
Since our formation, our principal sources of funds have been equity provided by our shareholders through equity offerings or at the market sales, operating cash flow, long-
term borrowing including SLBs and short-term borrowings. Our principal use of funds has been capital expenditures to establish and grow our fleet, maintain the quality of our vessels,
comply with international shipping standards and environmental laws and regulations and fund working capital requirements.
Our business is capital intensive and its future success will depend on our ability to maintain a high-quality fleet through the acquisition of newer vessels and the selective
sale of older vessels. Our practice has been to acquire vessels using a combination of funds received from equity investors and bank debt including SLBs secured by title on our
vessels. Future acquisitions are subject to management’s expectation of future market conditions, our ability to acquire vessels on favorable terms and our liquidity and capital
resources.
As of December 31, 2023, we had an indebtedness of $240.5 million, which after excluding unamortized financing fees and debt discounts amounts to a total indebtedness of
$246.2 million. Finally, as of December 31, 2023, our cash and cash equivalent balances amounted to $40.0 million, held in U.S. Dollar accounts, $4.0 million of which are classified as
restricted cash.
As of the date of this annual report 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 December 31, 2023.
Our medium- and long-term liquidity requirements relate to expenditures relating to the operation and maintenance of our vessels. Sources of funding for our medium- and long-
term liquidity requirements include cash flows from operations. Routine or strategic acquisitions may require the incurrence of additional indebtedness, including debt issuances, and/or
additional equity issuances, which may be dilutive to our common shareholders.
Working Capital Requirements and Sources of Capital
As of December 31, 2023, we had a working capital deficit (current assets less current liabilities) of $2.6 million, which included an amount of $6.6 million relating to pre-collected
revenue that is included in Unearned revenue in the accompanying consolidated balance sheets. This amount represents a current liability that does not require future cash settlement.
Our operating cash flow, provided that SOFR expectations for 2024 remain as they are as of the date of this annual report, is expected to slightly decrease when compared to
the same period in 2023, since all our owned vessels except for M/Ts Marina del Rey, Julius Caesar and Legio X Equestris have loans with fluctuating interest rates leading to increased
interest costs (please see “ITEM 11. Quantitative and qualitative disclosures about market risk -Interest rate risk” for a sensitivity analysis the increase in interest rates). Furthermore,
we expect to incur significant expenses relating to scheduled Dry-dockings for three of our vessels (M/Ts Eco Marina Del Rey, Eco Bel Air and Eco Beverly Hills) in the first half of
2024.
Cash Flow Information
Cash and cash equivalents and restricted cash were $24.5 million and $40.0 million as of December 31, 2022 and 2023 respectively.
Net Cash from Operating Activities.
Net cash provided by operating activities decreased by $4.5 million, or 13%, for 2023 to $28.9 million, compared to $33.4 million for 2022.
Adjustments to reconcile net income to net cash provided by operating activities for the year ended December 31, 2023 totaled $28.3 million. This consisted mainly of $14.3
million of depreciation expenses, $9.3 million of amortization of right of use assets from operating leases and $4.7 million of amortization and write offs of deferred financing costs and
debt discounts. The cash inflow from operations was offset by a $5.0 million decrease in current liabilities and a $0.4 million increase in current assets.
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Adjustments to reconcile net income to net cash provided by operating activities for the year ended December 31, 2022 totaled $24.3 million. This consisted mainly of $13.3
million of depreciation expenses, $8.6 million of amortization of right of use assets from operating leases and $2.5 million of amortization and write offs of deferred financing costs, offset
by $0.1 million of gains on sale of vessels. The cash inflow from operations was offset by a $8.8 million decrease in current liabilities and a $1.0 million increase in current assets.
Net Cash from Investing Activities.
Net cash provided by investing activities in the period ended December 31, 2023 was $2.5 million, deriving exclusively from return of investments in unconsolidated joint
ventures.
Net cash used in investing activities in the period ended December 31, 2022 was $142.7 million, consisting of $216.7 million of cash paid for advances for vessels under
construction, offset by $71.7 million net proceeds from sale and exchange of vessels and $2.3 million of return of investments in unconsolidated joint ventures.
Net Cash from Financing Activities.
Net cash used in financing activities in the period ended December 31, 2023 was $16.0 million, consisting of $76.4 million of principal payments and prepayments of long term,
$26.3 million of payments for our Series F Preferred Shares redemptions, $6.0 million in payments of dividends for our Series E Preferred Shares and our Series F Preferred Shares and $1.6
million in payments of financing costs. These were offset by $82.0 million of proceeds from long term debt and $12.3 million of proceeds from issuance of our common stock net of
equity issuance costs.
Net cash provided by financing activities in the period ended December 31, 2022 was $127.4 million, consisting of $165.2 million of proceeds from long term and related party
debt, $47.6 million of proceeds from issuance of Series F Shares, $21.1 million of proceeds from issuance of our common stock net of equity issuance costs and $4.6 of proceeds from
warrant exercises, net of fees. These were offset by $77.9 million of principal payments and prepayments of long term and related party debt, $16.2 million of payments for Series F
Shares redemptions, $13.4 million payments of dividends for Series F and E Shares and $3.6 million payments of financing costs.
Please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results” in our Annual Report on Form 20-F, filed on April 3, 2023 where the 2022 cash flow
information may be found.
Debt Facilities
For a more complete description of debt facilities entered into in the year ended December 31, 2023 as well as for a description of debt facilities entered into before the year
ended December 31, 2023 please see “Item 18. Financial Statements—Note 7—Debt.”.
Prepayments of senior secured loans
ABN Facility
On March 18, 2021, we entered into a credit facility with ABN Amro for $36.8 million for the financing of the vessel M/T Eco West Coast. This facility was drawn down in full.
The credit facility was repayable in 24 consecutive quarterly installments of $0.61 million commencing in June 2021, plus a balloon installment of $22.0 million payable together with the
last installment. The facility bore interest at LIBOR plus a margin of 2.50%. From June 23, 2023, ABN Amro switched the facility’s variable rate from LIBOR to Compounded SOFR. On
December 14, 2023, this facility was fully prepaid using part of the proceeds from the 3rd AVIC SLB (see “—3rd AVIC Sale and Leaseback.”).
Alpha Bank Facility
On May 6, 2021, we entered into a credit facility with Alpha Bank for $38.0 million for the financing of the vessel M/T Eco Malibu. This facility was drawn down in full. The
credit facility was repayable in 12 consecutive quarterly installments of $0.75 million and 12 consecutive quarterly installments of $0.63 million, commencing three months from draw
down, and a balloon payment of $21.5 million payable together with the last installment. The facility bore interest at LIBOR plus a margin of 3.00%. From June 9, 2023, Alpha Bank
switched the facility’s variable rate from LIBOR to Term SOFR On December 21, 2023, this facility was fully prepaid through part of the proceeds from the Huarong SLB (see “—Huarong
Sale and Leaseback”).
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New facilities
HSBC Bridge Loan
On January 15, 2024, we entered into the HSBC Bridge with HSBC Private Bank (Suisse) SA for the purpose of partially financing the purchase of M/Ts Julius Caesar and Legio
X Equestris, following the exercise of our purchase options under the CMBFL SLB (see “— New CMBFL SLBs”). Under the HSBC Bridge, we drew down $20.0 million on January 16,
2024 for the purchase of M/T Julius Caesar (which amount we repaid on January 18, 2024) and another $8.0 million on January 23, 2024 for the purchase of M/T Legio X Equestris (which
amount we repaid on January 25, 2024). The HSBC Bridge was for a maximum amount of $24.0 million at any time, carried an interest of 3% plus term SOFR and was guaranteed by Mr.
Evangelos J. Pistiolis. For his guarantee, Mr. Evangelos J. Pistiolis charged the Company a 1% fee on the amounts drawn down under the HSBC Bridge.
Financings Committed under Sale and Leaseback Agreements
3rd AVIC SLB
On December 14, 2023 we consummated an SLB with AVIC (the “3rd AVIC SLB”) in the amount of $41.0 million, for the purpose of refinancing the indebtedness secured over
the M/T Eco West Coast. We bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of 120 consecutive monthly installments of $0.18 million and
a balloon payment of $19.0 million payable together with the last installment, plus interest based on Term SOFR plus 2.65% per annum. As part of this transaction, we have continuous
options to buy back the vessel at purchase prices stipulated in the bareboat agreement depending on when the option will be exercised. At the end of the ten -year period we have an
obligation to buy back the vessel at a cost represented by the balloon payment. As part of the 3rd AVIC Facility, AVIC reduced the margin of the 2nd AVIC Facility from 3.5% to 3.0%.
Huarong SLB
On December 20, 2023, we consummated an SLB with China Huarong Shipping Financial Leasing Co Ltd. (“Huarong” and the “Huarong SLB”) in the amount of $41.0 million,
for the purpose of refinancing the indebtedness secured over the M/T Eco Malibu. We bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of
120 consecutive monthly installments of $0.18 million and a balloon payment of $19.0 million payable together with the last installment, plus interest based on Term SOFR plus 2.50% per
annum. As part of this transaction, we have continuous options to buy back the vessel at purchase prices stipulated in the bareboat agreement depending on when the option will be
exercised. At the end of the ten-year period we have an obligation to buy back the vessel at a cost represented by the balloon payment.
New CMBFL SLBs
On January 16 and January 23, 2024, we exercised our purchase options under the CMBFL SLB and took full ownership of M/Ts Julius Caesar and Legio X Equestris for $48.6
million and $49.3 million, respectively. Following the purchase of the vessels that was funded with cash and the HSBC Bridge, on January 18 and January 25, 2024 we concluded SLBs
(the “New CMBFL SLBs”) for the financing of M/Ts Julius Caesar and Legio X Equestris respectively from the same institution (CMBFL). The duration of the New CMBFL SLBs is for
eight years and the Company has continuous options, after the first year, to buy back the vessels at purchase prices stipulated in the New CMBFL SLBs depending on when the option
will be exercised. At the end of the eight-year period, the Company has an option to buy back the vessels for consideration of $37.5 million per vessel. The New CMBFL SLBs have a
fixed bareboat hire rate of $7.3 million per annum, which includes both interest and repayment. The consideration from the New CMBFL SLBs amounted to $125.0 million ($62.5 million
per vessel) and the SLBs have similar customary covenants and event of default clauses as the SLBs that preceded them with CMBFL, as further described in “Item 18. Financial
Statements—Note 7—Debt.”
Covenant Compliance
As of December 31, 2023, we were in compliance with all covenants with respect to our sale and leaseback agreements. The fair value of debt outstanding on December 31,
2023, after excluding unamortized financing fees and debt discounts, approximates its carrying amount when valuing the Cargill SLB on the basis of the Commercial Interest Reference
Rates as applicable on December 31, 2023.
Operating Leases
On December 1 and December 10, 2020, we sold and leased back M/T Eco Beverly Hills and M/T Eco Bel Air, respectively, to an unaffiliated third party (the “Navigare Lease”).
Each vessel was chartered back on a bareboat basis for five years at a bareboat hire of $16,750 per day for the first two years, $14,000 per day for the next two years and $10,000 per day
for the fifth year. We do not have any option nor obligation to buy back the vessels. The abovementioned sale and leaseback transactions contain, customary covenants and event of
default clauses, including cross-default provisions, change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the
Company) and restrictive covenants and performance requirements. Part of these covenants is a requirement to maintain a minimum liquidity of $4 million at all times which is certified bi-
annually. As of December 31, 2023, we were in compliance with all covenants of the Navigare Lease.
Please see “Item 18. Financial Statements—Note 6—Leases.” for more detailed information.
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C.
Research and Development, Patents and Licenses, Etc.
None.
D.
Trend Information
Our results of operations depend primarily on the charter rates earned by our vessels. Over the course of 2023, the BDTI reached a high of 1,642 and a low of 713 while the
BCTI reached a high of 1,250 and a low of 563. Historically and even more so since the start of the financial crisis in 2008 the performance of the BDTI and the BCTI have been
characterized by high volatility. Although the BDTI was 1,159 as of March 25, 2024, there can be no assurance that the crude oil charter market will continue to increase, and the market
could again decline.
Meanwhile, the war in Ukraine has amplified the volatility in the tanker market. In the short term, the effect of the invasion of Ukraine has been positive for the tanker market,
yet the overall longer term effect on ton-mile demand is uncertain given that cargoes exported previously from Russia will need to be substituted by cargoes from different sources due
to the oil and oil products embargo enacted by the United States, the European Union and the United Kingdom.
In addition, the continuing war in Ukraine led to increased economic uncertainty amidst fears of a more generalized military conflict or significant inflationary pressures, due to
the increases in fuel and grain prices following the sanctions imposed on Russia. Whether the present dislocation in the markets and resultant inflationary pressures will transition to a
long-term inflationary environment is uncertain, and the effects of such a development on charter rates, vessel demand and operating expenses in the sector in which we operate are
uncertain. As described above, the initial effect of the invasion in Ukraine on the tanker freight market was positive, despite the short-term volatility in charter rates and increases on
specific items of operating costs. If these conditions are sustained, the longer-term net impact on the tanker market and our business would be difficult to predict. However, such events
may have unpredictable consequences, and contribute to instability in global economy, a decrease in supply or cause a decrease in worldwide demand for certain goods and, thus,
shipping. Regarding the possible impact of supply chain disruptions that have or may emanate from the military conflict in Ukraine, our operations have not been affected materially and
we do not expect them to be in the future.
Furthermore, the intensity and duration of the recently declared war between Israel and Hamas is difficult to predict and its impact on the world economy and our industry is
uncertain. Beginning in late 2023, vessels in the Red Sea and Gulf of Aden have increasingly been subject to attempted hijackings and attacks by drones and projectiles characterized by
Houthi groups in Yemen as a response to the war between Israel and Hamas. An increasing number of companies have rerouted their vessels to avoid transiting the Red Sea, incurring
greater shipping costs and delays and for vessels transiting the region, war risk premium has increased substantially. While much uncertainty remains regarding the global impact of the
war between Israel and Hamas, it is possible that such tensions could result in the eruption of further hostilities in other regions, including in and around the Red Sea. Regarding the
possible impact of supply chain disruptions that have or may emanate from the war between Israel and Hamas, our operations have not been affected materially and we do not expect
them to be in the future.
Inflation has had a moderate impact on our vessel operating expenses and corporate overheads. It is anticipated that insurance costs, which have risen over the last three
years, may well continue to rise over the next few years. Oil transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased demand for
qualified crew and this has and will continue to put inflationary pressure on crew costs. However, in a shipping downturn, costs subject to inflation can usually be controlled because
shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers to lower rates and prices in the event of a downturn.
For further discussion of industry trends, refer to industry disclosure under “Item 4. Information on the Company—B. Business Overview.”
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E.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance
with U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or
conditions.
Critical accounting estimates are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and
conditions. We have described below what we believe are our most critical accounting estimates that involve a higher degree of judgment and the methods of their application. For a
description of all of our significant accounting estimates, see Note 2 to our consolidated financial statements included herein.
Vessel depreciation. We record the value of our vessels at their cost (which includes the contract price, pre-delivery costs incurred during the construction of newbuildings,
capitalized interest and any material expenses incurred upon acquisition such as initial repairs, improvements and delivery expenses to prepare the vessel for its initial voyage) less
accumulated depreciation. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years from the date of initial delivery from the shipyard.
Depreciation is based on cost of the vessel less its residual value which is estimated to be $300 per light-weight ton. An increase in the estimated useful life of a vessel or in its residual
value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of a vessel or in the residual value would have
the effect of increasing the annual depreciation charge. The estimated residual value of the vessels may not represent the fair value at any one time since market prices of light-weight
tons tend to fluctuate.
A decrease in the useful life of the vessel may occur as a result of poor vessel maintenance performed, harsh ocean-going and weather conditions that the vessel is subject to,
or poor quality of the shipbuilding yard. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, the vessel’s useful life is adjusted at the date such
regulations become effective. Weak freight markets may result in owners scrapping more vessels and scrapping them earlier due to unattractive returns. An increase in the useful life of
the vessel may result from superior vessel maintenance performed, favorable ocean-going and weather conditions the vessel is subjected to, superior quality of the shipbuilding yard, or
high freight rates which result in owners scrapping the vessels later due to attractive cash flows.
Impairment of vessels: We evaluate the existence of impairment indicators whenever events or changes in circumstances indicate that the carrying values of our long-lived
assets are not recoverable. Such indicators of potential impairment include, vessel sales and purchases, business plans and overall market conditions. If there are indications for
impairment present, we determine undiscounted projected net operating cash flows for each vessel and compare it to the vessel’s carrying value. If the carrying value of the related
vessel exceeds its undiscounted future net cash flows, the carrying value is reduced to its fair value.
The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes
in charter rates and the cost of newbuildings.
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no
assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve or decrease by any significant degree. Charter rates may be at
depressed levels for some time, which could adversely affect our revenue and profitability, and future assessments of vessel impairment.
In order to perform the undiscounted cash flow test, we make assumptions about future charter rates, commissions, vessel operating expenses, dry-dock costs, fleet utilization,
scrap rates used to calculate estimated proceeds at the end of vessels’ useful lives and the estimated remaining useful lives of the vessels. These assumptions are based on historical
trends as well as future expectations. The projected net operating cash flows 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 unfixed days (based on the ten year historical averages of the one-year, three-year and five-year time charter rates) over the remaining
useful life of each vessel, which we estimate to be 25 years from the date of initial delivery from the shipyard. Expected outflows for scheduled vessels’ maintenance and vessel
operating expenses are based on historical data, and adjusted annually assuming an average annual inflation derived from the most recent twenty-year average consumer price index.
Effective fleet utilization, average commissions, dry-dock costs and scrap values are also based on historical data.
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In both 2022 and 2023, tanker values increased and as a result in both years the charter-free market value of each vessel of our fleet was higher than its carrying amount. As
such we had no indicators of potential impairment and did not perform the undiscounted cash flow test for any vessel of our fleet. Therefore, for the years ended December 31, 2022 and
2023, this is not considered a critical accounting estimate.
Also see “Item 18. Financial Statements—Note 2— Significant Accounting Policies”
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
Set forth below are the names, ages and positions of our directors, executive officers and key employees. 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.
Name
Evangelos J. Pistiolis
Alexandros Tsirikos
Konstantinos Patis
Vangelis G. Ikonomou
Konstantinos Karelas
Stavros Emmanuel
Paolo Javarone
Age
51
49
50
60
51
81
50
Position
Director, President, Chief Executive Officer
Director, Chief Financial Officer
Chief Technical Officer
Chief Operating Officer
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Biographical information with respect to each of our directors and executives is set forth below.
Evangelos J. Pistiolis founded our Company in 2000, is our President and Chief Executive Officer, and has served on our Board of Directors since July 2004. Mr. Pistiolis
graduated from Southampton Institute of Higher Education in 1999, where he studied shipping operations and from Technical University of Munich in 1994 with a bachelor’s degree in
mechanical engineering. His career in shipping started in 1992 when he was involved with the day-to-day operations of a small fleet of drybulk vessels. From 1994 through 1995, he
worked at Howe Robinson & Co. Ltd., a London shipbroker specializing in container vessels. While studying at the Southampton Institute of Higher Education, Mr. Pistiolis oversaw
the daily operations of Compass United Maritime Container Vessels, a ship management company located in Greece.
Alexandros Tsirikos has served as our Chief Financial Officer since April 1, 2009. Mr. Tsirikos is a U.K. qualified Chartered Accountant (ACA) and has been employed with
TOP Ships Inc. since July 2007 as our Corporate Development Officer. Prior to joining TOP Ships Inc., Mr. Tsirikos was a manager with PricewaterhouseCoopers, or PwC, where he
worked as a member of the PwC Advisory team and the PwC Assurance team, thereby drawing experience both from consulting as well as auditing. As a member of PwC’s Advisory
team, he led and participated in numerous projects in the public and the private sectors, including strategic planning and business modeling, investment analysis and appraisal,
feasibility studies, costing and project management. As a member of the PwC’s Assurance team, Mr. Tsirikos was part of the International Financial Reporting Standards, or IFRS,
technical team of PwC Greece and lead numerous IFRS conversion projects for listed companies. He holds a Master’s of Science in Shipping Trade and Finance from City University of
London and a bachelor’s degree with honors in Business Administration from Boston University in the United States. He speaks English, French and Greek.
Konstantinos Patis has served as our Chief Technical Officer since January 2018. Mr. Patis holds a Master’s of Science and a Bachelor’s degree, both in Marine Engineering
from the University of Newcastle upon Tyne in the UK, as well as a Bachelor’s degree in Naval Architecture from the Technological Educational Institute of Athens, in Greece. He
started his carrier in 1997 acting as a Superintendent Engineer, thereafter as Fleet Manager and from 2014 as Technical Manager in various ship management companies in Greece, like
Cyprus Sea Lines, Technomar Shipping, Aeolian Investments, Arion Shipping operating diverse fleets of Tankers, Bulk Carriers and Containers and was involved in the technical
supervision, repairs, dry docks and construction of new projects.
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Vangelis G. Ikonomou is our Chief Operating Officer. Prior to joining us, Mr. Ikonomou was the Commercial Director of Primal Tankers Inc. From 2000 to 2002, Mr. Ikonomou
worked with George Moundreas & Company S.A. where he was responsible for the purchase and sale of second-hand vessels and initiated and developed a shipping industry research
department. Mr. Ikonomou worked, from 1993 to 2000, for Eastern Mediterranean Maritime Ltd., a ship management company in Greece, in the commercial as well as the safety and
quality departments. Mr. Ikonomou holds a Master’s degree in Shipping Trade and Finance from the City University Business School in London, a bachelor’s degree in Business
Administration from the University of Athens in Greece and a Navigation Officer Degree from the Higher State Merchant Marine Academy in Greece.
Konstantinos Karelas has served on our Board of Directors and has been member of the Audit Committee since April 2014. Since 2008, Mr. Karelas has served as the President
and CEO of Europe Cold Storages SA, one of the leading companies in the field of refrigeration logistics.
Stavros Emmanuel has served on our Board of Directors since December 31, 2017 and has been member of the Audit Committee since December 2018. Captain Stavros
Emmanuel has 47 years of experience in the shipping industry and expertise in operation and chartering matters. He obtained a Naval Officers degree from ASDEN Nautical Academy of
Aspropyrgos, Greece and earned a Master Mariners degree in 1971. He has worked in various management capacities at Compass United Maritime and Primal Tankers Inc. From 2004 to
2009 he was our Chief Operating Officer. Since leaving us, Captain Stavros Emmanuel has been an independent advisor to various shipping companies.
Paolo Javarone has served on our Board of Directors since September 1, 2014. Mr. Javarone is a member of the Italian Shipbrokers Association. From 2015, Mr. Javarone has
been working for Shipping 360 Ltd, a boutique shipbroking company with offices in London and Monaco and before that he has been working since 2000 for Sernavimar S.R.L., one of
the most reputable shipbroking houses in Italy, which cooperates with many of the oil major companies and trading associations of the industry. From 1994 to 2000, Mr. Javarone
worked for Genoa Sea Brokers in the tanker wing of the company specializing in clean petroleum products and edible markets. Previously, Mr. Javarone worked for S.a.n.a. Eur, a
company based in Rome Italy, where he was tasked with supplying energy and offshore supply. Before S.a.n.a., Mr. Javarone worked for Sidermar di Navigazione S.P.A. in the dry cargo
field. Mr. Javarone holds a Shipbroker degree from National Agents Association Shipbroking School in Italy and a degree in Shipping Economics and Law from Nautical Maritime
School in Italy.
B.
Compensation
On September 1, 2010, we entered into separate agreements with Central Mare, pursuant to which Central Mare furnishes our four executive officers as described below. On
December 10, 2023, our compensation committee comprising independent directors suggested and the board of directors granted to Mr. Evangelos J. Pistiolis a bonus of $5.0 million.
During the fiscal year ended December 31, 2023, we paid to the members of our senior management and to our directors aggregate compensation of $0.4 million and declared a $5.0
million bonus to our Chief Executive Officer, which was paid in January 2024. We do not have a retirement plan for our officers or directors and we did not issue any stock options or
other securities to them as part of compensation for the fiscal year ended December 31, 2023.
Under the terms of the agreement for the provision of our Chief Executive Officer, we are obligated to pay annual base salary. The initial term of the agreement expired on
August 31, 2014 and is automatically extended for successive one-year terms unless Central Mare or we provide notice of non-renewal at least sixty days prior to the expiration of the
then applicable term.
If our Chief Executive Officer’s employment is terminated without cause, he is entitled to certain personal and household security costs. If he is removed from our Board of
Directors or not re-elected, then his employment terminates automatically without prejudice to Central Mare’s rights to pursue damages for such termination. In the event of a change of
control, the Chief Executive Officer is entitled to receive a cash payment of ten million Euros. The agreement also contains death and disability provisions. In addition, the Chief
Executive Officer is subject to non-competition and non-solicitation undertakings.
Under the terms of the agreement for the provision of our Chief Operating Officer, we are obligated to pay annual base salary and additional incentive compensation as
determined by our Board of Directors. The initial term of the agreement expired on August 31, 2011 and is automatically extended for successive one-year terms unless Central Mare or
we provide notice of non-renewal at least sixty days prior to the expiration of the then applicable term. In the event of a change of control, he is entitled to receive a cash payment of
three years’ annual base salary. The agreement also contains death and disability provisions. In addition, our Chief Operating Officer is subject to non-competition and non-solicitation
undertakings.
Under the terms of the agreement for the provision of our Chief Financial Officer, we are obligated to pay annual base salary. The initial term of the agreement expired on
August 31, 2012, and is automatically extended for successive one-year terms unless Central Mare or we provide notice of non-renewal at least sixty days prior to the expiration of the
then applicable term.
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If our Chief Financial Officer is removed from our Board of Directors or not re-elected, then his employment terminates automatically without prejudice to Central Mare’s rights
to pursue damages for such termination. In the event of a change of control, our Chief Financial Officer is entitled to receive a cash payment equal to three years’ annual base salary.
The agreement also contains death and disability provisions. In addition, our Chief Financial Officer is subject to non-competition and non-solicitation undertakings.
Under the terms of our agreement for the provision of our Chief Technical Officer, we are obligated to pay annual base salary. The initial term of the agreement expired on
August 31, 2011; however the agreement is being automatically extended for successive one-year terms unless Central Mare or we provide notice of non-renewal at least sixty days prior
to the expiration of the then applicable term. In the event of a change of control, the Chief Technical Officer is entitled to receive a cash payment equal to three years’ annual base
salary. In addition, our Chief Technical Officer is subject to non-competition and non-solicitation undertakings.
C.
Board Practices
Our Board of Directors is divided into three classes. Members of our Board of Directors are elected annually on a staggered basis, and each director elected holds office for a
three-year term. We currently have two executive directors and three independent non-executive directors. The terms of our Class II directors, Paolo Javarone and Konstantinos
Karelas, expires at the annual general meeting of shareholders in 2024. The term of our Class III director, Alexandros Tsirikos, expires at the annual general meeting of shareholders in
2025. The terms of our Class I directors, Stavros Emmanuel and Evangelos J. Pistiolis expires at the annual general meeting of shareholders in 2026.
Committees of our Board of Directors
We currently have an audit committee composed of three independent members, who are responsible for reviewing our accounting controls and recommending to our Board of
Directors, the engagement of our outside auditors. Konstantinos Karelas, Paolo Javarone and Stavros Emmanuel (Chairman), whose biographical details are included in “Item 6.
Directors, Senior Management and Employees” of this Annual Report, are the members of the audit committee, and our Board of Directors has determined that they are independent
under the Nasdaq corporate governance rules.
Our compensation committee and nominating and governance committees are currently composed of the following three members: Konstantinos Karelas, Paolo Javarone and
Stavros Emmanuel. The compensation committee carries out our Board of Directors’ responsibilities relating to compensation of our executive and non-executive officers and provides
such other guidance with respect to compensation matters as the committee deems appropriate. The nominating and governance committee assists our Board of Directors in: (i)
identifying, evaluating and making recommendations to our Board of Directors concerning individuals for selections as director nominees for the next annual meeting of stockholders or
to otherwise fill vacancies on our Board of Directors; (ii) developing and recommending to our Board of Directors a set of corporate governance guidelines and principles applicable to
us; and (iii) reviewing our overall corporate governance and recommending improvements to our Board of Directors from time to time.
As a foreign private issuer, we are exempt from certain Nasdaq requirements that are applicable to U.S. domestic companies. For a listing and further discussion of how our
corporate governance practices differ from those required of U.S. companies listed on Nasdaq, please see “Item 16G. Corporate Governance”.
D.
Employees
We have no direct employees, while our four executive officers and a number of administrative employees are furnished to us pursuant to agreements with Central Mare, as
described above. Our Fleet Manager ensures that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions, and that
our vessels employ experienced and competent personnel. As of December 31, 2021, 2022 and 2023, we employed 146, 170 and 178 sea-going employees, indirectly through our Fleet
Manager.
E.
Share Ownership
The common shares beneficially owned by our directors and senior managers and/or companies affiliated with these individuals are disclosed in “Item 7. Major Shareholders
and Related Party Transactions—A. Major Shareholders.”
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F.
Disclosure of a registrant’s action to recover erroneously awarded compensation.
None.
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth the beneficial ownership of our voting securities, comprised of our common shares and Series D Preferred Shares, as of the date of this annual
report, held by: (i) each person or entity that we know beneficially owns 5% or more of our common shares and (ii) all our executive officers, directors and key employees as a group.
Beneficial ownership is determined in accordance with the SEC’s rules. In computing percentage ownership of each person, common shares subject to options held by that person that
are currently exercisable or convertible, or exercisable or convertible within 60 days are deemed to be beneficially owned by that person. These shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other person. All shareholders of common stock are entitled to one vote for each common share held and
holders of our Series D Preferred Shares are entitled to 1,000 votes per Series D Preferred Share held. Percentages in the table below are based on 4,626,197 common shares and 100,000
Series D Preferred Shares outstanding as of March 29, 2024.
Name and Address of Beneficial Owner
Lax Trust (1)
3 Sororibus Trust(2)
Evangelos J. Pistiolis(3)
Executive officers, directors and key employees(4)
Number of Shares Owned
100,000 Series D Preferred Shares (1)
2,930,718 Common Shares
446,446 Common Shares
0 Common Shares
Percentage of
Class
100%
63.35%
9.65%
0%
Percentage
of
Total
Voting
Power
95.58%
2.80%
0.43%
0.00%
The Lax Trust is an irrevocable trust established for the benefit of certain family members of Mr. Evangelos J. Pistiolis, our President, Chief Executive Officer and Director. The
business address of the Lax Trust is Level 3, 18 Stanley Street, Auckland 1010, New Zealand. As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis personally
guaranteed the performance of the bareboat charters entered in connection with the lease, under certain circumstances, and in exchange, we amended the Certificate of
Designations governing the terms of the Series D Preferred Shares, to adjust the voting rights per share of Series D Preferred Shares such that during the term of the Navigare
Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of our total voting power, irrespective of any new
common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. The above
percentage of total voting power is based on 100,000,000 votes carried by the outstanding Series D Preferred Share (1,000 votes per Series D Preferred Share held).
The above information is derived, in part, from the Amendment No. 39 to the 13D/A filed with the SEC on February 14, 2024. 3 Sororibus Trust is an irrevocable trust established
for the benefit of certain family members of Mr. Evangelos J. Pistiolis. The business address of 3 Sororibus Trust is 31 Kitiou Kyprianou, 3036, Limassol, Cyprus. 3 Sororibus
Trust is the sole shareholder of Family Trading Inc., or Family Trading, a Marshall Islands corporation, and may be deemed to beneficially own all of the common shares
beneficially owned by Family Trading.
The above information is derived, in part, from the Amendment No. 39 to the 13D/A filed with the SEC on February 14, 2024.
Excludes the shares held by Mr. Evangelos J. Pistiolis that are reported elsewhere in this table.
(1)
(2)
(3)
(4)
.
As of March 29, 2024, we had one shareholder of record, Cede & Co, which is located in the United States and held an aggregate of 4,626,197 of our common shares,
representing 100% of our outstanding common shares. We believe that the shares held by Cede & Co. include common shares beneficially owned by both holders in the United States
and non-U.S. beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.
B.
Related Party Transactions
Please also see “Item 18. Financial Statements—Note 5—Transactions with Related Parties.”
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(a) Central Mare– Executive Officers and Other Personnel Agreements
On September 1, 2010, we entered into separate agreements with Central Mare, a related party affiliated with the family of our President, Chief Executive Officer and Director,
Mr. Evangelos J. Pistiolis, pursuant to which Central Mare provides us with our executive officers (Chief Executive Officer, Chief Financial Officer, Chief Technical Officer and Chief
Operating Officer).
The fees charged by and expenses relating to Central Mare for the years ended December 31, 2021, 2022 and 2023 are $0.4 million per year.
(b) Central Shipping Inc. (“CSI”) – Letter Agreement and Management Agreements
On January 1, 2019, we entered into a letter agreement with CSI (“CSI Letter Agreement”), a related party affiliated with the family of Mr. Evangelos J. Pistiolis and on the same
date we entered into management agreements, or the CSI Management Agreements, between CSI and our vessel-owning subsidiaries respectively. The CSI Letter Agreement can only
be terminated subject to an eighteen-month advance notice, subject to a termination fee equal to twelve months of fees payable under the CSI Letter Agreement.
Pursuant to the CSI Letter Agreement, as well as the CSI Management Agreements concluded between CSI and our vessel-owning subsidiaries, we pay a management fee of
$630 per day per vessel for the provision of technical, commercial, operation, insurance, bunkering and crew management, commencing three months before the vessel is scheduled to
be delivered by the shipyard. In addition, the CSI Management Agreements provide for payment to CSI of: (i) $573 per day for superintendent visits plus actual expenses; (ii) a
chartering commission of 1.25% on all freight, hire and demurrage revenues; (iii) a commission of 1.00% on all gross vessel sale proceeds or the purchase price paid for vessels and (iv) a
financing fee of 0.2% on derivative agreements and loan financing or refinancing. CSI also performs supervision services for all of our newbuilding vessels while the vessels are under
construction, for which we pay CSI the actual cost of the supervision services plus a fee of 7% of such supervision services.
CSI provides, at cost, all accounting, reporting and administrative services. Finally, the CSI Letter Agreement provides for a performance incentive fee for the provision of
management services to be determined at our discretion. The CSI Management Agreements have an initial term of five years, after which they will continue to be in effect until
terminated by either party subject to an eighteen-month advance notice of termination. Pursuant to the terms of the CSI Management Agreements, all fees payable to CSI are adjusted
annually according to the US Consumer Price Inflation (“CPI”) of the previous year and, if CPI is less than 2%, then a 2% increase is effected.
The fees charged by and expenses relating to CSI for the years ended December 31, 2021, 2022 and 2023 were $5.7 million, $4.9 million and $3.4 million respectively. For the
years ended December 31, 2021, 2022 and 2023, CSI also charged us newbuilding supervision related pass-through costs amounting to $1.2 million, $0.2 million and $0.0 million
respectively.
(c) Issuance of Series E Preferred Shares to Family Trading Inc (“Family Trading”)
On September 8, 2021, pursuant to a Sale and Purchase Agreement between the Issuer and Zizzy Charter Co. dated September 8, 2021, we issued 2,188 Series E Preferred Shares to
Family Trading as partial settlement of the consideration outstanding for the purchase of an additional 65% ownership interest in each of Julius Caesar Inc. and Legio X Inc., each a
party to shipbuilding contracts for VLCC Julius Caesar and VLCC Legio X Equestris, respectively, from a party affiliated with Mr. Pistiolis. On December 6, 2023, Family Trading
converted all of its 13,452 Series E Preferred Shares into 2,930,718 Common Shares pursuant to the terms of the Series E Preferred Shares, at a Series E Conversion Price of $4.59. All
converted Series E Preferred Shares were cancelled upon conversion and we currently have no Series E Preferred Shares outstanding.
(d) Vessel Acquisitions from affiliated entities
From January 8, 2021 to September 8, 2021 we entered into a series of transactions with a number of entities affiliated with Mr. Evangelos J. Pistiolis. As of December 31, 2023,
we don’t owe anything to the previous owners of the newbuilding vessels. For more information on these vessel acquisitions please see “Item 18. Financial Statements—Note 1— Basis
of Presentation and General Information.” and “Item 4. Information On the Company - A. History and Development of the Company.”
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(e) Charter Parties with Central Tankers Chartering
On January 6, 2021 we acquired a shipowning company from an entity affiliated with Mr. Evangelos J. Pistiolis that owned M/T Eco Oceano CA which was party to a time
charter, with Central Tankers Chartering Inc, for a firm duration of five years at a gross daily rate of $32,450, with two optional years at $33,950 and $35,450 at Central Tankers
Chartering’s option. The time charter commenced on the date of delivery. On February 22, 2022 we amended the previously agreed time charter with Central Tankers Chartering and
increased its firm period from five years to 15 years and reduced the daily rate from $32,450 to $24,500. This transaction was approved by a special committee of our Board of Directors
(the “Special Committee”), of which all of the directors were independent, after obtaining a fairness opinion from an independent financial advisor.
(f) Personal Guarantees by Mr. Evangelos J. Pistiolis and Related Amendments to the Series D Preferred Shares.
As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis personally guaranteed the performance of the bareboat charters connected to the lease and in exchange, we
agreed to indemnify him for any losses suffered as a result of the guarantee provided, and we amended the Certificate of Designations governing the terms of the Series D Preferred
Shares, to adjust the voting rights per share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J.
Pistiolis and the Lax Trust does not fall below a majority of our total voting power, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant
covenant of the bareboat charters entered in connection with the Navigare Lease. This personal guarantee comes into effect in the case 120 days have passed and we are still unable to
pay down all amounts due under the Navigare Lease, with the exception of amounts due to Navigare due to a total loss, where in this case the personal guarantee will cover an amount
equal to all unpaid charter hire and a further amount equivalent to all future charter hire that would have accrued from the date of the total loss up to the end of the charter period and is
callable 200 days after the date of the total loss. Due to the related party nature of the transactions involving Mr. Evangelos J. Pistiolis, such transactions were unanimously approved
by the Company’s Board of Directors, including all three independent directors.
(g) Issuance of Series F Preferred Shares
On January 17, 2022, we entered into a stock purchase agreement with Africanus Inc., an affiliate of our CEO for the sale of up to 7,560,759 Series F Non-Convertible Perpetual
Preferred Shares, par value $0.01, in exchange for (i) the assumption by Africanus Inc. of an amount of $48.0 million of shipbuilding costs for vessels M/T Eco Oceano CA, M/T Julius
Caesar and M/T Legio X Equestris, and (ii) settlement of our remaining payment obligations relating to the acquisition in September 8, 2021 of an additional 65% ownership interest in
the newbuilding contracts for its two VLCCs, in an amount of up to $27.6 million. A total of 7,200,000 Series F Preferred Shares were issued. On July 8, 2022, we redeemed 865,558 of our
Series F Preferred Shares for an aggregate amount of approximately $10.4 million, payable in cash. On December 30, 2022, we redeemed 483,694 of our Series F Preferred Shares for an
aggregate amount of approximately $5.8 million, payable in cash. On January 13, 2023, we redeemed 1,000,000 of our Series F Preferred Shares for an aggregate amount of approximately
$12.0 million, payable in cash. On March 6, 2023, we redeemed 1,016,667 of our Series F Preferred Shares for an aggregate amount of approximately $12.2 million, payable in cash. On
April 19, 2023, we redeemed 174,454 of our Series F Preferred Shares for an aggregate amount of approximately $2.1 million, payable in cash. On February 6, 2024, we fully redeemed all of
our outstanding 3,659,627 Series F Preferred Shares for an aggregate amount of approximately $43.9 million, payable in cash. Following completion of the redemptions, as of the date
hereof, we have no Series F Preferred Shares outstanding. In December 2022, 100% of Africanus Inc shares were transferred to 3 Sororibus Trust, which is an irrevocable trust
established for the benefit of certain family members of Mr. Pistiolis.
(h) Central Mare Bridge Loan
On January 5, 2022 we entered into an unsecured credit facility for up to $20 million with an affiliate of Mr. Evangelos J. Pistiolis in order to finance part of the shipbuilding cost
of our two VLCC newbuildings. A total of $9 million was drawn down. The facility maturity was December 31, 2022. The principal terms of the loan included an arrangement fee of 2%,
interest of 12% per annum and a commitment fee of 1.00% on the undrawn part of the facility. The facility was fully repaid and terminated on March 4, 2022 from proceeds from the sale
of the M/T Eco Los Angeles.
(i) HSBC Bridge Guarantee
As described above under "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—HSBC Bridge Loan,” Evangelos J.
Pistiolis provided a guarantee for the Company’s performance under the HSBC Bridge and charged the Company a 1% fee on the amounts drawn down under the HSBC Bridge.
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C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
See “Item 18—Financial Statements.”
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect
that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and
managerial resources.
Dividend Distribution Policy
The declaration and payment of any future special dividends shall remain subject to the discretion of our Board of Directors and shall be based on general market and other
conditions including our earnings, financial strength and cash requirements and availability.
B.
Significant Changes
All significant changes have been included in the relevant sections.
ITEM 9.
THE OFFER AND LISTING
Not applicable except for Item 9.A.4. and Item 9.C.
Share History and Markets
Since July 23, 2004, the primary trading market for our common shares has been Nasdaq on which our shares are now listed under the symbol “TOPS.”
ITEM 10.
ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
Purpose
Our purpose is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Marshall Islands Business Corporations Act, or
BCA. Our Third Amended and Restated Articles of Incorporation and Amended and Restated By-Laws, as further amended, do not impose any limitations on the ownership rights of
our shareholders.
Authorized Capitalization
Our authorized capital stock consists of 1,000,000,000 common shares, par value $0.01 per share, of which 4,626,197 shares were issued and outstanding as of December 31,
2023 and 20,000,000 preferred shares with par value of $0.01, of which 100,000 Series D Preferred Shares and 3,659,627 Series F Preferred Shares were issued and outstanding as of
December 31, 2023. On February 6, 2024, we fully redeemed all of our outstanding Series F Preferred Shares pursuant to their terms, following which no Series F Preferred Shares are
outstanding. Our Board of Directors has the authority to establish such series of preferred stock and with such designations, preferences and relative, participating, optional or special
rights and qualifications, limitations or restrictions as shall be stated in the resolution or resolutions providing for the issue of such preferred stock.
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On September 14, 2016, we declared a dividend of one preferred share purchase right for each outstanding common share and adopted a shareholder rights plan, as set forth in
a Stockholders Rights Agreement dated as of September 22, 2016, by and between us and Computershare Trust Company, N.A., as rights agent (succeeded by our current transfer
agent), described below under the section entitled “—Stockholders Rights Agreement”. In connection with the Stockholders Rights Agreement, we designated 1,000,000 shares as
Series A Participating Preferred Stock, none of which were outstanding as of December 31, 2023.
Description of Common Shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any
outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our Board of Directors out of funds legally available for
dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of
our preferred shares having liquidation preferences, if any, the holders of our common shares will be entitled to receive pro rata our remaining assets available for distribution. Holders
of our common shares do not have conversion, redemption or preemptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of our common
shares are subject to the rights of the holders of any preferred shares that we may issue in the future.
Description of Preferred Shares
Our Third Amended and Restated Articles of Incorporation authorize our Board of Directors to establish one or more series of preferred shares and to determine, with respect
to any series of preferred shares, the terms and rights of that series, including the designation of the series, the number of shares of the series, the preferences and relative, participating,
option or other special rights, if any, and any qualifications, limitations or restrictions of such series, and the voting rights, if any, of the holders of the series.
Description of Series D Preferred Shares
On May 8, 2017, we issued 100,000 shares of Series D Preferred Shares to Tankers Family Inc., a company controlled by Lax Trust, which is an irrevocable trust established for
the benefit of certain family members of Mr. Evangelos J. Pistiolis, for $1,000 pursuant to a stock purchase agreement. Each Series D Preferred Share has the voting power of one
thousand (1,000) common shares.
On April 21, 2017, we were informed by ABN Amro Bank that we were in breach of a loan covenant that requires that any member of the family of Mr. Evangelos J. Pistiolis,
maintain an ownership interest (either directly and/or indirectly through companies beneficially owned by any member of the Pistiolis family and/or trusts or foundations of which any
member of the Pistiolis family are beneficiaries) of 30% of our outstanding Common Shares. ABN Amro Bank requested that either the family of Mr. Evangelos J. Pistiolis maintain an
ownership interest of at least 30% of the outstanding common shares or maintain voting rights interests of above 50% in us. In order to regain compliance with the loan covenant, we
issued the Series D Preferred Shares.
The Series D Preferred Stock has the following characteristics:
Conversion. The Series D Preferred Shares are not convertible into common shares.
Voting. Each Series D Preferred Share has the voting power of 1,000 common shares. As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis personally guaranteed
the performance of the bareboat charters entered in connection with the lease, under certain circumstances, and in exchange, we amended the Certificate of Designations governing the
terms of the Series D Preferred Shares, to adjust the voting rights per share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power
controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of our total voting power, irrespective of any new common or preferred stock issuances, and
thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease.
Distributions. The Series D Preferred Shares shall have no dividend or distribution rights.
Maturity. The Series D Preferred Shares shall expire and all outstanding Series D shares shall be redeemed by us for par value on the date that any financing facility with any
financial institution, which requires that any member of the family of Mr. Evangelos J. Pistiolis maintains a specific minimum ownership or voting interest (either directly and/or indirectly
through companies or other entities beneficially owned by any member of the Pistiolis family and/or trusts or foundations of which any member of the Pistiolis family are beneficiaries)
of our issued and outstanding common shares, respectively, are fully repaid or reach their maturity date. The Series D Preferred Shares shall not be otherwise redeemable. Currently the
SLB’s with AVIC, CMBFL, Huarong and Navigare have similar provisions that are satisfied via the existence of the Series D Shares.
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Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of our Company, the Series D Preferred Shares shall have a liquidation preference of
$0.01 per share.
The description of the Series D Convertible Preferred Shares is subject to and qualified in its entirety by reference to the Securities Purchase Agreement, Certificate of
Designation of the Series D Preferred Shares, and Certificate of Amendment to the Certificate of Designation. Copies of the Securities Purchase Agreement and Certificate of
Designation of the Series D Preferred Shares have been filed as exhibits to our Report on Form 6-K filed with the SEC on May 8, 2017. The Certificate of Amendment to the Certificate of
Designation was filed as an exhibit to our Report on Form 6-K filed with the SEC on December 4, 2020.
Description of Series F Preferred Shares
On January 17, 2022, we entered into a stock purchase agreement with Africanus Inc., owned by 3 Sororibus Trust, an irrevocable trust established for the benefit of certain
family members of Mr. Pistiolis, for the sale of up to 7,560,759 Series F Non-Convertible Perpetual Preferred Shares, par value $0.01, in exchange for (i) the assumption by Africanus Inc.
of an amount of $48.0 million of shipbuilding costs for vessels M/T Eco Oceano CA (Hull No. 871), M/T Julius Caesar and M/T Legio X Equestris (Hull No. 3214), and (ii) settlement of
our remaining payment obligations relating to the acquisition in September 8, 2021 of an additional 65% ownership interest in the newbuilding contracts for its two VLCCs, in an amount
of up to $27.6 million.
A total of 7,200,000 Series F Preferred Shares were issued. On July 8, 2022, we redeemed 865,558 of our Series F Preferred Shares for an aggregate amount of approximately $10.4
million, payable in cash. On December 30, 2022, we redeemed 483,694 of our Series F Preferred Shares for an aggregate amount of approximately $5.8 million, payable in cash. On January
13, 2023, we redeemed 1,000,000 of our Series F Preferred Shares for an aggregate amount of approximately $12.0 million, payable in cash. On March 6, 2023, we redeemed 1,016,667 of our
Series F Preferred Shares for an aggregate amount of approximately $12.2 million, payable in cash. On April 19, 2023, we redeemed 174,454 of our Series F Preferred Shares for an
aggregate amount of approximately $2.1 million, payable in cash. On February 6, 2024, we fully redeemed all of our outstanding 3,659,627 Series F Preferred Shares for an aggregate
amount of approximately $43.9 million, payable in cash. Following completion of the redemptions, we have no Series F Preferred Shares outstanding.
The Series F Preferred Shares had the following characteristics:
Voting. The holders of Series F Preferred Shares were entitled to the voting power of ten (10) of our common shares per Series F Preferred Share. The holders of Series F
Preferred Shares and the holders of common shares voted together as one class on all matters submitted to a vote of shareholders. Except as required by law, the holders of Series F
Preferred Shares had no special voting rights and their consent was not required for taking any corporate action.
Distributions. Upon any liquidation, dissolution or winding up of our Company, the holders of Series F Preferred Shares were entitled to receive the net assets of the Company
pari passu with the Common Shares.
Redemption. The Company at its option had the right to redeem a portion or all of the outstanding Series F Preferred Shares. Upon an optional redemption, the Company was
required to pay an amount equal to $10 per Series F Preferred Share redeemed (the “Liquidation Amount”), plus a redemption premium of 20% of the Liquidation Amount. The Series F
Preferred Shares included a mandatory redemption provision tied to minimum voting requirements for the Company’s major shareholders, including affiliates of the CEO, pursuant to
which if such minimum voting rights fell below 50% the Company would be obliged to redeem the full amount of the then outstanding Series F Preferred Shares at a redemption premium
of 40%.
Dividends. The holders of outstanding Series F Preferred Shares were entitled to receive semi-annual dividends payable in cash at a rate of 13.5% per year of the Liquidation
Amount of the then outstanding Series F Preferred Shares. In addition, a one-time cash dividend equal to 4.0% of the Liquidation Amount was payable to the relevant holders 30 days
following the initial issuance of Series F Preferred Shares.
Ranking. All shares of Series F Preferred Shares ranked pari passu with the Company’s common shares.
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Description of June 2022 Warrants and October 2022 Warrants
On June 3, 2022, we entered into a securities purchase agreement with a single unaffiliated institutional investor to purchase approximately $7.2 million of our common shares
(or pre-funded warrants in lieu thereof) in a registered direct offering and warrants to purchase common shares in a concurrent private placement (the “June 2022 Warrants”). On June 7,
2022, we issued 19,583 of our common shares and pre-funded warrants to purchase 40,012 common shares in the registered direct offering, and 14,303,000 warrants (the “June 2022
Warrants”) to purchase 59,595 common shares in the concurrent private placement for a purchase price of $120.00 per common share and June 2022 Warrants and $119.976 per pre-
funded warrant and June 2022 Warrant.
On October 10, 2022, we entered into a warrant exercise inducement letter agreement (“Inducement Letter”) with an accredited investor that was an existing holder of the June
2022 Warrants, wherein the investor agreed to exercise all of the June 2022 Warrants at an exercise price reduced from $120.00 per share to $81.00 per share, in consideration for the
issuance of new warrants (the “October 2022 Warrants”) to purchase up to an aggregate of 89,393 common shares for a purchase price of $81.00 per common share. The net proceeds of
the exercise of the June 2022 Warrants to the Company, after deducting estimated expenses and fees, were approximately $4.5 million.
The following description of the characteristics of the October 2022 Warrants is a summary and does not purport to be complete and is qualified by reference to the Form of
Common Stock Purchase Warrant attached as an exhibit to our Report on Form 6-K filed with the SEC on October 11, 2022.
Exercisability. The October 2022 Warrants are exercisable at any time after their original issuance and June 7, 2027. The October 2022 Warrants are exercisable, at the option of
each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the common shares underlying the
October 2022 Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the
issuance of such shares, by payment in full in immediately available funds for the number of common shares purchased upon such exercise. If a registration statement registering the
issuance of the common shares underlying the October 2022 Warrants under the Securities Act is not effective or available and an exemption from registration under the Securities Act
is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in which case the holder would receive
upon such exercise the net number of common shares determined according to the formula set forth in the warrant. No fractional common shares will be issued in connection with the
exercise of a warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99%
of the number of shares of our common shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of
the October 2022 Warrants.
Exercise Price. The exercise price per whole common share purchasable upon exercise of the October 2022 Warrants is $81.00 per share. The exercise price is subject to
appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common shares and
also upon any distributions of assets, including cash, stock or other property to our shareholders.
Transferability. Subject to compliance with any applicable securities laws and the additional conditions set forth in the October 2022 Warrants certificate, the October 2022
Warrants and all rights hereunder are transferable, in whole or in part, upon surrender of the October 2022 Warrants at our principal office or our designated agent, together with a
written assignment of the October 2022 Warrants substantially in the form attached thereto duly executed by the holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer.
Fundamental Transactions. In the event of a fundamental transaction, as described in the October 2022 Warrants and generally including, with certain exceptions, any
reorganization, recapitalization or reclassification of our common shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or
merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming the beneficial owner of 50% of the voting
power represented by our outstanding common shares, the holders of the October 2022 Warrants will be entitled to receive upon exercise of the October 2022 Warrants the kind and
amount of securities, cash or other property that the holders would have received had they exercised the October 2022 Warrants immediately prior to such fundamental transaction.
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Rights as a Shareholder. Except as otherwise provided in the October 2022 Warrants or by virtue of such holder’s ownership of our common shares, the holder of the October
2022 Warrants does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the warrant.
Governing Law. The October 2022 Warrants and the October 2022 Warrants Agreement are governed by New York law.
Description of Class C Warrants
On December 6, 2022, we closed a public offering of 562,500 units, each consisting of one of our common shares and Class C Warrants to purchase one common share, at a
price of $24.00 per unit. The gross proceeds of the offering to us, before discounts and commissions and estimated offering expenses, were approximately $13.5 million.
The following description of the characteristics of the Class C Warrants is a summary and does not purport to be complete and is qualified by reference to the Form of Class C
Common Stock Purchase Warrant and the Warrant Agency Agreement attached as exhibits to our Report on Form 6-K filed with the SEC on December 14, 2022.
Exercisability. The Class C Warrants are exercisable at any time after their original issuance and at any time up to the date that is five years after their original issuance. The
Class C Warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering
the issuance of the common shares underlying the Class C Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration
under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of common shares purchased upon such exercise.
If a registration statement registering the issuance of the common shares underlying the Class C Warrants under the Securities Act is not effective or available and an exemption from
registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in
which case the holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. No fractional common shares
will be issued in connection with the exercise of a warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise
price.
Exercise Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99%
of the number of shares of our common shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of
the Class C Warrants.
Exercise Price. The exercise price per whole common share purchasable upon exercise of the Class C Warrants was $24.00 per share. The exercise price is subject to
appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common shares and
also upon any distributions of assets, including cash, stock or other property to our shareholders. On February 14, 2023 we entered into a securities purchase agreement with several
institutional investors as part of a registered direct equity offering, under which we reduced the exercise price per common share under the outstanding Class C Warrants to $16.20 per
common share with all other terms remaining unchanged.
Transferability. The Class C Warrants and all rights hereunder are transferable, in whole or in part, upon surrender of the Class C Warrants at our principal office or our
designated agent, together with a written assignment of the Class C Warrants substantially in the form attached thereto duly executed by the holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Warrant Agent. The Class C Warrants are issued in registered form under the warrant agency agreement between American Stock Transfer & Trust Company, as warrant
agent, and us.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Class C Warrants and generally including, with certain exceptions, any
reorganization, recapitalization or reclassification of our common shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or
merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming the beneficial owner of 50% of the voting
power represented by our outstanding common shares, the holders of the Class C Warrants will be entitled to receive upon exercise of the Class C Warrants the kind and amount of
securities, cash or other property that the holders would have received had they exercised the Class C Warrants immediately prior to such fundamental transaction.
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Rights as a Shareholder. Except as otherwise provided in the Class C Warrants or by virtue of such holder’s ownership of our common shares, the holder of a Class C Warrant
does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the warrant.
Governing Law. The Class C Warrants and the Class C Warrant Agreement are governed by New York law.
Description of February 2023 Warrants
On February 14, 2023, we entered into a securities purchase agreement with certain unaffiliated institutional investors to purchase up to 837,094 units, each unit consisting of (i)
one common share, par value $0.01 per share (each, a “Common Share”) of the Company and (ii) warrants to purchase one Common Share in a registered direct offering. On February 16,
2023, we issued 837,094 Common Shares and 10,045,185 warrants (the “February 2023 Warrants”) to purchase 837,094 common shares with an exercise price of $16.20 per common share.
The following description of the characteristics of the February 2023 Warrants is a summary and does not purport to be complete and is qualified by reference to the Form of
Common Stock Purchase Warrant attached as an exhibit to our Report on Form 6-K filed with the SEC on February 16, 2023.
Exercisability. The February 2023 Warrants are exercisable at any time after their original issuance and through February 16, 2028. The February 2023 Warrants are exercisable,
at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the common
shares underlying the February 2023 Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities
Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of common shares purchased upon such exercise. If a registration
statement registering the issuance of the common shares underlying the February 2023 Warrants under the Securities Act is not effective or available and an exemption from registration
under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in which case the
holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. No fractional common shares will be issued in
connection with the exercise of a warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99%
of the number of shares of our common shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of
the February 2023 Warrants.
Exercise Price. The exercise price per whole common share purchasable upon exercise of the February 2023 Warrants is $16.20 per share. The exercise price is subject to
appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common shares and
also upon any distributions of assets, including cash, stock or other property to our shareholders.
Transferability. Subject to compliance with any applicable securities laws and the additional conditions set forth in the February 2023 Warrants certificate, the February 2023
Warrants and all rights hereunder are transferable, in whole or in part, upon surrender of the February 2023 Warrants at our principal office or our designated agent, together with a
written assignment of the February 2023 Warrants substantially in the form attached thereto duly executed by the holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer.
Fundamental Transactions. In the event of a fundamental transaction, as described in the February 2023 Warrants and generally including, with certain exceptions, any
reorganization, recapitalization or reclassification of our common shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or
merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming the beneficial owner of 50% of the voting
power represented by our outstanding common shares, the holders of the February 2023 Warrants will be entitled to receive upon exercise of the February 2023 Warrants the kind and
amount of securities, cash or other property that the holders would have received had they exercised the February 2023 Warrants immediately prior to such fundamental transaction.
Rights as a Shareholder. Except as otherwise provided in the February 2023 Warrants or by virtue of such holder’s ownership of our common shares, the holder of a February
2023 Warrants does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the warrant.
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Governing Law. The February 2023 Warrants and the February 2023 Warrants Agreement are governed by New York law.
Shareholder Meetings
Under our Amended and Restated By-Laws, annual shareholder meetings will be held at a time and place selected by our Board of Directors. The meetings may be held in or
outside of the Marshall Islands. Special meetings of the shareholders, unless otherwise prescribed by law, may be called for any purpose or purposes at any time exclusively by our
Board of Directors. Notice of every annual and special meeting of shareholders shall be given at least 15 but not more than 60 days before such meeting to each shareholder of record
entitled to vote thereat.
Directors
Our directors are elected by a plurality of the votes cast at a meeting of the shareholders by the holders of shares entitled to vote in the election. Our Third Amended and
Restated Articles of Incorporation and Amended and Restated By-laws, as further amended, prohibit cumulative voting in the election of directors.
Our Board of Directors must consist of at least one member and not more than twelve, as fixed from time to time by the vote of not less than 66 2/3% of the entire board. Each
director shall be elected to serve until the third succeeding annual meeting of shareholders and until his successor shall have been duly elected and qualified, except in the event of his
death, resignation, removal, or the earlier termination of his term of office. Our Board of Directors has the authority to fix the amounts which shall be payable to the members of our
Board of Directors, and to members of any committee, for attendance at any meeting or for services rendered to us.
Classified Board
Our Third Amended and Restated Articles of Incorporation provide for the division of our Board of Directors into three classes of directors, with each class as nearly equal in
number as possible, serving staggered, three-year terms. Approximately one-third of our Board of Directors will be elected each year. This classified board provision could discourage a
third party from making a tender offer for our shares or attempting to obtain control of our company. It could also delay shareholders who do not agree with the policies of our Board of
Directors from removing a majority of our Board of Directors for two years.
Election and Removal
Our Third Amended and Restated Articles of Incorporation and Amended and Restated By-Laws require parties other than our Board of Directors to give advance written
notice of nominations for the election of directors. Our Third Amended and Restated Articles of Incorporation provide that our directors may be removed only for cause and only upon
the affirmative vote of the holders of at least 80% of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent
the removal of incumbent officers and directors.
Dissenters’ Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions, including certain mergers or consolidations or sales of all or substantially all of our
assets not made in the usual course of our business, and receive payment of the fair value of their shares, subject to exceptions. For example, the right of a dissenting shareholder to
receive payment of the fair value of his shares is not available if for the shares of any class or series of shares, which shares at the record date fixed to determine the shareholders
entitled to receive notice of and vote at the meeting of shareholders to act upon the agreement of merger or consolidation, were either (1) listed on a securities exchange or admitted for
trading on an interdealer quotation system or (2) held of record by more than 2,000 holders. In the event of any further amendment of the articles, a shareholder also has the right to
dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting shareholder must follow the procedures set forth in
the BCA to receive payment. In the event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution
of proceedings in the High Court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which our shares are primarily traded on a local or national
securities exchange. The value of the shares of the dissenting shareholder is fixed by the court after reference, if the court so elects, to the recommendations of a court-appointed
appraiser.
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Shareholders’ Derivative Actions
Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder
bringing the action is a holder of common shares both at the time the derivative action is commenced and at the time of the transaction to which the action relates. Our Bylaws provide
that unless we consent in writing to the selection of alternative forum, the sole and exclusive forum for (i) any shareholders’ derivative action or proceeding brought on behalf of us,
including any such action arising under the Exchange Act or the Securities Act (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other of our
employees or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the BCA, or (iv) any action asserting a claim governed by the internal affairs
doctrine shall be the High Court of the Republic of the Marshall Islands, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as
defendants. However, the enforceability of similar forum selection provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that
in connection with any action a court could find the forum selection provision contained in our Bylaws to be inapplicable or unenforceable in such action. In particular, Section 27 of the
Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In
addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or
the rules and regulations thereunder. Shareholders’ derivative actions, including those arising under the Exchange Act or Securities Act, are subject to our forum selection provision.
To the extent that the exclusive forum provision would apply to restrict the courts in which our shareholders may bring claims arising under the Exchange Act or the Securities Act and
the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such a provision. Investors cannot waive compliance with the federal securities laws and
the rules and regulations promulgated thereunder. For more information regarding the risks connected to the forum selection provision in our Bylaws, see “Item 3. Key Information—D.
Risk Factors—Risks Related to our Common Shares— We may not achieve the intended benefits of having a forum selection provision if it is found to be unenforceable.”
Anti-takeover Provisions of our Charter Documents
Several provisions of our Third Amended and Restated Articles of Incorporation and Amended and Restated By-Laws may have anti-takeover effects. These provisions are
intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize shareholder value in
connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or
acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a shareholder may consider in its best interest and (2) the removal of incumbent officers and
directors.
Business Combinations
Our Third Amended and Restated Articles of Incorporation include provisions which prohibit us from engaging in a business combination with an interested shareholder for a
period of three years after the date of the transaction in which the person became an interested shareholder, unless:
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●
●
●
prior to the date of the transaction that resulted in the shareholder becoming an interested shareholder, the Board approved either the business combination or the
transaction that resulted in the shareholder becoming an interested shareholder;
upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced;
at or subsequent to the date of the transaction that resulted in the shareholder becoming an interested shareholder, the business combination is approved by the Board and
authorized at an annual or special meeting of shareholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested
shareholder; and
the shareholder became an interested shareholder prior to the consummation of the initial public offering.
Limited Actions by Shareholders
Our Third Amended and Restated Articles of Incorporation and our Amended and Restated By-Laws provide that any action required or permitted to be taken by our
shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders.
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Our Third Amended and Restated Articles of Incorporation and our Amended and Restated By-Laws provide that only our Board of Directors may call special meetings of our
shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a shareholder may be prevented from calling a special
meeting for shareholder consideration of a proposal over the opposition of our Board of Directors and shareholder consideration of a proposal may be delayed until the next annual
meeting.
Blank Check Preferred Stock
Under the terms of our Third Amended and Restated Articles of Incorporation, our Board of Directors has authority, without any further vote or action by our shareholders, to
issue up to 20,000,000 shares of blank check preferred stock. Our Board of Directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of
control of our company or the removal of our management.
Super-majority Required for Certain Amendments to Our By-Laws
On February 28, 2007, we amended our by-laws to require that amendments to certain provisions of our by-laws may be made when approved by a vote of not less than 66
2/3% of the entire Board of Directors. These provisions that require not less than 66 2/3% vote of our Board of Directors to be amended are provisions governing: the nature of
business to be transacted at our annual meetings of shareholders, the calling of special meetings by our Board of Directors, any amendment to change the number of directors
constituting our Board of Directors, the method by which our Board of Directors is elected, the nomination procedures of our Board of Directors, removal of our Board of Directors and
the filling of vacancies on our Board of Directors.
Stockholders Rights Agreement
On September 14, 2016, our Board of Directors declared a dividend of one preferred share purchase right, or a Right, for each outstanding common share and adopted a
shareholder rights plan, as set forth in the Stockholders Rights Agreement dated as of September 22, 2016, or the Rights Agreement, by and between us and Computershare Trust
Company, N.A. (now taken over by our new transfer agent, AST), as rights agent.
The Board adopted the Rights Agreement to protect shareholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant
penalty upon any person or group that acquires 15% or more of our outstanding common shares without the approval of our Board of Directors. If a shareholder’s beneficial ownership
of our common shares as of the time of the public announcement of the rights plan and associated dividend declaration is at or above the applicable threshold, that shareholder’s then-
existing ownership percentage would be grandfathered, but the rights would become exercisable if at any time after such announcement, the shareholder increases its ownership
percentage by 1% or more.
The Rights may have anti-takeover effects. The Rights will cause substantial dilution to any person or group that attempts to acquire us without the approval of our Board of
Directors. As a result, the overall effect of the Rights may be to render more difficult or discourage any attempt to acquire us. Because our Board of Directors can approve a redemption
of the Rights for a permitted offer, the Rights should not interfere with a merger or other business combination approved by our Board.
For those interested in the specific terms of the Rights Agreement, we provide the following summary description. Please note, however, that this description is only a
summary, and is not complete, and should be read together with the entire Rights Agreement, which is an exhibit to the Form 8-A filed by us on September 22, 2016 and incorporated
herein by reference. The foregoing description of the Rights Agreement is qualified in its entirety by reference to such exhibit.
The Rights. The Rights trade with, and are inseparable from, our common shares. The Rights are evidenced only by certificates that represent our common shares. New Rights
will accompany any new of our common shares issued after October 5, 2016 until the Distribution Date described below.
Exercise Price. Each Right allows its holder to purchase from us one one-thousandth of a share of Series A Participating Preferred Stock, or a Series A Preferred Share, for
$50.00, or the Exercise Price, once the Rights become exercisable. This portion of a Series A Preferred Share will give the shareholder approximately the same dividend, voting and
liquidation rights as would one common share. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.
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Exercisability. The Rights are not exercisable until ten days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial
ownership of 15% or more of our outstanding common shares.
Certain synthetic interests in securities created by derivative positions—whether or not such interests are considered to be ownership of the underlying common shares or are
reportable for purposes of Regulation 13D of the Exchange Act—are treated as beneficial ownership of the number of our common shares equivalent to the economic exposure created
by the derivative position, to the extent our actual common shares are directly or indirectly held by counterparties to the derivatives contracts. Swaps dealers unassociated with any
control intent or intent to evade the purposes of the Rights Agreement are excepted from such imputed beneficial ownership.
For persons who, prior to the time of public announcement of the Rights Agreement, beneficially own 15% or more of our outstanding common shares, the Rights Agreement
“grandfathers” their current level of ownership, so long as they do not purchase additional shares in excess of certain limitations.
The date when the Rights become exercisable is the “Distribution Date.” Until that date, our common share certificates (or, in the case of uncertificated shares, by notations in
the book-entry account system) will also evidence the Rights, and any transfer of our common shares will constitute a transfer of Rights. After that date, the Rights will separate from
our common shares and will be evidenced by book-entry credits or by Rights certificates that we will mail to all eligible holders of our common shares. Any Rights held by an Acquiring
Person are null and void and may not be exercised.
Series A Preferred Share Provisions
Each one one-thousandth of a Series A Preferred Share, if issued, will, among other things:
not be redeemable;
entitle holders to quarterly dividend payments in an amount per share equal to the aggregate per share amount of all cash dividends, and the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a dividend payable in our common shares or a subdivision of our outstanding common shares
(by reclassification or otherwise), declared on our common shares since the immediately preceding quarterly dividend payment date; and
entitle holders to one vote on all matters submitted to a vote of our shareholders.
●
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●
The value of one one-thousandth interest in a Series A Preferred Share should approximate the value of one common share.
Consequences of a Person or Group Becoming an Acquiring Person.
●
Flip In. If an Acquiring Person obtains beneficial ownership of 15% or more of our common shares, then each Right will entitle the holder thereof to purchase, for the
Exercise Price, a number of our common shares (or, in certain circumstances, cash, property or other of our securities) having a then-current market value of twice the
Exercise Price. However, the Rights are not exercisable following the occurrence of the foregoing event until such time as the Rights are no longer redeemable by us, as
further described below.
Following the occurrence of an event set forth in preceding paragraph, all Rights that are or, under certain circumstances specified in the Rights Agreement, were beneficially
owned by an Acquiring Person or certain of its transferees will be null and void.
●
●
Flip Over. If, after an Acquiring Person obtains 15% or more of our common shares, (i) we merge into another entity; (ii) an acquiring entity merges into us; or (iii) we sell or
transfer 50% or more of its assets, cash flow or earning power, then each Right (except for Rights that have previously been voided as set forth above) will entitle the holder
thereof to purchase, for the Exercise Price, a number of our common shares of the person engaging in the transaction having a then-current market value of twice the
Exercise Price.
Notional Shares. Shares held by affiliates and associates of an Acquiring Person, including certain entities in which the Acquiring Person beneficially owns a majority of
the equity securities, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights
Agreement) with an Acquiring Person, will be deemed to be beneficially owned by the Acquiring Person.
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Redemption. Our Board of Directors may redeem the Rights for $0.01 per Right at any time before any person or group becomes an Acquiring Person. If our Board of Directors
redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of the Rights will be to receive the redemption price of $0.01 per Right.
The redemption price will be adjusted if we have a stock dividend or a stock split.
Exchange. After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of our outstanding common shares, the Board may
extinguish the Rights by exchanging one common share or an equivalent security for each Right, other than Rights held by the Acquiring Person. In certain circumstances, we may elect
to exchange the Rights for cash or other of our securities having a value approximately equal to one common share.
Expiration. The Rights expire on the earliest of (i) September 22, 2026; or (ii) the redemption or exchange of the Rights as described above.
Anti-Dilution Provisions. The Board may adjust the purchase price of the Series A Preferred Shares, the number of Series A Preferred Shares issuable and the number of
outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, or a reclassification of the Series A Preferred Shares or our common shares. No adjustments
to the Exercise Price of less than 1% will be made.
Amendments. The terms of the Rights and the Rights Agreement may be amended in any respect without the consent of the holders of the Rights on or prior to the Distribution
Date. Thereafter, the terms of the Rights and the Rights Agreement may be amended without the consent of the holders of Rights, with certain exceptions, in order to (i) cure any
ambiguities; (ii) correct or supplement any provision contained in the Rights Agreement that may be defective or inconsistent with any other provision therein; (iii) shorten or lengthen
any time period pursuant to the Rights Agreement; or (iv) make changes that do not adversely affect the interests of holders of the Rights (other than an Acquiring Person or an affiliate
or associate of an Acquiring Person).
Taxes. The distribution of Rights should not be taxable for federal income tax purposes. However, following an event that renders the Rights exercisable or upon redemption of
the Rights, shareholders may recognize taxable income.
C.
Material Contracts
We refer you to “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities,” “Item 5. Operating and Financial Review and
Prospects—B. Liquidity and Capital Resources—Financing Commitments under Sale and Leaseback Arrangements,” “Item 6. Directors, Senior Management and Employees—B.
Compensation”, “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions”, “Item 18. Financial Statements—Note 5—Transactions with related
parties”, “Item 18. Financial Statements—Note 6—Leases” and “Item 18. Financial Statements—Note 7—Debt” for a discussion of our material agreements that we have entered into
outside the ordinary course of our business.
Certain of these material agreements that are to be performed in whole or in part at or after the date of this annual report are attached as exhibits to this annual report. Other
than these contracts, we have no other material contracts, other than contracts entered into in the ordinary course of business, to which we are a party.
D.
Exchange controls
The Marshall Islands impose no exchange controls on non-resident corporations.
E.
Taxation
The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations relevant to a U.S. Holder and a Non-U.S. Holder, each as defined
below, with respect to the ownership and disposition of our common shares. The discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as
amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, or the Treasury
Regulations, all of which are subject to change, possibly with retroactive effect. This discussion does not purport to deal with the tax consequences of owning common shares to all
categories of investors, some of which, such as financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, insurance companies,
persons holding our common shares as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities that have elected the mark-to-market
method of accounting for their securities, persons liable for the alternative minimum tax or the “base erosion and anti-avoidance” tax, dealers in securities or currencies, U.S. Holders, as
defined below, whose functional currency is not the U.S. dollar, persons required to recognize income for U.S. federal income tax purposes no later than when such income is included
on an “applicable financial statement” and investors that own, actually or under applicable constructive ownership rules, 10% or more of the vote or value of our outstanding shares,
may be subject to special rules. This discussion deals only with holders who own hold the common shares as a capital asset. You are encouraged to consult your own tax advisors
concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local or non-U.S. law of the ownership of common shares.
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Marshall Islands Tax Consequences
We are incorporated in the Republic of the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands
withholding tax will be imposed upon payments of dividends by us to our shareholders.
U.S. Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation is subject to U.S. 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 pool, partnership, strategic alliance,
joint operating agreement 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 shipping income that
is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the United States, which we refer
to as “U.S.-source 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 not
permitted by law to engage in transportation that produces income which is 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 U.S. federal income tax.
In the absence of exemption from tax under Section 883 of the Code, our gross U.S.-source shipping income generally would be subject to a 4% tax imposed without allowance
for deductions as described below.
Exemption of Operating Income from U.S. Federal Income Taxation
Under Section 883 of the Code and the regulations thereunder, we will be exempt from U.S. federal income tax on our U.S.-source shipping income if:
we are organized in a foreign country, or our country of organization, that grants an “equivalent exemption” to corporations organized in the United States; and
either
more than 50% of the value of our stock is owned, directly or indirectly, by individuals 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 (each such individual a “qualified shareholder” and such individuals collectively, “qualified
shareholders”), which we refer to as the “50% Ownership Test,” or
our stock is “primarily and regularly traded on an established securities market” in our country of organization, in another country that grants an “equivalent exemption” to
U.S. corporations, or in the United States, which we refer to as the “Publicly Traded Test.”
(1)
(2)
A.
B.
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The Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are incorporated, grants an “equivalent exemption” to U.S. corporations. Therefore, we will
be exempt from U.S. federal income tax with respect to our U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.
In order to satisfy the 50% Ownership Test, a non-U.S. corporation must be able to substantiate that more than 50% of the value of its shares is owned, for at least half of the
number of days in the non-U.S. corporation’s taxable year, directly or indirectly, by “qualified shareholders.” For this purpose, qualified shareholders are: (1) individuals who are
residents (as defined in the Treasury Regulations) of countries, other than the United States, that grant an equivalent exemption, (2) non-U.S. corporations that meet the Publicly-Traded
Test and are organized in countries that grant an equivalent exemption, or (3) certain foreign governments, non-profit organizations, and certain beneficiaries of foreign pension funds.
In order for a shareholder to be a qualified shareholder, there generally cannot be any bearer shares in the chain of ownership between the shareholder and the taxpayer claiming the
exemption (unless such bearer shares are maintained in a dematerialized or immobilized book-entry system as permitted under the Treasury Regulations). A corporation claiming the
Section 883 exemption based on the 50% Ownership Test must obtain all the facts necessary to satisfy the IRS that the 50% Ownership Test has been satisfied (as detailed in the
Treasury Regulations). We believe that we satisfied the 50% Ownership Test for the taxable year 2023 and intend to take this position on our U.S. federal income tax return for the 2023
year. This is a factual determination made on an annual basis, and no assurance can be given that we will satisfy the 50% Ownership Test in future taxable years.
In order to satisfy the Publicly-Traded Test, Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be “primarily traded” on
an established securities market if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the
number of shares in each such class that are traded during that year on established securities markets in any other single country. Our common shares, which are our sole class of
issued and outstanding stock that is traded, is and we anticipate will continue to be “primarily traded” on the Nasdaq Capital Market. The Treasury Regulations also require that our
stock be “regularly traded” on an established securities market. Under the Treasury Regulations, our stock will be considered to be “regularly traded” if one or more classes of our stock
representing more than 50% of our 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, which we refer to as the “listing threshold.” Our common stock, which is listed on the Nasdaq Capital Market and is our only class
of publicly-traded stock, did not constitute more than 50% of our outstanding shares by vote for the 2023 taxable year, and accordingly, we did not satisfy the listing threshold for the
2023 taxable year.
Taxation in the Absence of Exemption under Section 883 of the Code
To the extent the benefits of Section 883 of the Code are unavailable, our U.S.-source shipping income, to the extent not considered to be “effectively connected” with the
conduct of a U.S. trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we
refer to as the “4% gross basis tax regime.” Since under the sourcing rules described above, no more than 50% of 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% gross basis tax regime.
To the extent the benefits of the exemption under Section 883 of the Code are unavailable and our U.S.-source shipping income is considered to be “effectively connected”
with the conduct of a U.S. trade or business, as described below, any such “effectively connected” U.S.-source shipping income, net of applicable deductions, would be subject to the
U.S. federal corporate income tax imposed at a current rate of 21%. In addition, we may be subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of
such U.S. trade or business, as determined after allowance for certain adjustments.
Our U.S.-source shipping income would be considered “effectively connected” with the conduct of a U.S. trade or business only if:
●
We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and
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●
substantially all of our U.S.-source 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, or is leasing income that is attributable to such fixed
place of business in the United States.
We do not currently have, nor 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 shipping income will be “effectively
connected” with the conduct of a U.S. trade or business.
U.S. Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal income taxation with respect to gain realized on a sale of a
vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of
the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel
by us will be considered to occur outside of the United States or will otherwise not be subject to U.S. federal income taxation.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term “U.S. Holder” means a beneficial owner of our common shares that:
●
●
●
is a U.S. citizen or resident, U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income taxation regardless
of its source, or a trust (i) if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (ii) the trust has in effect a valid election to be treated as a United States person for U.S. federal income tax
purposes;
owns the common shares as a capital asset, generally, for investment purposes; and
owns less than 10% of our common shares for U.S. federal income tax purposes.
If a partnership holds our common shares, the tax treatment of a partner of such partnership will generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies, or PFIC, below, any distributions made by us with respect to our common shares to a U.S. Holder will
generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of such
earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in his common shares on a dollar-for-dollar basis and thereafter as
capital gain. Because we are not a U.S. corporation, U.S. Holders that are corporations will not be entitled to claim a dividends-received deduction with respect to any distributions they
receive from us. Dividends paid with respect to our common shares will generally be treated as “passive category income” for purposes of computing allowable foreign tax credits for
U.S. foreign tax credit purposes.
Dividends paid on our common shares to a U.S. Holder who 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 U.S. Non-Corporate Holder at preferential tax rates provided that (1) the common shares are readily tradable on an established securities market in the
United States (such as the Nasdaq Capital Market on which our common shares are traded); (2) we are not a PFIC for the taxable year during which the dividend is paid or the
immediately preceding taxable year (as discussed in more detail below); (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) the U.S. Non-Corporate Holder is not under an obligation to make related payments with
respect to positions in substantially similar or related property.
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We believe that we were not a PFIC for our 2014 through 2023 taxable years, and we do not expect to be a PFIC for subsequent taxable years. If we were treated as a PFIC for
our 2023 or 2024 taxable year, any dividends paid by us during 2024 will not be treated as “qualified dividend income” in the hands of a U.S. Non-Corporate Holder. Any dividends we
pay which are not eligible for the preferential rates applicable to “qualified dividend income” will be taxed as ordinary income to a U.S. Non-Corporate Holder.
Special rules may apply to any “extraordinary dividend,” generally, a dividend paid by us in an amount which is equal to or in excess of 10% of a shareholder’s adjusted tax
basis in (or, in certain circumstances, fair market value of) a common share or dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder’s
adjusted tax basis (or fair market value upon the shareholder’s election) in a common share. If we pay an “extraordinary dividend” on our common shares 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 shares will be treated as long-term capital loss to the extent of such
dividend.
Sale, Exchange or other Disposition of Common shares
Subject to the discussion of our status as a PFIC below, 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 is greater than one year at the time of the sale, exchange or other disposition. Such
capital gain or loss will generally be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to
certain limitations.
3.8% Tax on Net Investment Income
A U.S. Holder that is an individual, estate, or, in certain cases, a trust, will generally be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s net investment income for the
taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and
$250,000). A U.S. Holder’s net investment income will generally include distributions made by us which constitute a dividend for U.S. federal income tax purposes and gain realized from
the sale, exchange or other disposition of our common shares. This tax is in addition to any income taxes due on such investment income.
If you are a U.S. Holder that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of the 3.8% tax on net investment
income to the ownership and disposition of our common shares.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for U.S. federal income tax purposes. In general, we will
be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held our common shares, either
●
●
at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct
of a rental business); or
at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income.
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our
subsidiary corporations in which we own at least 25% of the value of the subsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services
would not constitute “passive income” for these purposes. By contrast, rental income would generally constitute “passive income” unless we were treated under specific rules as
deriving our rental income in the active conduct of a trade or business.
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In general, income derived from the bareboat charter of a vessel will be treated as “passive income” for purposes of determining whether we are a PFIC and such vessel will be
treated as an asset which produces or is held for the production of “passive income.” On the other hand, income derived from the time charter of a vessel should not be treated as
“passive income” for such purpose, but rather should be treated as services income; likewise, a time chartered vessel should generally not be treated as an asset which produces or is
held for the production of “passive income.”
We believe that we were not a PFIC for our 2014 through 2023 taxable years because we had no bareboat chartered-out vessels and consequently no gross income from
vessels on bareboat charter. Furthermore, based on our current assets and activities, we do not believe that we will be a PFIC for the subsequent taxable years. Although there is no
legal authority directly on point, and we are not relying upon an opinion of counsel on this issue, our belief is based principally on the position that, for purposes of determining
whether we are a passive foreign investment company, 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, such income should 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, should not constitute passive assets for purposes of
determining whether we were a passive foreign investment company. We believe there is substantial legal authority supporting our position consisting of case law and IRS
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. In the absence of any legal authority specifically relating to the statutory
provisions governing passive foreign investment companies, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to
avoid being classified as a passive foreign investment company with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.
If we are a PFIC for any taxable year, a U.S. Holder will be treated as owning his proportionate share of the stock of any of our subsidiaries which is a PFIC. The PFIC rules
discussed below will apply on a company-by-company basis with respect to us and each of our subsidiaries which is treated as a PFIC.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different U.S. federal income 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 discussed below, as an alternative to
making a QEF Election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our common shares, which election is referred to as a “Mark-to-Market
Election”. A U.S. Holder holding PFIC shares that does not make either a “QEF Election” or “Mark-to-Market Election” will be subject to the Default PFIC Regime, as defined and
discussed below in “Taxation—U.S. Federal Income Taxation of U.S. Holders—Taxation of U.S. Holders Not Making a Timely QEF or “Mark-to-Market” Election.”
If we were to be treated as a PFIC, a U.S. Holder would be required to file IRS Form 8621 to report certain information regarding us.
A U.S. Holder who held our common shares during any period in which we were treated as a PFIC and who neither made a QEF Election nor a Mark-to-Market Election
may continue to be subject to the Default PFIC Regime, notwithstanding that we are no longer a PFIC. If you are a U.S. Holder who held our common shares during any period in
which we were a PFIC but failed to make either of the foregoing elections, you are strongly encouraged to consult your tax advisor regarding the U.S. federal income tax
consequences to you of holding our common shares in periods in which we are no longer a PFIC.
The QEF Election
If a U.S. Holder makes a timely QEF Election, which U.S. Holder we refer to as an “Electing Holder,” the Electing Holder must report each year for United States federal income
tax purposes such holder’s pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder,
regardless of whether or not distributions were made by us to 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 our common shares.
A U.S. Holder would make a QEF Election with respect to any year that our company is a PFIC by filing one copy of IRS Form 8621 with his United States federal income tax return and a
second copy in accordance with the instructions to such form. It should be noted that if any of our subsidiaries is treated as a corporation for U.S. federal income tax purposes, a U.S.
Holder must make a separate QEF Election with respect to each such subsidiary.
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Taxation of U.S. Holders Making a “Mark-to-Market” Election
Making the Election. Alternatively, if, as is anticipated, our common shares are treated as “marketable stock,” a U.S. Holder would be allowed to make a Mark-to-Market
Election with respect to the common shares, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations.
The common shares will be treated as “marketable stock” for this purpose if they are “regularly traded” on a “qualified exchange or other market.” The common shares will be “regularly
traded” on a qualified exchange or other market for any calendar year during which they are traded (other than in de minimis quantities) on at least 15 days during each calendar quarter.
The Nasdaq Capital Market should be treated as a “qualified exchange or other market” for this purpose. However, it should be noted that a separate Mark-to-Market Election would
need to be made with respect to each of our subsidiaries which is treated as a PFIC. The stock of these subsidiaries is not expected to be “marketable stock.” Therefore, a “mark-to-
market” election is not expected to be available with respect to these subsidiaries.
Current Taxation and Dividends. If the Mark-to-Market 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 its common shares over their 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. Any income inclusion or loss under the preceding rules should be treated as gain or loss
from the sale of common shares for purposes of determining the source of the income or loss. Accordingly, any such gain or loss generally should be treated as U.S.-source income or
loss for U.S. foreign tax credit limitation purposes. A U.S. Holder’s tax basis in his common shares would be adjusted to reflect any such income or loss amount. Distributions by us to a
U.S. Holder who has made a Mark-to-Market Election generally will be treated as discussed above under “Taxation—U.S. Federal Income Taxation of U.S. Holders—Distributions.”
Sale, Exchange or Other Disposition. Gain realized on the sale, exchange, redemption or other disposition of the common shares would be treated as ordinary income, and any
loss realized on the sale, exchange, redemption or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-
market gains previously included in income by the U.S. Holder. Any loss in excess of such previous inclusions would be treated as a capital loss by the U.S. Holder. A U.S. Holder’s
ability to deduct capital losses is subject to certain limitations. Any such gain or loss generally should be treated as U.S.-source income or loss for U.S. foreign tax credit limitation
purposes.
Taxation of U.S. Holders Not Making a Timely QEF or “Mark-to-Market” Election
Finally, a U.S. Holder who does not make either a QEF Election or a Mark-to-Market Election with respect to any taxable year in which we are treated as a PFIC, or a U.S. Holder
whose QEF Election is invalidated or terminated, or a Non-Electing Holder, would be subject to special rules, or the Default PFIC Regime, with respect to (1) any excess distribution (i.e.,
the portion of any distributions received by the Non-Electing Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-
Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common shares), and (2) any gain realized on the sale, exchange,
redemption or other disposition of the common shares.
Under the Default PFIC Regime:
the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common shares;
the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an
interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
●
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●
Any distributions other than “excess distributions” by us to a Non-Electing Holder will be treated as discussed above under “Taxation—U.S. Federal Income Taxation of U.S.
Holders—Distributions.”
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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 the common shares. If a Non-Electing Holder who is an individual dies while owning the common shares, such Non-Electing Holder’s successor generally would not
receive a step-up in tax basis with respect to the common shares.
U.S. Federal Income Taxation of “Non-U.S. Holders”
A beneficial owner of our common shares (other than a partnership) that is not a U.S. Holder is referred to herein as a “Non-U.S. Holder.”
Dividends on Common shares
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on dividends received from us with respect to our common shares, unless that
income is effectively connected with a trade or business conducted by the Non-U.S. Holder in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax
treaty with respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common shares
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common
shares, unless:
●
●
the gain is effectively connected with a trade or business conducted by the Non-U.S. Holder in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S.
income tax treaty with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States;
or
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common shares, including dividends and the gain from
the sale, exchange or other disposition of the stock that is effectively connected with the conduct of that trade or business will generally be subject to U.S. federal income tax in the
same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, the earnings and profits of such Non-
U.S. Holder that are attributable to effectively connected income, subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as
may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. In addition, such
payments will be subject to backup withholding tax if you are a non-corporate U.S. Holder and you:
●
●
●
fail to provide an accurate taxpayer identification number;
are notified by the IRS that you have failed to report all interest or dividends required to be shown on your U.S. federal income tax returns; or
in certain circumstances, fail to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an applicable IRS Form W-8.
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If you sell your common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting
unless you certify that you are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common shares through a non-U.S. office of a
non-U.S. broker and the sales proceeds are paid to you outside the United States, then information reporting and backup withholding generally will not apply to that payment. However,
U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to you outside the United States, if you
sell your common shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Backup withholding tax is not an additional tax.
Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that exceed your U.S. federal income tax liability by filing a refund claim with 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, our common shares, unless the shares are held through an account maintained
with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful
neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury regulations, an individual Non-U.S. Holder or a U.S. entity) that is
required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may
not close until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax
advisors regarding their reporting obligations under this legislation.
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 SEC. Our SEC filings are available to the public at the website maintained by the SEC at http://www.sec.gov, as well as on
our website at http://www.topships.org. The information contained on, or that can be accessed through, these websites is not incorporated by reference herein and does not form part
of this annual report.
I.
Subsidiary Information
Not applicable.
J.
Annual Report to Security Holders
We are currently not required to provide an annual report to security holders in response to the requirements of Form 6-K.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Risk Management Policy
Market risks relating to adverse movements in freight rates in the product tanker and crude oil tanker markets are minimized due to the fact that all the vessels in our fleet are
under period employment earning fixed time charter rates. Our policy is to continuously monitor our exposure to other business risks, including the impact of changes in interest rates,
currency rates, and bunker prices on earnings and cash flows. We assess these risks and, when appropriate, enter into derivative contracts with credit-worthy counterparties to
minimize our exposure to the risks. With regard to bunker prices, as our employment policy for our vessels has been and is expected to continue to be with a high percentage of our fleet
on period employment, we are not directly exposed with respect to those vessels to increases in bunker fuel prices, as these are the responsibility of the charterer under period charter
arrangements.
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Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our floating-rate borrowings that require us to make interest payments based on LIBOR (as, although
we amended our financing arrangements to transition from LIBOR to SOFR, such arrangements previously used LIBOR, including during the fiscal years ended December 31, 2022 and
2023) (See “Item 18. Financial Statements—Note 7—Debt”). Furthermore we may be subject to additional market risks relating to changes in interest rates when we take on additional
indebtedness. Significant increases in interest rates could adversely affect operating margins, results of operations and ability to service debt. As of December 31, 2023, our total
indebtedness excluding unamortized financing fees and debt discounts was $246.2 million, of which $23.1 million refer to the Cargill SLB, the interest rate of which does not fluctuate.
Based on the amount of our outstanding fluctuating interest rate indebtedness, as of December 31, 2023, a hypothetical one percentage point increase in the U.S. dollar LIBOR
would increase our interest rate expense for 2024, on an annualized basis, by approximately $2.2 million.
Based on the amount of our outstanding fluctuating interest rate indebtedness, as of December 31, 2022, a hypothetical one percentage point increase in the U.S. dollar LIBOR
would increase our interest rate expense for 2023, on an annualized basis, by approximately $2.2 million.
Foreign Exchange Rate Fluctuation
We generate all of our revenues in U.S. dollars but incur certain expenses in currencies other than U.S. dollars, mainly the Euro. During 2023, approximately 97.2% of our
expenses were in U.S. Dollars, 2.3% were in Euro and approximately 0.5% were in other currencies than the U.S. dollar or 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 have not hedged currency exchange risks associated with our expenses
and our operating results could be adversely affected as a result. We constantly monitor the U.S. dollar exchange rate and we try to achieve the most favorable exchange rates from the
financial institutions we work with.
Based on our total expenses for the year ended December 31, 2023 and using as an average exchange rate of $1.0824 to € 1, a 5% decrease in the exchange rate to $1.0283 to € 1
would result in an expense saving of approximately $0.1 million. Since we have no revenues in Euros an inverse 5% change in the exchange rate would lead to an equivalent additional
expense of the same amount.
Based on our total expenses for the year ended December 31, 2022 and using as an average exchange rate of $1.0522 to € 1, a 5% decrease in the exchange rate to $0.9996 to € 1
would result in an expense saving of approximately $0.07 million. Since we have no revenues in Euros an inverse 5% change in the exchange rate would lead to an equivalent additional
expense of the same amount.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
Neither we nor any of our subsidiaries have been subject to a material default in the payment of principal, interest, a sinking fund or purchase fund installment or any other
material default that was not cured within 30 days.
As of December 31, 2023, we had no accrued or unpaid dividends under our Series F Preferred Shares (none of which are outstanding as of the date of this annual report).
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ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
On September 14, 2016, we adopted a Stockholders Rights Agreement, pursuant to which each of our common shares includes one preferred stock purchase right that entitles
the holder to purchase from us a unit consisting of one-thousandth of a share of our Series A Participating Preferred Stock if any third-party seeks to acquire control of a substantial
block of our common shares without the approval of our Board of Directors. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights
Agreement” included in this annual report for a description of our Stockholders Rights Agreement.
Please also see “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of holders of our October 2022 Warrants, Class
C Warrants, February 2023 Warrants and Series D Preferred Shares relative to the rights of holders of our common shares.
ITEM 15.
CONTROLS AND PROCEDURES
a)
Disclosure Controls and Procedures
Management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act, as of December 31, 2023.
The term disclosure controls and procedures are defined under SEC rules as controls and other procedures of an issuer that are designed to ensure that information required to
be disclosed by the issuer 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 SEC’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, 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.
Our management, including the chief executive and chief financial officer, recognize that any controls and procedures, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, in the design and evaluation of our disclosure controls and
procedures our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control objectives.
Based on this evaluation, the chief executive officer and chief financial officer concluded that, as of December 31, 2023, our disclosure controls and procedures, which include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated
and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure, were effective
in providing reasonable assurance that information that was required to be disclosed by us in reports we file or submit under the Exchange Act was recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
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 defined in Rule 13a-15(f) and 15d-15(f) promulgated under
the Exchange Act.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our
principal executive and principal financial officers 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 financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and
procedures that:
●
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
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●
●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with authorizations of Company’s management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our management with the participation of our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of
December 31, 2023, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As a result of its assessment, the Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial reporting are effective as of
December 31, 2023.
c)
Attestation Report of the Registered Public Accounting Firm
This annual report does not contain an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was
not subject to attestation by our registered public accounting firm since under the SEC adopting release implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010, companies that are non-accelerated filers are exempt from including auditor attestation reports in their Form 20-Fs.
d)
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period 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
We have established an audit committee composed of three independent members that are responsible for reviewing our accounting controls and recommending to our Board
of Directors the engagement of our outside auditors.
We do not believe it is necessary to have a financial expert, as defined in Item 407 of Regulation S-K, because our Board of Directors has determined that the members of the
audit committee have the financial experience and other relevant experience necessary to effectively perform the duties and responsibilities of the audit committee.
ITEM 16B.
CODE OF ETHICS
Our Board of Directors has adopted a Corporate Code of Business Ethics and Conduct that applies to all employees, directors and officers, which complies with applicable
guidelines issued by the SEC. The finalized Code of Ethics has been approved by our Board of Directors and was distributed to all employees, directors and officers. This document is
available under the “Corporate Governance” tab in the “Investors Relations” section of our website at www.topships.org. Information on or accessed through our website does not
constitute a part of this annual report and is not incorporated by reference herein. We will also provide any person a hard copy of our code of ethics free of charge upon written request.
Shareholders may direct their requests to the attention of Mr. Alexandros Tsirikos at our registered address and phone number.
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ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees billed to us for the years ended December 2022 and 2023 represent fees billed by our principal accounting firm, Deloitte Certified Public Accountants S.A., an
independent registered public accounting firm and member of Deloitte Touche Tohmatsu, Limited. Audit fees represent compensation for professional services rendered for the audit of
the consolidated financial statements, fees for the review of interim financial information as well as in connection with the review of registration statements and related consents and
comfort letters and any other audit services required for SEC or other regulatory filings. In addition, it includes fees billed for professional services rendered for the audit and reviews of
Rubico Inc. Predecessor financial statements, as well as in connection with (i) the issuance of related consents and (ii) the review of Rubico Inc.’s registration statement. For 2022 and
2023, no other non-audit, tax or other fees were charged.
U.S. dollars in thousands,
Audit Fees
Audit Committee’s Pre-Approval Policies and Procedures
Year Ended
2022
2023
379.5
410.3
Our audit committee charter contains pre-approval policies and procedures in compliance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X that require our audit committee to
review and pre-approve all auditing services and permitted non-auditing services rendered to the Company by its outside auditors (subject to the exception provided in paragraph (c)(7)
(i)(C) of Rule 2-01 of Regulation S-X for certain de minimis non-audit services not recognized by the Company at the time of the engagement), in each case including fees. Our audit
committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees prior to the engagement
of the independent auditor with respect to such services.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G.
CORPORATE GOVERNANCE
We have certified to Nasdaq that our corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands.
Therefore, we are exempt from many of Nasdaq’s corporate governance practices other than the submission of a listing agreement, notification to Nasdaq of non-compliance with
Nasdaq corporate governance practices, prohibition on disparate reduction or restriction of shareholder voting rights, and the establishment of an audit committee satisfying Nasdaq
Listing Rule 5605(c)(3) and ensuring that such audit committee’s members meet the independence requirement of Listing Rule 5605(c)(2)(A)(ii). The practices we follow in lieu of
Nasdaq’s corporate governance rules applicable to U.S. domestic issuers are as follows:
●
Audit Committee. Nasdaq requires, among other things, that a listed company has an audit committee with a minimum of three independent members, at least one of whom
meets certain standards of financial sophistication. As permitted under Marshall Islands law, our audit committee consists of three independent directors but we do not
designate any one audit commit member as meeting the standards of financial sophistication.
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●
●
As a foreign private issuer, we are not required to hold regularly scheduled board meetings at which only independent directors are present.
In lieu of obtaining shareholder approval prior to the issuance of designated securities, we will comply with provisions of the BCA, which allows our Board of Directors to
approve share issuances.
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 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. In addition, our bylaws provide that shareholders must give us between 120- and 180-days’
advance notice to properly introduce any business at a meeting of shareholders.
Other than as noted above, we are in compliance with all other Nasdaq corporate governance standards applicable to U.S. domestic issuers.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J.
INSIDER TRADING POLICIES
We have adopted an insider trading policy, as a component of our Corporate Code of Business Ethics and Conduct, which applies to all of the Company’s directors, officers and
employees as well as their family members, and sets forth procedures governing the purchase, sale and other disposition of our securities by such parties. Our insider trading policy is
reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of our insider
trading policy has been filed as Exhibit 11.1 to this Annual Report.
ITEM 16K.
CYBERSECURITY
We believe that cybersecurity is fundamental in our operations and, as such, we are committed to maintaining robust governance and oversight of cybersecurity risks and to
implementing comprehensive processes and procedures for identifying, assessing, and managing material risks from cybersecurity threats as part of our broader risk management
system and processes. Our cybersecurity risk management strategy prioritizes detection, analysis and response to known, anticipated or unexpected threats; effective management of
security risks; and resiliency against incidents. With the ever-changing cybersecurity landscape and continual emergence of new cybersecurity threats, our board of directors and
senior management team ensure that adequate resources are devoted to cybersecurity risk management and the technologies, processes and people that support it. We implement risk-
based controls to protect our information, the information of our customers, suppliers, and other third parties, our information systems, our business operations, and our vessels.
As part of our cybersecurity risk management system, our information & technology management team tracks and logs privacy and security incidents across our Company and
our vessels to remediate and resolve any such incidents. Significant incidents are reviewed regularly by our information & technology management team to determine whether further
escalation is appropriate. We also engage third parties, such as specialized assessors and consultants to audit our information security systems, whose findings are reported to our
senior management team. Any identified incident assessed as potentially being or potentially becoming material is immediately escalated for further assessment, and then reported to
our senior management team who is responsible to assess its overall materiality in due time and decide whether further reference to our board of directors is necessary. We further
consult with outside counsel as appropriate, including on materiality analysis and disclosure requirements’ matters, and our senior management, in cooperation if required with our
board of directors, makes the final materiality determinations and disclosure and other compliance decisions.
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As we do not have a dedicated board committee solely focused on cybersecurity, our senior management team has oversight responsibility for risks and incidents relating to
cybersecurity threats, including compliance with disclosure requirements, cooperation with law enforcement, and related effects on financial and other risks, and it reports any material
findings and recommendations, as appropriate, to our board of directors for consideration.
Overall, our approach to cybersecurity risk management includes the following key elements:
(i) Continuous monitoring of cybersecurity threats, both internal and external. through the use of data analytics and network monitoring systems.
(ii) Engagement of third party consultants and other advisors to assist in assessing points of vulnerability of our information security systems.
(iii) Overall assessment of cybersecurity incidents materiality and potential impact on the company’s operations and financial condition by our senior
management team and our board of directors, in cooperation, if considered necessary, with specialized external consultants.
(iv) Oversight responsibility of cybersecurity risks and compliance with relevant disclosure requirements lies with our senior management team and our board of
directors.
(v) Training and Awareness – we have various information technology policies relating to cybersecurity. We also provide employee training that is administered
on a periodic and on a case by case basis that reinforces our information technology policies, standards and practices, as well as the expectation that employees comply
with these policies and identify and report potential cybersecurity risks.
We continue to invest in our cybersecurity systems and to enhance our internal controls and processes. Our business strategy, results of operations and financial condition
have not been materially affected by risks from cybersecurity threats, including as a result of previously identified cybersecurity incidents, but we cannot provide assurance that they
will not be materially affected in the future by such risks or any future material incidents. While we have dedicated appropriate resources to identifying, assessing, and managing
material risks from cybersecurity threats, our efforts may not be adequate, may fail to accurately assess the severity of an incident, may not be sufficient to prevent or limit harm, or may
fail to sufficiently remediate an incident in a timely fashion, any of which could harm our business, reputation, results of operations and financial condition. For more information certain
risks associated with cybersecurity, see “Item 3.D. Risk Factors—Company-Specific Risk Factors—We rely on our information systems to conduct our business, and failure to protect
these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant
period of time, our business could be harmed.”
PART III
ITEM 17.
FINANCIAL STATEMENTS
See Item 18. “Financial Statements.”
ITEM 18.
FINANCIAL STATEMENTS
The financial statements beginning on page F-1 are filed as a part of this annual report.
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ITEM 19.
EXHIBITS
Number
1.1
Description of Exhibits
Third Amended and Restated Articles of Incorporation of TOP Ships Inc. (incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 6-K, filed
with the SEC on June 24, 2011).
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
1.14
2.1
2.2
2.3
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated April 17, 2014 (incorporated by reference to Exhibit 99.1 of the Company’s
Current Report on Form 6-K, filed with the SEC on April 18, 2014).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated February 15, 2016 (incorporated by reference to Exhibit 1.3 of the
Company’s Annual Report on Form 20-F, filed with the SEC on April 26, 2016).
Certificate of Correction to the Third Amended and Restated Articles of Incorporation, dated February 14, 2017 (incorporated by reference to Exhibit 1.4 of the
Company’s Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated May 10, 2017 (incorporated by reference to Exhibit 1.5 of the Company’s
Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated June 22, 2017 (incorporated by reference to Exhibit 1.6 of the Company’s
Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated August 2, 2017 (incorporated by reference to Exhibit 1.7 of the Company’s
Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated October 5, 2017 (incorporated by reference to Exhibit 1.8 of the Company’s
Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated March 23, 2018 (incorporated by reference to Exhibit 1.9 of the Company’s
Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated August 21, 2019 (incorporated by reference to Exhibit 99.2 of the
Company’s Current Report on Form 6-K, filed with the SEC on August 22, 2019).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated August 7, 2020 (incorporated by reference to Exhibit 1.11 of the Company’s
Annual Report on Form 20-F, filed with the SEC on April 23, 2021).
Articles of Amendment to the Third Amended and Restated Articles of Incorporation, dated September 22, 2022 (incorporated by reference to Exhibit 1.12 of the
Company’s Annual Report on Form 20-F, filed with the SEC on April 3, 2023).
Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 6-K, filed with the SEC on March
9, 2007).
Amendment No. 1 to the Amended and Restated By-Laws (incorporated by reference to Exhibit 1 of the Company’s Current Report on Form 6-K, filed with the SEC on
November 28, 2014).
Form of Share Certificate (incorporated by reference to Exhibit 2.1 of the Company’s Annual Report on Form 20-F, filed with the SEC on June 29, 2009).
Form of October 2022 Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 6-K, filed with the SEC on
October 11, 2022).
Form of Class C Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.4 of the Company’s Current Report on Form 6-K, filed with the SEC on
December 14, 2022).
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2.4
2.5
2.6
2.7
2.8
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Form of February 2023 Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 6-K, filed with the SEC on
February 16, 2023).
Certificate of Designations of Rights, Preferences and Privileges of Series A Participating Preferred Stock of TOP Ships Inc.(incorporated by reference to Exhibit 3.1 of
the Company’s Current Report on Form 6-K, filed with the SEC on September 22, 2016).
Statement of Designations, Preferences and Rights of the Series D Preferred Stock of TOP Ships Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Current
Report on Form 6-K, filed with the SEC on May 8, 2017).
Certificate of Amendment to Certificate of Designation of Rights, Preferences and Privileges of Series D Preferred Stock of TOP Ships Inc. (incorporated by reference to
Exhibit 3.1 of the Company’s Current Report on Form 6-K, filed with the SEC on December 4, 2020).
Description of Securities*
TOP Ships Inc. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 20-F, filed with the SEC on April 26, 2016).
Stockholders Rights Agreement with Computershare Trust Company, N.A., as Rights Agent as of September 22, 2016 (incorporated by reference to Exhibit 4.1 of the
Company’s Current Report on Form 6-K, filed with the SEC on September 22, 2016).
Employment Agreement between TOP Ships Inc. and Central Mare Inc. dated September 1, 2010, regarding employment of Chief Technical Officer (incorporated by
reference to Exhibit 4.5 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Employment Agreement between TOP Ships Inc. and Central Mare Inc. dated September 1, 2010, regarding employment of Executive Vice-President and
Chairman (incorporated by reference to Exhibit 4.6 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Employment Agreement between TOP Ships Inc. and Central Mare Inc. dated September 1, 2010, regarding employment of President and Chief Executive
Officer (incorporated by reference to Exhibit 4.7 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Employment Agreement between TOP Ships Inc. and Central Mare Inc. dated September 1, 2010, regarding employment of Chief Financial Officer (incorporated by
reference to Exhibit 4.8 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 29, 2018).
Management Agreement dated as of January 1, 2019 with Central Shipping Inc., in respect of Hull 8242 (renamed Eco Marina Del Rey) (incorporated by reference to
Exhibit 4.105 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 28, 2019).
Management Agreement dated as of January 1, 2019 with Central Shipping Inc., in respect of Hull S874 (TBN Eco Bel Air) (incorporated by reference to Exhibit 4.108 of
the Company’s Annual Report on Form 20-F, filed with the SEC on March 28, 2019).
Management Agreement dated as of January 1, 2019 with Central Shipping Inc., in respect of Hull S875 (TBN Eco Beverly Hills) (incorporated by reference to Exhibit
4.113 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 28, 2019).
Fifth Amendment to the Agreement for Provision of Personnel, dated January 1, 2019, between Top Ships Inc. and Central Mare Inc. (incorporated by reference to
Exhibit 4.115 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 28, 2019).
Letter Agreement from Central Shipping Inc. to Top Ships Inc. dated as of January 1, 2019, in respect of provision of management services (incorporated by reference to
Exhibit 4.116 of the Company’s Annual Report on Form 20-F, filed with the SEC on March 28, 2019).
Loan Agreement for a Secured Floating Interest Rate Loan Facility of up to $37,660,000, dated March 12, 2020, by and among Alpha Bank A.E., California 19 Inc. and
California 20 Inc., in relation to the M/T Eco Yosemite Park and M/T Eco Joshua Park (incorporated by reference to Exhibit 4.25 of the Company’s Annual Report on
Form 20-F, filed with the SEC on April 23, 2021).
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4.13
4.14
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
First Supplemental Agreement in relation to the Loan Agreement dated March 12, 2020, by and among Alpha Bank S.A, California 19 Inc., California 20 Inc., Central
Mare Inc. and Top Ships Inc., in relation to the M/T Eco Yosemite Park and M/T Eco Joshua Park (incorporated by reference to Exhibit 4.26 of the Company’s Annual
Report on Form 20-F, filed with the SEC on April 23, 2021).
Corporate Guarantee, dated December 8, 2020, by and between Top Ships Inc. and Alpha Bank S.A., in respect of the obligations under the Loan Agreement dated
March 12, 2020 (incorporated by reference to Exhibit 4.27 of the Company’s Annual Report on Form 20-F, filed with the SEC on April 23, 2021).
Second Supplemental Agreement dated February 2, 2022, by and between Top Ships Inc. and Alpha Bank S.A., in respect of the obligations under the Loan Agreement
dated March 12, 2020 (incorporated by reference to Exhibit 4.20 of the Company’s Annual Report on Form 20-F, filed with the SEC on April 15, 2022).
Joint Venture Agreement, dated March 11, 2020, by and between Augustus Enterprises Inc., Just-C Limited and California 19 Inc. relating to the M/T Eco Yosemite
Park (incorporated by reference to Exhibit 4.30 of the Company’s Annual Report on Form 20-F, filed with the SEC on April 23, 2021).
Joint Venture Agreement, dated March 11, 2020, by and between Augustus Enterprises Inc., Just-C Limited and California 20 Inc. relating to the M/T Eco Joshua
Park (incorporated by reference to Exhibit 4.31 of the Company’s Annual Report on Form 20-F, filed with the SEC on April 23, 2021).
Bareboat Charter in respect of M/T Eco West Coast, dated December 8, 2023.*
Guarantee and Indemnity dated December 8, 2023, between Top Ships Inc. and Great Equinox Limited, relating to the bareboat charter of M/T Eco West Coast.*
Bareboat Charter in respect of M/T Eco Malibu, dated December 8, 2023.*
Guarantee dated December 8, 2023, between Top Ships Inc. and Giant 9 Holding Limited, relating to the bareboat charter of M/T Eco Malibu.*
Bareboat Charter in respect of M/T Julius Caesar, dated January 11, 2024.*
Guarantee dated January 11, 2024, between Top Ships Inc. and Sea 268 Leasing Co. Limited, relating to the bareboat charter of M/T Julius Caesar.*
Bareboat Charter in respect of M/T Legio X Equestris, dated January 11, 2024.*
Guarantee dated January 11, 2024, between Top Ships Inc. and Sea 269 Leasing Co. Limited, relating to the bareboat charter of M/T Legio X Equestris.*
Facility Agreement dated January 15, 2024, among HSBC Private Bank (Suisse) SA, Top Ships Inc., Julius Caesar Inc. and Legio X. Inc.*
Time Charter Party dated as of February 14, 2022 in respect of M/T Eco Bel Air*
Time Charter Party dated as of February 14, 2022 in respect of M/T Eco Beverly Hills*
Bareboat Charter in respect of M/T Eco Oceano CA, dated as of March 2, 2022 (incorporated by reference to Exhibit 4.36 of the Company’s Annual Report on Form 20-
F, filed with the SEC on April 15, 2022).
Form of Securities Purchase Agreement dated June 3, 2022 between Top Ships Inc. and certain purchasers thereto (incorporated by reference to Exhibit 4.2 of the
Company’s Current Report on Form 6-K, filed with the SEC on June 10, 2022).
Form of Inducement Letter dated October 6, 2022 between Top Ships Inc. and the warrantholder thereto (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 6-K, filed with the SEC on October 11, 2022).
Form of Securities Purchase Agreement dated December 4, 2022 between Top Ships Inc. and certain purchasers thereto (incorporated by reference to Exhibit 4.2 of the
Company’s Current Report on Form 6-K, filed with the SEC on December 14, 2022).
96
Table of Contents
4.33
4.34
8.1
11.1
12.1
12.2
13.1
13.2
15.1
97.1
101
Warrant Agency Agreement dated December 6, 2022 between Top Ships Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit
4.3 of the Company’s Current Report on Form 6-K, filed with the SEC on December 14, 2022).
Form of Securities Purchase Agreement dated February 14, 2023 between Top Ships Inc. and certain purchasers thereto (incorporated by reference to Exhibit 4.2 of the
Company’s Current Report on Form 6-K, filed with the SEC on February 16, 2023).
List of subsidiaries of the Company*
Insider trading policy of the Company*
Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Executive Officer*
Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Financial Officer*
Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Certification of the Company’s 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 Independent Registered Accounting Firm*
Policy for the Recovery of Erroneously Awarded Compensation of the Company*
The following materials from the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2023, formatted in Inline eXtensible Business
Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of December 31, 2022 and 2023; (ii) Consolidated Statements of Comprehensive Income/(Loss) for the
years ended December 31, 2021, 2022 and 2023; (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2022 and 2023; (iv)
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2022 and 2023; and (v) Notes to Consolidated Financial Statements
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101
*Filed herewith
97
Table of Contents
SIGNATURES
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.
Date: March 29, 2024
TOP SHIPS INC.
(Registrant)
By:
/s/ Evangelos J. Pistiolis
Evangelos J. Pistiolis
President, Chief Executive Officer, and Director
98
TOP SHIPS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 1163)
Consolidated Balance sheets as of December 31, 2022 and 2023
Consolidated Statements of Comprehensive income for the years ended December 31, 2021, 2022 and 2023
Consolidated Statements of Stockholders’ equity for the years ended December 31, 2021, 2022 and 2023
Consolidated Statements of Cash flows for the years ended December 31, 2021, 2022 and 2023
Notes to consolidated financial statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Top Ships Inc.,
Majuro, Republic of the Marshall Islands
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Top Ships Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated
statements of comprehensive income, mezzanine and stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting
principles generally accepted in the United States of America.
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 included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that
(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there
are no critical audit matters.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
March 29, 2024
We have served as the Company’s auditor since 2006.
F-2
Table of Contents
TOP SHIPS INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2022 AND 2023
(Expressed in thousands of U.S. Dollars - except share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade accounts receivable
Prepayments and other
Inventories
Total current assets
FIXED ASSETS:
Vessels, net (Note 4)
Right of use assets from operating leases (Note 6)
Other fixed assets, net
Total fixed assets
OTHER NON CURRENT ASSETS:
Restricted cash (Note 6 and 7)
Investments in unconsolidated joint ventures (Note 16)
Deposit asset
Deferred Charges
Total non-current assets
Total assets
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 7)
Due to related parties (Note 5)
Accounts payable
Accrued liabilities
Unearned revenue
Current portion of Operating lease liabilities (Note 6)
Current portion of Vessel fair value participation liability (Note 7)
Total current liabilities
NON-CURRENT LIABILITIES:
Non-current portion of long term debt (Note 7)
Non-current portion of Operating lease liabilities (Note 6)
Other non-current liabilities
Vessel fair value participation liability (Note 7)
Total non-current liabilities
COMMITMENTS AND CONTINGENCIES (Note 8)
Total liabilities
MEZZANINE EQUITY:
Preferred stock, $0.01 par value; 20,000,000 shares authorized; 13,452 and 0 Series E Shares and 5,850,748 and 3,659,627 Series F Shares
issued and outstanding at December 31, 2022, and 2023 (Note 15)
Preferred stock, Paid-in capital in excess of par
Total mezzanine equity
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 20,000,000 shares authorized; of which 100,000 Series D Shares were outstanding at December 31, 2022
and 2023 (Note 9)
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 857,908 and 4,626,197 shares issued and outstanding at December 31,
2022 and 2023 (Note 9)
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities, mezzanine equity and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
F-3
December 31,
December 31,
2022
2023
20,544
8
1,314
1,026
22,892
389,059
28,708
505
418,272
4,000
22,173
2,000
-
28,173
35,956
317
1,545
915
38,733
374,710
19,476
505
394,691
4,000
19,635
2,000
130
25,765
469,337
459,189
12,344
237
1,953
2,061
7,030
8,610
-
32,235
221,370
15,338
100
3,271
240,079
12,418
4,648
1,356
2,355
6,615
8,980
5,000
41,372
228,080
6,357
-
-
234,437
272,314
275,809
59
86,292
86,351
37
43,879
43,916
1
9
428,468
(317,806)
110,672
469,337
1
46
451,157
(311,740)
139,464
459,189
Table of Contents
TOP SHIPS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of U.S. Dollars - except share and per share data)
Revenues (including $0, $7,294 and $8,943 respectively, from related party) (Note 17 & 5)
EXPENSES:
Voyage expenses (including $705, $1,008 and $1,037 respectively, to related party) (Note 11)
Operating lease expense (Note 6)
Vessel operating expenses (including $17, $37 and $42 respectively, to related party) (Note 11)
Dry-docking costs
Vessel depreciation (Note 4)
Management fees-related parties (Note 5)
General and administrative expenses (including $360, $360 and $5,360 respectively, to related party)(Note 5)
Gain on sale of vessels
Impairment of vessels
Operating income
OTHER EXPENSES:
Interest and finance costs (including $0, $207 and $0 respectively, to related party) (Note 12)
Gain on derivative financial instruments (Note 14)
Interest income
Equity gain/(loss) in unconsolidated joint ventures
Total other expenses, net
Net income and comprehensive income
Less: Deemed dividend for beneficial conversion feature of Series E Shares (Note 15)
Less: Deemed dividend equivalents on preferred shares related to redemption value (Note 15)
Less: Preferred shares dividend (Note 15)
Less: Deemed dividend on warrant inducement (Note 9)
Less: Deemed dividend on Series E Shares conversion
Net income/ (loss) attributable to common shareholders
Earnings/(Loss) per common share, basic and diluted (Note 10)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
2021
2022
2023
56,367
80,656
82,949
1,317
10,840
15,679
361
7,670
2,596
1,943
-
1,160
14,801
(6,998)
66
-
747
(6,185)
8,616
(900 )
(437 )
(1,883 )
-
-
5,396
32.51
1,648
10,840
18,628
-
13,289
2,093
1,617
(78)
-
32,619
(14,365)
-
48
646
(13,671)
18,948
-
(14,400 )
(12,390 )
(1,345 )
-
(9,187 )
1,609
10,840
18,527
-
14,349
2,200
6,697
-
-
28,727
(22,989)
-
346
(18)
(22,661)
6,066
-
-
(6,010 )
-
(22,426 )
(22,370 )
(36.34 )
(12.44 )
Table of Contents
TOP SHIPS INC.
CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of U.S. Dollars – except number of shares and per share data)
BALANCE, December 31, 2020
Net Income
Stock-based compensation
Issuance of Series E Shares (Note
15)
Deemed dividend equivalents on
Series E Shares issued during the
period related to redemption value
Dividends of Series E shares (Note
15)
Beneficial conversion feature related
to the issuance of Series E Shares
Deemed dividend related to
beneficial conversion feature of
Series E Shares
Excess of consideration over
carrying value of acquired assets
(Note 1)
BALANCE, December 31, 2021
Net Income
Stock-based compensation
Redemption of fractional shares due
to reverse stock split
Issuance of preferred shares (Note
Deemed dividend of Series F shares
related to redemption value
Dividends of preferred shares (Note
15)
Exercise of warrants, net of fees
Redemptions of preferred shares
(Note 15)
Issuance of common stock pursuant
to equity offerings, net (Note 9)
Deemed dividend on warrant
inducement (Note 9)
Incremental fair value of the October
2022 Warrants (Note 9)
BALANCE, December 31, 2022
Net Income
Redemption of fractional shares due
to reverse stock split
Conversion of Series E Shares (Note
15)
7,200,000
72
71,928
14,400
(1,349,252)
(13)
(16,178)
Deemed dividend on Series E Shares
conversion (Note 15)
Dividends of preferred shares (Note
15)
Exercise of warrants, net of fees
Redemptions of preferred shares
(Note 15)
Issuance of common stock pursuant
to equity offerings, net (Note 9)
(2,191,121)
(22)
(26,271)
BALANCE, December 31, 2023
3,659,627
37
43,879
100,000
The accompanying notes are an integral part of these consolidated financial statements.
* Adjusted to reflect the reverse stock split effected in September 2023 (see Note 1)
F-5
Accumulated
Deficit
attributable
to common
stockholders
(345,370)
8,616
Total
120,701
8,616
(34)
Mezzanine Equity
Par
Value
Mezzanine
Equity
# of
Shares
11,264
2,188
-
-
13,517
2,188
437
(900)
900
Preferred Stock
Par
# of
Shares
Value
100,000
1
Common Stock
# of
Shares*
165,966
Par
Value*
2
Additional
Paid-In
Capital*
466,068
(34)
(437)
(1,883)
900
(900)
13,452
-
16,142
100,000
1
165,966
(33,741)
429,973
2
(336,754)
18,948
-
(437)
(1,883)
900
(900)
(33,741)
93,222
18,948
(16)
(15)
-
(14,400)
(12,390)
4,536
-
20,787
(1,345)
-
38,568
(22,426)
(6,010)
12
-
(535)
59,595
632,882
(16)
(15)
(14,400)
(12,390)
4,535
20,781
(1,345)
1
6
(27)
(22,426)
(6,010)
12
500
837,098
4,626,197
1
8
46
12,574
451,157
(311,740)
12,582
139,464
5,864,200
59
86,292
100,000
1
857,908
1,345
428,468
9
(317,806)
6,066
1,345
110,672
6,066
15)
(13,452)
-
(16,142)
2,930,718
29
38,539
Table of Contents
TOP SHIPS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of U.S. Dollars)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Vessel depreciation
Other fixed assets depreciation
Equity (gains)/losses in unconsolidated joint ventures
Dividends from cumulative earnings of joint venture
Amortization and write off of deferred financing costs and debt discounts
Stock-based compensation expense
Change in fair value of derivative financial instruments
Amortization of Right of use assets from operating leases
Impairment on vessels
Gain on sale of other fixed assets
Gain on sale of vessels
(Increase)/Decrease in:
Trade accounts receivable
Inventories
Prepayments and other
Increase/(Decrease) in:
Due to related parties
Accounts payable
Other non-current liabilities
Accrued liabilities
Unearned revenue
Operating lease liabilities
Net Cash provided by Operating Activities
Cash Flows used in Investing Activities:
Advances for vessels under construction and capitalized expenses
Returns of investments in unconsolidated joint ventures (2020 Joint Venture – see Note 16)
Net proceeds from vessel sales
Net proceeds from sales of other fixed assets, net
Net Cash (used in)/ provided by Investing Activities
Cash Flows from Financing Activities:
Proceeds from debt
Proceeds from related party debt
Principal payments and prepayments of related party debt
Principal payments and prepayments of debt
Redemption of preferred shares
Proceeds from issuance of common stock
Proceeds from warrant exercises, net of fees
Equity offering issuance costs
Payment of financing costs
Dividends of preferred shares
Proceeds from issuance of preferred shares (Note 15)
Redemption of fractional shares due to reverse stock split
Net Cash provided by/(used in) Financing Activities
Net (decrease)/increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of the year
Cash breakdown
Cash and cash equivalents
Restricted cash, current
Restricted cash, non-current
SUPPLEMENTAL CASH FLOW INFORMATION
Capital expenditures included in Accounts payable/Accrued liabilities/Due to related parties
Interest paid, net of capitalized interest
Finance fees included in Accounts payable/Accrued liabilities/Due to related parties
Equity issuance costs and warrant related costs included in liabilities
Unpaid Excess of consideration over carrying value of acquired assets included in Due to Related Parties (Note 1)
Beneficial conversion feature of Series E perpetual convertible preferred stock
Settlement of related party debt, interest, finance fees, Excess consideration over acquired assets, capital
expenditures and dividends with issuance of preferred shares (Note 15)
Dividends payable included in Due to related parties
Carrying value of net assets of companies acquired (Note 1)
Deemed dividend equivalents on preferred shares related to redemption value (Note 15)
Deemed dividend on warrant inducement (Note 9)
Deemed dividend on Series E Shares conversion
The accompanying notes are an integral part of these consolidated financial statements.
F-6
2021
2022
2023
8,616
7,670
14
(747)
1,524
840
(34)
(66)
7,943
1,160
-
-
(76)
(157)
323
(2,797)
(123)
(75)
(207)
1,584
(9,331)
16,061
(115,513)
2,976
35,886
-
(76,651)
74,800
-
-
(28,313)
-
-
-
-
(1,076)
(1,779)
-
-
43,632
(16,958)
23,328
6,370
2,370
-
4,000
1,530
7,412
151
-
27,562
900
2,188
968
8,933
437
-
-
18,948
13,289
4
(646)
646
2,522
(16)
-
8,571
-
(15)
(78)
68
(355)
(733)
(3,204)
(82)
(125)
1,068
3,372
(9,815)
33,419
(216,714)
2,304
71,714
40
(142,656)
156,201
9,000
(9,000)
(68,893)
(16,191)
22,718
4,556
(1,671)
(3,566)
(13,358)
47,630
(15)
127,411
18,174
6,370
24,544
20,544
-
4,000
-
11,161
-
280
-
-
24,370
-
-
14,400
1,345
-
6,066
14,349
-
18
-
4,726
-
-
9,232
-
-
-
(309)
111
(231)
4,411
(503)
(100)
189
(415)
(8,611)
28,933
-
2,520
-
-
2,520
82,000
-
-
(76,384)
(26,293)
13,562
12
(1,260)
(1,668)
(6,010)
-
-
(16,041)
15,412
24,544
39,956
35,956
-
4,000
-
18,277
290
-
-
-
-
-
-
-
-
22,426
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
1.
Basis of Presentation and General Information:
The consolidated financial statements include the accounts of Top Ships Inc. (formerly Top Tankers Inc. and Ocean Holdings Inc.) and its wholly owned subsidiaries (collectively the
“Company”). Ocean Holdings Inc. was formed on January 10, 2000, under the laws of Marshall Islands and was renamed to Top Tankers Inc. and Top Ships Inc. in May 2004 and
December 2007, respectively. The Company is an international provider of worldwide oil, petroleum products and chemicals transportation services.
As of December 31, 2023, the Company was the sole owner of all outstanding shares of the following subsidiary companies. The following list is not exhaustive as the Company has
other subsidiaries relating to vessels that have been sold and that remain dormant for the periods presented in these consolidated financial statements as well as intermediary
companies that own shipowning companies that are 100% subsidiaries of the Company.
Companies
Top Tanker Management Inc.
Wholly owned Shipowning Companies (“SPC”)
with vessels in operation during years ended
December 31, 2021, 2022 and 2023
Monte Carlo Lax Shipping Company Limited
1
PCH Dreaming Inc.
2
3 Roman Empire Inc.
4 Athenean Empire Inc.
5 Julius Caesar Inc.
6 Legio X Inc.
7 Eco Oceano CA Inc.
Date of
Incorporation
May 2004
Date of
Incorporation
May 2013
January 2018
February 2020
February 2020
May 2020
December 2020
December 2020
Country of
Incorporation
Marshall Islands
Country of
Incorporation
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Activity
Management company
Vessel
M/T Nord Valiant
M/T Eco Marina Del Rey
Eco West Coast
Eco Malibu
Julius Caesar
Legio X Equestris
Eco Oceano CA
Delivery Date
August 2016 (sold in 2021)
March 2019
March 2021
May 2021
January 2022
March 2022
March 2022
As of December 31, 2021, 2022 and 2023, the Company was the owner of 50% of outstanding shares of the following companies.
SPC
1 California 19 Inc.
2 California 20 Inc.
Date of
Incorporation
May 2019
May 2019
Country of
Incorporation
Marshall Islands
Marshall Islands
Vessel
M/T Eco Yosemite Park
M/T Eco Joshua Park
Built Date
March 2020
March 2020
F-7
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
On January 6, 2021 the Company sold to a related party affiliated with the Company’s Chief Executive Officer, President and director, Mr. Evangelos J. Pistiolis (the “Buyer”) the three
shipowning companies that owned the newbuilding vessels M/T Eco Van Nuys (Hull No 2789), M/T Eco Santa Monica (Hull No 2790) and M/T Eco Venice Beach (Hull No 2791) in
exchange for:
$10,000 in cash.
●
● 100% ownership in a Marshall Islands company that was party to a shipbuilding contract for a high specification scrubber fitted Suezmax Tanker at the time under construction
at Hyundai Samho shipyard, delivered in March 2022 (M/T Eco Oceano CA - Hull No 871). The shipowning company is party to a time charter, starting from the vessel’s
delivery, with Central Tankers Chartering, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, for a firm duration of five years at a gross daily rate of $32,450,
with a charterer’s option to extend for two additional years at $33,950 and $35,450 (also see Note 5).
● 35% ownership in one Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker at the time under construction
at Hyundai Heavy Industries shipyard, delivered in January 2022 (Julius Caesar - Hull No. 3213). The shipowning company is party to a time charter, starting from the vessel’s
delivery, with Trafigura Maritime Logistics Pte Ltd (“Trafigura”), for a firm duration of three years at a gross daily rate of $36,000, with a charterer’s option to extend for two
additional years at $39,000 and $41,500.
● 35% ownership in one Marshall Islands company that is party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker at the time under construction at
Hyundai Heavy Industries shipyard, delivered in March 2022 (Legio X Equestris - Hull No. 3214). The shipowning company is party to a time charter, starting from the
vessel’s delivery, with Trafigura, for a firm duration of three years at a gross daily rate of $35,750, with a charterer’s option to extend for two additional years at $39,000 and
$41,500.
● A settlement of $1,150 in related party payables to the Buyer.
The Buyer remained the guarantor on the shipbuilding contracts towards the shipyard and in addition, the Buyer provided the Company with an option for a credit line up to 10% of the
total shipbuilding cost at market terms, to be negotiated when the option was to be exercised, amounting to $23,815.
On September 8, 2021 the Company purchased from the Buyer for a consideration of $29,750 an additional 65% ownership interest in Julius Caesar Inc. - Hull No. 3213 and Legio X Inc. -
Hull No. 3214 (the “VLCC Companies”). Following this transaction, the Company is the 100% owner of the VLCC Companies. The Buyer remained the guarantor on the shipbuilding
contracts towards the shipyard and in addition the Buyer provided a financing option to the Company by remaining responsible to the shipyard for up to 20% of the shipbuilding cost
per vessel (increased from 10%, as previously agreed on January 6, 2021), at the option of the Company, to be exercised until each vessel’s delivery date.
Due to the abovementioned purchase of the remaining 65% of the VLCC Companies, which were initially accounted for as Investments in affiliates, the Company consolidates the VLCC
Companies.
Each of the abovementioned transactions were approved by a special committee of the Company’s board of directors (the “Special Committee”), of which all of the directors were
independent and for each transaction the Special Committee obtained a fairness opinion relating to the consideration of each transaction from an independent financial advisor. The
Company accounted for the abovementioned acquisitions as a transfer of assets between entities under common control and has recognized the vessels at their historical carrying
amounts at the date of transfer.
F-8
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The amount of the consideration given in excess of the historical carrying value of the net assets acquired is recognized as a reduction to the Company’s additional paid in capital and
presented as Excess of consideration over the carrying value of acquired assets in the Company’s consolidated statement of stockholders’ equity for the twelve months ended
December 31, 2021, 2022 and 2023 respectively. An analysis of the consideration paid is presented in the table below:
As of December 31,
Consideration
Carrying value of net assets of companies sold
Less: Carrying value of net assets of companies acquired
Less: Consideration received in cash
Less: Settlement of related party payables
Excess of consideration over acquired assets
2021
2022
2023
29,750
24,074
(8,933)
(10,000)
(1,150)
33,741
-
-
-
-
-
-
-
-
-
-
-
-
On September 29, 2023 the Company effected a 1-for-12 reverse stock split of its common stock. There was no change in the number of authorized common shares of the Company, or
the floor price of the Company’s Series E Shares, or the number of votes of the Company’s Series D, E and F Shares. All numbers of common share and earnings per share amounts, as
well as warrant shares eligible for purchase under the Company’s warrants, exercise price of said warrants and conversion prices of the Company’s Series E Shares, in these
consolidated financial statements have been retroactively adjusted to reflect this 1-for-12 reverse stock split.
2.
Significant Accounting Policies:
(a) Principles of Consolidation: The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) and include the accounts and operating results of Top Ships Inc. and its subsidiaries referred to in Note 1. Intercompany balances and transactions have
been eliminated on consolidation. Non-controlling interests are stated at the non-controlling interest’s proportion of the net assets of the subsidiaries where the Company has less
than 100% interest. Subsequent to initial recognition the carrying amount of non-controlling interest is increased or decreased by the non-controlling interest’s share of
subsequent changes in the equity of such subsidiaries. Total comprehensive income is attributed to a non-controlling interest even if this results in a deficit balance. Changes in
the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions and the carrying
amounts of the Company’s interests and the non-controlling interests are adjusted to reflect these changes in their relative interests in the subsidiaries. Any difference between the
amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the
Company.
(b) Use of Estimates: The preparation of consolidated 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 estimates mainly include impairment of vessels, vessel useful lives
and residual values and fair values of derivative instruments. Actual results may differ from these estimates.
(c) Foreign Currency Translation: The Company’s functional currency is the U.S. Dollar because all vessels operate in international shipping markets, and therefore primarily transact
business in U.S. Dollars. The Company’s books of account are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars
using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies are
translated to U.S. Dollars based on the year-end exchange rates and any gains and losses are included in the statement of comprehensive income.
(d) Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less
to be cash equivalents.
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(e) Restricted Cash: The Company considers amounts that are pledged, blocked, held as cash collateral, required to be maintained with a specific bank or be maintained by the
Company as minimum cash under the terms of a loan agreement, as restricted and these amounts are presented separately on the balance sheets. In the event original maturities are
shorter than twelve months, such deposits are presented as current assets while if original maturities are longer than twelve months, such deposits are presented as non-current
assets.
(f) Trade Accounts Receivable, net: The amount shown as trade accounts receivable, net at each balance sheet date, includes estimated recoveries from charterers for hire billings, net
of a provision for doubtful accounts and also accrued revenue resulting from straight-line revenue recognition of charter agreements that provide for varying charter rates. At each
balance sheet date, all potentially uncollectible accounts are assessed individually, combined with the application of a historical recoverability ratio, for purposes of determining the
appropriate provision for doubtful accounts. The Company assessed that it had no potentially uncollectible accounts and hence formed no provision for doubtful accounts at
December 31, 2022 and 2023 respectively.
(g) Inventories: Inventories consist of lubricants, bonded stores and spares on board the vessels. Inventories are stated at the lower of cost and net realizable value. Cost, which
consists of the purchase price, is determined by the first in, first out method.
(h) Vessel Cost: Vessels are stated at cost, which consists of the contract price, pre-delivery costs and capitalized interest incurred during the construction of new building vessels,
and any material expenses incurred upon acquisition (improvements and delivery costs). Subsequent expenditures for conversions and major improvements are also capitalized
when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Repairs and maintenance are charged to expense as incurred
and are included in Vessel operating expenses in the consolidated statements of comprehensive income.
(i) Impairment of Long-Lived Assets: The Company evaluates the existence of impairment indicators whenever events or changes in circumstances indicate that the carrying values
of the Company’s long lived assets are not recoverable. Such indicators of potential impairment include, vessel sales and purchases, business plans, declines in the fair market
value of vessels and overall market conditions. If there are indications for impairment present, the Company determines undiscounted projected net operating cash flows for each
vessel and compares it to the vessel’s carrying value. If the carrying value of the related vessel exceeds its undiscounted future net cash flows, the carrying value is reduced to its
fair value, and the difference is recognized as an impairment loss. The impairment evaluation the Company conducted as of December 31, 2022 and 2023 showed that there are no
impairment indications for any of the vessels held for use in the Company’s fleet.
(j) Vessel Depreciation: Depreciation is calculated using the straight-line method over the estimated useful life of the vessels, after deducting the estimated salvage value. Each
vessel’s salvage value is equal to the product of its lightweight tonnage and estimated scrap rate, of $300 per lightweight ton. Management estimates the useful life of the
Company’s vessels to be 25 years from the date of initial delivery from the shipyard. Second hand vessels are depreciated from the date of their acquisition through their remaining
estimated useful life. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its useful life is adjusted at the date such regulations are adopted.
(k) Long Lived Assets Held for Sale: The Company classifies vessels as being held for sale when the following criteria are met: (a) management, having the authority to approve the
action, commits to a plan to sell the asset, (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such
assets, (c) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated, (d) the sale of the asset is probable and transfer
of the asset is expected to qualify for recognition as a completed sale, within one year, (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its
current fair value, (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Long-lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell. These vessels are not depreciated once they meet the
criteria to be classified as held for sale.
Long-lived assets previously classified as held for sale that are classified as held and used are revalued at the lower of (a) the carrying amount of the asset before it was classified
as held for sale, adjusted for any depreciation expense that would have been recognized had the asset been continuously classified as held and used and (b) the fair value of the
asset at the date that the Company decided not to sell the asset.
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(l) Other Fixed Assets, Net: Other fixed assets, net, consist of furniture, office equipment, and cars, stated at cost, which consists of the purchase/contract price less accumulated
depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the assets as presented below:
Description
Cars
Office equipment
Furniture and fittings
Computer equipment
Art works
Useful Life (years)
6
5
5
3
∞
(m) Accounting for Dry-Docking Costs: All dry-docking and special survey costs are expensed in the period incurred.
(n) Financing Costs: Fees incurred and paid to the lenders for obtaining new loans or refinancing existing ones are recorded as a contra to debt and such fees are amortized to interest
and finance costs over the life of the related debt using the effective interest method. Any unamortized balance of costs relating to debt repaid or refinanced that meet the criteria
for Debt Extinguishment (Subtopic 470-50), is expensed in interest and finance costs in the period in which the repayment is made or refinancing occurs. Any unamortized balance
of costs relating to debt refinanced that do not meet the criteria for Debt Extinguishment, are amortized over the term of the refinanced debt.
(o) Accounting for Revenue and Expenses: Revenues are generated from time charter arrangements. 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 monthly in advance. Revenue is shown net of address commissions, if applicable, payable directly to charterers under
the relevant charter agreements. Address commissions represent a common market practice discount (sales incentive) on services rendered by the Company and no identifiable
benefit is received in exchange for the consideration provided to the charterer. Commissions on time charter revenues are recognized on a pro rata basis over the duration of the
period.
The Company based on ASC 842 determined that all time charter-out contracts are considered operating leases and therefore fall under the scope of ASC 842 because: (i) the
vessel is an identifiable asset; (ii) the Company as lessor, does not have substantive substitution rights; and (iii) the charterer, as lessee, has the right to control the use of the
vessel during the term of the contract and derives the economic benefits from such use.
Time charter revenue is recognized as earned on a straight-line basis over the term of the relevant time charter starting from the vessel’s delivery to the charterer until the vessel is
redelivered to the Company, except for any off-hire period. Revenue generated from variable lease payments is recognized in the period when changes in the facts and
circumstances on which the variable lease payments are based occur. The Company elected to not separate the lease and non-lease components included in the time charter
revenue because (i) the pattern of revenue recognition for the lease and non-lease components (included in the daily hire rate) is the same and (ii) the lease component would be
classified as an operating lease. The daily hire rate represents the hire rate for a bare boat charter as well as the compensation for expenses incurred running the vessel such as
crewing expense, repairs, insurance, maintenance and lubes. Both the lease and non-lease components are earned by passage of time. Under a time charter agreement, vessel
operating expenses such as management fees, crew wages, provisions and stores, technical maintenance and insurance expenses and broker’s commissions are paid by the vessel
owner, whereas voyage expenses such as bunkers, port expenses, agents’ fees, and extra war risk insurance are paid by the charterer. Vessel operating expenses are expensed as
incurred. Unearned revenue represents cash received prior to year-end related to revenue applicable to periods after December 31 of each year and also amounts resulting from
straight-line revenue recognition of charter agreements that provide for varying charter rates.
When vessels are acquired with time charters attached and the rates on such charters are below or above market on the acquisition date, the Company allocates the total cost
between the vessel and the fair value of the attached time charter based on the relative fair values of the vessel and time charter acquired. The fair value of the attached time charter
is computed as the present value of the difference between the contractual amount to be received over the term of the time charter and management’s estimates of the market time
charter rate at the time of acquisition. The fair value of below or above market time charter is recognized as a liability or an intangible asset respectively and is amortized over the
remaining period of the time charter as an increase or decrease to revenues.
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Where the time charter contains a profit or loss sharing arrangement, the profit or loss is recognized based on amounts earned or incurred as of the reporting date.
The Company pays commissions to ship brokers and to the Company’s fleet manager (Note 5), a related party affiliated with the family of Mr. Evangelos J. Pistiolis, associated with
arranging the Company’s charters. These brokers’ commissions are recognized over the related charter period and are included in voyage expenses.
(p) Earnings / (Loss) per Share: Basic earnings/(loss) per share are computed by dividing net income or loss available to common stockholders by the weighted average number of
common shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were
exercised. For purposes of calculating diluted earnings per share the denominator of the diluted earnings per share calculation includes the incremental shares assumed issued
under the treasury stock method weighted for the period the non-vested shares were outstanding. The computation of diluted earnings per share also reflects the potential dilution
that could occur if warrants to issue common stock were exercised, to the extent that they are dilutive, using the treasury stock method, the potential dilution that could occur if
convertible preferred stock were converted, using the if-converted method as well as the potential dilution that could occur if the Company completed all sales pursuant to common
stock purchase agreements, using the if-converted method. Finally net income or loss available to common stockholders, when computing basic earnings/(loss) per share, is
reduced to reflect any dividends or deemed dividends on preferred stock.
(q) Derivatives and Hedging, Hedge Accounting: The Company records every derivative instrument (including certain derivative instruments embedded in other contracts) on the
balance sheet as either an asset or liability measured at its fair value, with changes in the derivatives’ fair value recognized in earnings unless specific hedge accounting criteria are
met.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the
risk management objective and strategy undertaken for the hedge. The documentation includes identification of the hedging instrument, hedged item or transaction, the nature of
the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting exposure to changes in the hedged item’s cash flows attributable to the
hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they
actually have been highly effective throughout the financial reporting periods for which they were designated. Contracts which meet the criteria for hedge accounting are
accounted for as cash flow hedges. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized
asset or liability, or a highly probable forecasted transaction that could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized
directly as a component of “Accumulated other comprehensive income” in equity, while the ineffective portion, if any, is recognized immediately in current period earnings. The
Company discontinues cash flow hedge accounting if the hedging instrument expires and it no longer meets the criteria for hedge accounting or designation is revoked by the
Company. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is kept in equity until the forecasted transaction occurs. When the forecasted
transaction occurs, any cumulative gain or loss on the hedging instrument is recognized in the statement of income. If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognized in equity is transferred to net profit or loss for the year as a component of “Gain/(Loss) on derivatives”.
(r) Financial liabilities: Financial liabilities are classified as either financial liabilities at ‘fair value through the profit and loss’ (“FVTPL”) or ‘other financial liabilities’. Financial
instruments classified as FVTPL are recognized at fair value in the balance sheet when the Company has an obligation to perform under the contractual provisions of those
instruments. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Changes in the fair value of financial
instruments are recognized in earnings, except in the cases where these financial instruments fall under the guidance in ASC 815-40, where they are initially classified in equity and
are initially measured at fair value in permanent equity and subsequent changes in fair value are not subsequently measured. Other financial liabilities (including borrowings and
trade and other payables) are subsequently measured at amortized cost using the effective interest rate method.
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(s) Segment Reporting: The Chief Operating Decision Maker (“CODM”), Mr. Evangelos J. Pistiolis, receives financial information and evaluates the Company’s operations by charter
revenues and not by the length, type of vessel or type of ship employment for its customers or by geographical region as the charterer is free to trade the vessel worldwide and as a
result, the disclosure of geographic information is impracticable. The CODM does not use discrete financial information to evaluate the operating results for each such type of
charter or vessel. Although revenue can be identified for these types of charters or vessels, management cannot and does not identify expenses, profitability or other financial
information for these various types of charters or vessels. As a result, management, including the CODM, reviews operating results solely by revenue per day and operating results
of the fleet, and thus the Company has determined that it operates as one reportable segment.
(t) Leases:
●
Sale-leaseback transactions: In accordance with ASC 842, the Company, as seller-lessee, determines whether the transfer of an asset should be accounted for as a sale in
accordance with ASC 606 (existence of a contract and satisfaction of performance obligation by transferring of the control of the asset). The existence of an option for the
seller-lessee to repurchase the asset precludes the accounting for the transfer of the asset as a sale unless both of the following criteria are met: (1) the exercise price of the
option is the fair value of the asset at the time the option is exercised; and (2) there are alternative assets, substantially the same as the transferred asset, readily available in the
marketplace. If the transfer of the asset meets the criteria of sale, the Company, as seller-lessee recognizes the transaction price for the sale when the buyer-lessor obtains
control of the asset, derecognizes the carrying amount of the underlying asset and accounts for the lease in accordance with ASC 842. If the transfer does not meet the criteria
of sale, the Company does not derecognize the transferred asset, accounts for any amounts received as a financing arrangement and recognizes the difference between the
amount of consideration received and the amount of consideration to be paid as interest.
● Finance lease: The Company classifies a lease as a finance lease when the lease meets any of the following criteria at lease commencement:
i. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
ii. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
iii. The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life
of the underlying asset, this criterion shall not be used for purposes of classifying the lease.
iv. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds
substantially all of the fair value of the underlying asset.
v. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
When none of these criteria are met the Company classifies the lease as an operating lease.
● Operating lease- The Company as a lessee: The Company recognizes right-of-use assets (“ROU”) and corresponding lease liabilities for its operating leases. ROU assets and
liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. The operating lease ROU asset also
includes any lease payments made to the lessor prior to lease commencement, less any lease incentives, and initial direct costs incurred. Lease expense for operating lease
payments is recognized on a straight-line basis over the lease term.
(u) Beneficial conversion feature: A beneficial conversion feature is defined as a non-detachable conversion feature that is in the money at the commitment date. The beneficial
conversion feature guidance requires recognition of the intrinsic value of the option, which is the in-the- money portion of the conversion option, in equity, with an offsetting
reduction to the carrying amount of the instrument. The resulting discount is amortized as a deemed dividend over either the life of the instrument, if a stated maturity date exists, or
to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend must be recognized at inception.
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(v) Investments in unconsolidated joint ventures: The Company’s investments in unconsolidated joint ventures are accounted for using the equity method of accounting. Under the
equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the Company’s proportionate share of earnings or
losses and distributions. The Company evaluates its investments in unconsolidated joint ventures for impairment when events or circumstances indicate that the carrying value of
such investments may have experienced other than temporary decline in value below their carrying value. If the estimated fair value is less than the carrying value and is considered
other than a temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the Consolidated Statements of
comprehensive income.
(w) Other Comprehensive Income: The Company follows the provisions of guidance regarding reporting comprehensive income which requires separate presentation of certain
transactions, such as unrealized gains and losses from effective portion of cash flow hedges, which are recorded directly as components of stockholders’ equity
(x) Impairment of Right of use assets from operating leases: The Company evaluates its Right of use assets from operating leases for potential impairment when it determines a
triggering event has occurred. When a triggering event has occurred, the Company performs a test of recoverability by comparing the expected undiscounted future cash flows
(including expected residual values) over the remaining lease terms to the carrying value of the Right of use asset. If the test of recoverability identifies a possible impairment, the
Right of use asset’s fair value is measured in accordance with the fair value measurement framework. An impairment charge is recognized for the amount by which the carrying
value of the Right of use asset exceeds its estimated fair value and would be recorded in the Consolidated Statements of comprehensive income. For the years ended December 31,
2022, and 2023 there was no impairment of the Company’s Right of use assets from operating leases due to the absence of impairment indications for all the vessels of the
Company’s.
(y) Recent Accounting Pronouncements: In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting, updated in December 2022 by ASU No. 2022-06, Deferral of Sunset Date of Topic 848. The ASUs apply to all entities that have contracts, hedging
relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASUs provide optional
expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients
and exceptions provided by the ASUs do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024, except for hedging
relationships existing as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU
2020-04, as updated by ASU 2022-06, is effective for all entities as of March 12, 2020, through December 31, 2024. The impact of the adoption in the second half of the year ended
December 31, 2023 did not have a material impact on the Company’s consolidated financial statements.
There are no other recent accounting pronouncements the adoption of which is expected to have a material effect on the Company’s consolidated financial statements in the
current period.
3.
Going Concern:
At December 31, 2023, the Company had a working capital deficit of $2,639 which included an amount of $6,615 relating to pre-collected revenue and is included in Unearned revenue in
the accompanying consolidated balance sheets. This amount represents a current liability that does not require future cash settlement. For the year ended December 31, 2023 realized a
net income of $6,066 and generated cash flow from operations of $28,933.
In the Company’s opinion, the Company will be able to finance its working capital deficit in the next 12 months with cash on hand and operational cash flow and hence the Company
believes it has the ability to continue as a going concern and finance its obligations as they come due via cash from operations over the next twelve months following the date of the
issuance of these financial statements. Consequently, the consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
4.
Vessels, net:
The amounts in the consolidated balance sheets are analyzed as follows:
Balance, December 31, 2021
— Transferred from advances for vessels under construction
— Depreciation
Balance, December 31, 2022
— Depreciation
Balance, December 31, 2023
Vessel
Cost
Accumulated
Depreciation
Net
Book Value
163,501
245,763
-
409,264
-
409,264
(6,916)
-
(13,289)
(20,205)
(14,349)
(34,554)
156,585
245,763
(13,289)
389,059
(14,349)
374,710
In 2022, the Company took delivery of the following vessels and hence advances paid and capitalized expenses relating to these vessels were transferred from Advances for vessels
under construction to Vessels, net:
Vessel Name
M/T Julius Caesar
M/T Legio X Equestris
M/T Eco Oceano CA
Total 2022
Delivery Date
January 17, 2022
March 2, 2022
March 4, 2022
Yard
Installments
Capitalized
Expenses
Final
Cost
90,008
89,995
60,250
240,253
2,056
2,138
1,316
5,510
92,064
92,133
61,566
245,763
As of December 31, 2023 all the titles of ownership of our vessels are held by the respecting vessel lenders to secure the relevant sale and lease back financing transactions (see Note
7).
5.
Transactions with Related Parties:
(a) Central Mare – Executive Officers and Other Personnel Agreements: On September 1, 2010, the Company entered into separate agreements with Central Mare, a related party
affiliated with the family of Mr. Evangelos J. Pistiolis, pursuant to which Central Mare provides the Company with its executive officers (Chief Executive Officer, Chief Financial Officer,
Chief Technical Officer and Chief Operating Officer).
As of December 31, 2022 and 2023 there are no outstanding amounts due to Central Mare.
The fees charged by and expenses relating to Central Mare for the years ended December 31, 2021, 2022 and 2023 are as follows:
Executive officers and other personnel expenses
Amortization of awarded shares*
Total
360
(34)
326
360
(16)
344
360
-
360
General and administrative expenses – Statement of
comprehensive income
Management fees – related parties – Statement of
comprehensive income
2021
Year Ended December 31,
2022
2023
Presented in:
* As per the Company’s equity incentive plan, or the 2015 plan (null and void since due to the reverse stock splits of the Company’s stock the shares left to be vested are zero), the
Company incurred an amortization gain of $34, $16 and $0 relating to the amortization of the original fair value of the equity incentive plan recognized at inception, for each of the
years ended December 31, 2021, 2022 and 2023 respectively. The Company’s equity incentive plan ended on June 30, 2022.
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(b) Central Shipping Inc (“CSI”) – Letter Agreement and Management Agreements: On January 1, 2019, the Company entered into a letter agreement with CSI (“CSI Letter
Agreement”), a related party affiliated with the family of Evangelos J. Pistiolis and between January 1, 2019 and September 8, 2021 the Company entered into management agreements, or
Management Agreements, between CSI and the Company’s vessel-owning subsidiaries. The CSI Letter Agreement can only be terminated subject to an eighteen-month advance
notice, subject to a termination fee equal to twelve months of fees payable under the CSI Letter Agreement.
Pursuant to the CSI Letter Agreement, as well as the Management Agreements concluded between CSI and the Company’s vessel-owning subsidiaries, the Company pays a
management fee of $630 per day per vessel for the provision of technical, commercial, operation, insurance, bunkering and crew management, commencing three months before the
vessel is scheduled to be delivered by the shipyard. In addition, the Management Agreements provide for payment to CSI of: (i) $573 per day for superintendent visits plus actual
expenses; (ii) a chartering commission of 1.25% on all freight, hire and demurrage revenues; (iii) a commission of 1.00% on all gross vessel sale proceeds or the purchase price paid for
vessels and (iv) a financing fee of 0.2% on derivative agreements and loan financing or refinancing. CSI also performs supervision services for all of the Company’s newbuilding vessels
while the vessels are under construction, for which the Company pays CSI the actual cost of the supervision services plus a fee of 7% of such supervision services.
CSI provides, at cost, all accounting, reporting and administrative services. Finally, the CSI Letter Agreement provides for a performance incentive fee for the provision of management
services to be determined at the discretion of the Company’s Board of Directors. The management agreements have an initial term of five years, after which they will continue to be in
effect until terminated by either party subject to an eighteen-month advance notice of termination. Pursuant to the terms of the management agreements, all fees payable to CSI are
adjusted annually according to the US Consumer Price Inflation (“CPI”) of the previous year. If CPI is less than 2% then a 2% increase is effected and if CPI is more than 5% than a 5%
increase is effected. On September 15, 2021 the Company entered into an amendment to the CSI Letter Agreement, whereby the payment for the already agreed commission for sale and
purchase of vessels in the case of the purchase of a vessel under construction is denoted as “Newbuilding vessels monitoring fee” and is payable as follows: 25% of the commission on
the purchase of the newbuilding construction contract, 25% of the commission on the steel cutting of the newbuilding vessel, 25% of the commission on launching of the newbuilding
vessel and 25% of the commission on the delivery of the newbuilding vessel to the Company (“steel cutting” and “launching” are newbuilding vessel construction milestones,
evidenced by notices received by the shipyard).
As of December 31, 2022 and 2023, the amounts due to/(from) CSI were $237 and $(352) respectively and are presented in Due to related parties, on the consolidated balance sheets.
The fees charged by and expenses relating to CSI for the years ended December 31, 2021, 2022 and 2023 are as follows:
Management fees
Supervision services fees
Superintendent fees
Accounting and reporting cost
Commission for sale and purchase of vessels
Newbuilding vessels monitoring fee
Financing fees
Commission on charter hire agreements
Total
2021
Year Ended December 31,
2022
2023
199
1,477
79
17
255
360
793
-
264
1,365
150
705
5,664
61
1,749
14
37
129
360
-
730
-
455
312
1,008
4,855
F-16
Presented in:
- Capitalized in Vessels, net – Balance sheet
Management fees – related parties –Statement of
comprehensive income
1,840
- Capitalized in Vessels, net – Balance sheet
Vessel operating expenses –Statement of comprehensive
income
42
- Capitalized in Vessels, net – Balance sheet
360
-
-
Management fees – related parties –Statement of
comprehensive income
Management fees – related parties –Statement of
comprehensive income
Gain from vessel sales –Statement of comprehensive
income
Impairment on vessels – Statement of comprehensive
income
-
- Capitalized in Vessels, net – Balance sheet
Net in Current and Non-current portions of long-term debt
– Balance sheet
164
1,037 Voyage expenses - Statement of comprehensive income
3,443
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
For the years ended December 31, 2021, 2022 and 2023 CSI charged the Company newbuilding supervision related pass-through costs amounting to $1,207, $236 and $0 respectively,
which are not included in the table above and are presented within Vessels, net / Advances for vessels acquisitions / under construction in the Company’s consolidated balance sheet.
(c) Issuance and conversion of Series E Shares: On March 29, 2019 the Company entered into a stock purchase agreement with Family Trading Inc (“Family Trading”), a related party
owned by the Lax Trust, an irrevocable trust established for the benefit of certain family members of Mr. Evangelos J. Pistiolis, pursuant to which the Company exchanged the
outstanding principal, fees and interest of the Further Amended Family Trading Credit Facility with 27,129 Series E Shares (defined below, also see Note 15). For the years ended
December 31, 2022 and 2023 the Company declared dividends of $2,046 and $1,001 respectively and accrued interest on unpaid dividends amounted to $30 and $0 for the same periods.
As of December 31, 2022 and 2023, there were no dividends due to Family Trading. On December 6, 2023 the Company received a conversion notice for the conversion of all the
outstanding Series E Shares (13,452 shares) into 2,930,718 of the Company’s common shares (see Note 15).
(d) Vessel Acquisitions from affiliated entities: From January 6, 2021 to September 8, 2021 the Company entered into a series of transactions with a number of entities affiliated with Mr.
Evangelos J. Pistiolis (see Note 1). As of December 31, 2021, there were no amounts due to the previous owners of the newbuilding vessels pursuant to these transactions.
(e) Charter Party with Central Tankers Chartering Inc (“CTC”): On January 6, 2021 the Company acquired a shipowning company from an entity affiliated with Mr. Evangelos J.
Pistiolis that owned M/T Eco Oceano CA which was party to a time charter, with CTC, for a firm duration of five years at a gross daily rate of $32,450, with two optional years at $33,950
and $35,450 at CTC’s option. On February 22, 2022 the Company amended the previously agreed time charter with CTC and increased its firm period from 5 years to 15 years and
reduced the daily rate from $32,450 to $24,500. This amendment was approved by a committee of the Company’s board of directors, of which all of the directors were independent, after
obtaining a fairness opinion from an independent financial advisor. The time charter commenced on the date of delivery. For the years ended December 31, 2021, 2022 and 2023 the CTC
charter generated $0, $7,294 and $8,943 of revenue presented in Time charter revenues in the accompanying consolidated statements of comprehensive income. As of December 31, 2022
and 2023, there are no amounts due from CTC.
(f) Personal Guarantees by Mr. Evangelos J. Pistiolis and Related Amendments to the Series D Preferred Shares: As a prerequisite for the Navigare Lease (defined below, see Note
6), Mr. Evangelos J. Pistiolis personally guaranteed the performance of the bareboat charters connected to the lease and in exchange, the Company agreed to indemnify him for any
losses suffered as a result of the guarantee provided, and the Company amended the Certificate of Designations governing the terms of the Series D Preferred Shares (see Note 9), to
adjust the voting rights per share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and
the Lax Trust does not fall below a majority of the Company’s total voting power, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant
covenant of the bareboat charters entered in connection with the Navigare Lease. This personal guarantee comes into effect in the case 120 days have passed and the Company is still
unable to pay down all amounts due under the Navigare lease, with the exception of amounts due to Navigare due to a total loss, where in this case the personal guarantee will cover an
amount equal to all unpaid charter hire and a further amount equivalent to all future charter hire that would have accrued from the date of the total loss up to the end of the charter
period and is callable 200 days after the date of the total loss. Due to the related party nature of the transactions involving Mr. Evangelos J. Pistiolis, such transactions were
unanimously approved by our Board of Directors, including all three independent directors.
(g) Issuance of Series F Shares: On January 17, 2022, the Company entered into a stock purchase agreement with Africanus Inc., an affiliate of Evangelos J. Pistiolis for the sale of up to
7,560,759 newly-issued Series F Non-Convertible Perpetual Preferred Shares (“Series F Shares”, see Note 15). The issuance of the Series F Shares was approved by a committee of the
Company’s board of directors, of which all of the directors were independent. In December 2022, 100% of Africanus Inc shares were transferred to 3 Sororibus Trust, which is an
irrevocable trust established for the benefit of certain family members of Mr. Pistiolis. For the year ended December 31, 2022 and 2023 the Company declared dividends of $10,344 and
$5,009 respectively and accrued interest on unpaid dividends amounted to $8 and $0 for the same periods. As of December 31, 2022 and 2023 there were no dividends due to Africanus
Inc.
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(h) Short-term loan from Central Mare (“Central Mare Bridge Loan”): On January 5, 2022 the Company entered into an unsecured credit facility for up to $20,000 with Central Mare
in order to finance part of the cost of its newbuilding program (see Note 7). Related party interest expense, commitment fees and arrangement fees for the year ended December 31, 2022
incurred in connection with this credit facility, amounted to $169, $18 and $400 respectively and are included in interest and finance costs in the accompanying consolidated statements
of comprehensive income. The Central Mare Bridge Loan was terminated on March 4, 2022 and as of December 31, 2022, there are no interest, arrangement fees nor commitment fees due
to Central Mare.
(i) Executive bonus: On December 10, 2023 the Company’s compensation committee comprising of independent directors suggested and the board of directors granted to Mr.
Evangelos J. Pistiolis a bonus of $5,000 which is included in “General and administrative expenses” in the accompanying consolidated statements of comprehensive income. As of
December 31, 2023, there are $5,000 due to Mr. Evangelos J. Pistiolis and such amount is included in due to related parties in the accompanying consolidated balance sheets.
6.
Leases
A. Lease arrangements, under which the Company acts as the lessee
Bareboat Chartered-in Vessels:
On December 1 and December 10, 2020, the Company sold and leased back M/T Eco Beverly Hills and M/T Eco Bel Air respectively to a third non-affiliated party (the “Navigare
Lease”). Each vessel was chartered back on a bareboat basis for five years at a bareboat hire of $16,750 per day for the first two years, $14,000 per day for the next two years and $10,000
per day for the fifth year. The Company does not have any option nor obligation to buy back the vessels. The abovementioned sale and leaseback transactions contain, customary
covenants and event of default clauses, including cross-default provisions, change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the
voting rights of the Company) and restrictive covenants and performance requirements. The Company must maintain a minimum liquidity of $4,000 at all times which is certified bi-
annually. As of December 31, 2022 and 2023, the Company complied with all covenants of the Navigare Lease.
The Company has treated the Navigare lease as an operating lease. An operating lease ROU asset amounting to $45,765 was recognized at the inception of the lease together with a
lease liability of $43,759 based on the present value of lease payments over the lease term. The operating lease ROU asset also includes initial direct costs of $1,666 and deferred losses
from the sale of the vessels of $340. The discount rate used to calculate the present value of lease payments was calculated by taking into account the original lease term and lease
payments and was estimated to be 6.72% (same as the weighted average), which was the Company’s estimated incremental borrowing rate, that reflects the interest the Company would
have to pay to borrow funds on a collateralized basis over a similar term and similar economic environment. Losses from the sale of these two vessels and initial direct costs which were
included in the respective ROU assets are amortized on a straight-line basis over the duration of the lease and are included in operating lease expense in the statement of consolidated
income. The cash paid for operating leases with original terms greater than 12 months was $12,083 and $10,220 for the years ended December 31, 2022 and 2023 respectively. The
revenue generated from vessels under operating leases with original terms greater than 12 months was $17,625 and $ 17,520 for the years ended December 31, 2022 and 2023
respectively.
The Company’s future minimum operating lease payments required to be made after December 31, 2023, relating to the bareboat chartered-in vessels M/T Eco Beverly Hills and M/T Eco
Bel Air are as follows:
Year ending December 31,
2024
2025
Total
Less imputed interest
Total Lease Liability
Presented as follows:
Short-term lease liability
Long-term lease liability
The average remaining lease term on our bareboat chartered-in contracts greater than 12 months is 23.2 months.
F-18
Bareboat charter lease payments
10,038
6,777
16,815
(1,478)
15,337
8,980
6,357
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
B. Lease arrangements, under which the Company acts as the lessor
Charter agreements:
During the year ended December 31, 2023, the Company operated one vessel (M/T Marina Del Rey) under a time charter with Cargill International SA, another vessel (M/T Eco Oceano
CA) with CTC, two vessels (M/T Eco West Coast and M/T Eco Malibu) with Clearlake Shipping Pte Ltd and four vessels (M/T Eco Bel Air, M/T Eco Beverly Hills, M/T Julius Caesar
and M/T Legio X Equestris) under time charters with Trafigura.
Future minimum time-charter receipts of the Company’s vessels in operation as of December 31, 2023, based on commitments relating to non-cancellable time charter contracts as of
December 31, 2023, are as follows :
Year ending December 31,
2024
2025
2026
2027
2028 and thereafter
Total
Time Charter receipts
74,078
70,229
60,782
36,304
81,173
322,566
In arriving at the minimum future charter revenues, an estimated 20 days off-hire time to perform scheduled dry-docking in the year the dry-docking is expected on each vessel has been
deducted, and it has been assumed that no additional off-hire time is incurred, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
7.
Debt:
The amounts in the consolidated balance sheets are analyzed as follows (facility names defined below):
Bank / Vessel(s)
Total long-term debt:
ABN Facility (M/T Eco West Coast)
Alpha Bank Facility (M/T Eco Malibu)
Cargill Facility (M/T Eco Marina Del Rey)
CMBFL Facility (M/T Julius Caesar and M/T Legio X Equestris)
2nd AVIC Facility (M/T Eco Oceano CA)
3rd AVIC Facility (M/T Eco West Coast)
Huarong Facility (M/T Eco Malibu)
Total long-term debt
Less: Deferred finance fees
Less: Debt discount relating to Vessel fair value participation liability
Total long-term debt net of deferred finance fees and debt discounts
Presented:
Current portion of long-term debt
Long-term debt
F-19
December 31,
2022
2023
32,495
33,500
25,189
103,952
45,489
-
-
240,625
(3,640)
(3,271)
233,714
12,344
221,370
-
-
23,094
98,552
42,777
40,817
41,000
246,240
(4,279)
(1,463)
240,498
12,418
228,080
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
ABN Facility
On March 18, 2021, the Company entered into a credit facility with ABN Amro for $36,800 for the financing of the vessel M/T Eco West Coast. This facility was drawn down in full. The
credit facility was repayable in 24 consecutive quarterly installments of $615 commencing in June 2021, plus a balloon installment of $22,040 payable together with the last installment.
The facility contained various covenants, including (i) an asset cover ratio of 125%, (ii) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of
no more than 75% (iii) minimum free liquidity of $500 per delivered vessel owned/operated by the Company and (iv) market adjusted total assets of the Company minus total liabilities to
be at least $60,000. Additionally, the facility contained restrictions on the shipowning company incurring further indebtedness or guarantees and change of control provisions (whereby
Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the Company). It also restricted the Company and the shipowning company from paying dividends if
such a payment would result in an event of default or in a breach of covenants under the loan agreement.
The facility was secured as follows:
● First priority mortgage over M/T Eco West Coast;
● Assignment of insurance and earnings of the mortgaged vessel;
● Specific assignment of any time charters with duration of more than 12 months;
● Corporate guarantee of the Company;
● Pledge of the shares of the shipowning subsidiary;
● Pledge over the earnings account of the vessel.
The facility bore interest at LIBOR plus a margin of 2.50%. From June 23, 2023 ABN Amro bank switched the facility’s variable rate from LIBOR to Compounded SOFR. On December 14,
2023 the facility was fully prepaid using part of the proceeds from the 3rd AVIC facility (see below) and the Company accelerated the amortization of $264 of deferred finance fees
outstanding relating to the facility.
Alpha Bank Facility
On May 6, 2021, the Company entered into a credit facility with Alpha Bank for $38,000 for the financing of the vessel M/T Eco Malibu. This facility was drawn down in full. The credit
facility was repayable in 12 consecutive quarterly installments of $750 and 12 consecutive quarterly installments of $625, commencing three months from draw down, and a balloon
payment of $21,500 payable together with the last installment.
The facility contained various covenants, including (i) an asset cover ratio of 125%, (ii) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of
no more than 75% and minimum free liquidity of $500 per delivered vessel owned/operated by the Company. Additionally, the facility contained restrictions on the shipowning company
incurring further indebtedness or guarantees and change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the
Company). It also restricted the Company and the shipowning company from paying dividends if such a payment would result in an event of default or in a breach of covenants under
the loan agreement.
The facility was secured as follows:
● First priority mortgage over M/T Eco Malibu;
● Assignment of insurance and earnings of the mortgaged vessel;
● Specific assignment of any time charters with duration of more than 12 months;
● Corporate guarantee of the Company;
● Pledge of the shares of the shipowning subsidiary;
● Pledge over the earnings account of the vessel.
The facility bore interest at LIBOR plus a margin of 3.00%. On June 9, 2023 Alpha Bank switched the facility’s variable rate from LIBOR to Term SOFR. On December 21, 2023 the facility
was fully prepaid using part of the proceeds from the Huarong facility (see below) and the Company accelerated the amortization of $225 of deferred finance fees outstanding relating to
the facility.
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
FINANCINGS COMMITTED UNDER SALE AND LEASEBACK AGREEMENTS
The majority of the below sale and leaseback agreements (“SLB”s) contain, customary covenants and event of default clauses, including cross-default provisions and restrictive
covenants and performance requirements including (i) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of no more than 75% and (ii)
minimum free liquidity of $500 per vessel at the guarantors level.
Additionally, all the SLBs contain restrictions on the relative shipowning company incurring further indebtedness or guarantees and paying dividends when in default or if such
dividend payment would result in an event of default or termination event under the SLB agreements. The same dividend restrictions apply to the Company as well. All the SLBs except
the Cargill Facility have change of control provisions whereby there may not be a change of control of the Company, save with the prior written consent of the financier.
All the below SLBs are secured mainly by the following:
● Ownership of the vessel financed;
● Assignment of insurances and earnings of the vessel financed;
● Specific assignment of any time charters of the vessel financed with duration of more than 12 months;
● Corporate guarantee of Top Ships Inc.;
● Pledge of the shares of the relative shipowning subsidiary;
● Pledge over the earnings account of the vessel financed.
Cargill Facility
On June 29, 2018 the Company entered into an SLB and a five-year time charter with Cargill, a non-affiliated party, for its newbuilding vessel M/T Eco Marina Del Rey delivered in March
2019. Consummation of the SLB took place on the vessel’s delivery date. Following the sale, the Company has bareboat chartered back the vessel at a bareboat hire rate of $8,600 per
day and simultaneously the vessel commenced its five-year time charter with Cargill. As part of this transaction, the Company has the obligation to buy back the vessel at the end of the
five-year period for $22,680. The gross proceeds from the sale were $32,387.
The Company had also entered into a fair value appreciation sharing agreement with Cargill whereby it would share with the latter 25% of the excess of the fair market value of the vessel
over a predetermined amount amortized on a daily basis to the facility’s maturity when the vessel was sold or when the loan matured. As a result of Cargill’s entitlement to participate in
the appreciation of the market value of the vessel and the significant increase in tankers’ fair values as of December 31, 2022 compared to December 31, 2021, the Company recognized a
participation liability of $3,271 as of December 31, 2022, presented in “Vessel fair value participation liability” in the consolidated balance sheets, with a corresponding debit to a debt
discount account, presented contra to the loan balance, broken down to current and non-current long-term debt accordingly. Due to the fact that tanker values continued to increase
throughout 2023 values the Company increased that participation liability by $1,729 to $5,000 during the year ended December 31, 2023 and since the facility matures in the first quarter
of 2024, such participation liability was presented under current liabilities. During the year ended December 31, 2023 the Company amortized $3,537 of that Debt discount, such
amortization presented in Interest and finance costs in the consolidated statements of comprehensive income.
The SLB with Cargill is accounted for as a financing transaction, as control remains with the Company and the M/T Eco Marina Del Rey will continue to be recorded as an asset on the
Company’s balance sheet. In addition, the Company has an obligation to repurchase the vessel.
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
CMBFL Facility
On November 23, 2021 the Company entered into an SLB with CMBFL, for its newbuilding vessels M/T Julius Caesar and M/T Legio X Equestris. Consummation of the SLB took place
on January 17 and March 2 2022, respectively. Following the sale, the Company has bareboat chartered back the vessels for a period of eight years at bareboat hire rates comprising of
32 consecutive quarterly installments of $675 and a balloon payment of $32,403 payable together with the last installment, plus interest based on the three months LIBOR plus 2.60%.
As part of this transaction, the Company has continuous options to buy back the vessels at purchase prices stipulated in the bareboat agreements depending on when the option will
be exercised and at the end of the eight-year period it has an option to buy back the vessels at a cost represented by the balloon payment. The gross proceeds from the sale of the two
vessels were $54,005 and $53,997 for M/T Julius Caesar and M/T Legio X Equestris respectively.
The CMBFL facility was accounted for as a financing transaction, as control will remain with the Company and the two vessels will continue to be recorded as assets on the Company’s
balance sheet. In addition, the Company has continuous options to repurchase the vessels below fair value.
From July 16, 2023 for M/T Julius Caesar and from September 2, 2023 for M/T Legio X Equestris, CMBFL switched the respective facility’s variable rate from LIBOR to Term SOFR. The
applicable SOFR as of December 31, 2023 was approximately 5.40% for the CMBFL facility.
2nd AVIC Facility
On March 2, 2022 the Company entered into an SLB with AVIC, for $48,200 for the financing of the M/T Eco Oceano CA. Consummation of the SLB took place on March 4, 2022. The
Company has bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of 40 consecutive quarterly installments of $678 and a balloon payment of
$21,087 payable together with the last installment, plus interest based on LIBOR plus 3.50%, that was later reduced to 3.00% upon entering into the 3rd AVIC Facility (see below).
As part of this transaction, the Company has continuous options to buy back the vessel at purchase prices stipulated in the bareboat agreement depending on when the option will be
exercised and at the end of the ten-year period the Company has an obligation to buy back the vessel at a cost represented by the balloon payment.
The 2nd AVIC Facility is accounted for as a financing transaction, as control remains with the Company and M/T Eco Oceano CA. will continue to be recorded as an asset on the
Company’s balance sheet.
The applicable LIBOR as of December 31, 2023 was approximately 5.62%.
3rd AVIC Facility
On December 14, 2023 the Company consummated an SLB with AVIC (the “3rd AVIC Facility”), for $41,000 for the refinancing of the M/T Eco West Coast. The Company has bareboat
chartered back the vessel for a period of ten years at bareboat hire rates comprising of 120 consecutive monthly installments of $183.3 and a balloon payment of $19,000 payable on the
last installment, plus interest based on Term SOFR plus 2.65%.
As part of this transaction, the Company has continuous options to buy back the vessel at purchase prices stipulated in the bareboat agreement depending on when the option was
exercised and at the end of the ten-year period the Company has an obligation to buy back the vessel at a cost represented by the balloon payment.
The 3rd AVIC Facility is accounted for as a financing transaction, as control remains with the Company and M/T Eco West Coast will continue to be recorded as an asset on the
Company’s balance sheet.
The applicable SOFR as of December 31, 2023 was approximately 5.37%.
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Huarong Facility
On December 20, 2023 the Company consummated an SLB with China Huarong Shipping Financial Leasing Co Ltd. (“Huarong” and the “Huarong Facility”), for $41,000 for the
refinancing of the M/T Eco Malibu. The Company has bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of 120 consecutive monthly
installments of $183.3 and a balloon payment of $19,000 payable on the last installment, plus interest based on Term SOFR plus 2.50%.
As part of this transaction, the Company has continuous options to buy back the vessel at purchase prices stipulated in the bareboat agreement depending on when the option was
exercised and at the end of the ten-year period the Company has an obligation to buy back the vessel at a cost represented by the balloon payment.
The Huarong Facility is accounted for as a financing transaction, as control remains with the Company and M/T Eco Malibu will continue to be recorded as an asset on the Company’s
balance sheet.
The applicable SOFR as of December 31, 2023 was approximately 5.37%.
Scheduled Principal Repayments: The Company’s annual principal payments required to be made after December 31, 2023 on its loan obligations, are as follows (including the
financings under sale and leaseback agreements):
Years
December 31, 2024
December 31, 2025
December 31, 2026
December 31, 2027
December 31, 2028 and thereafter
Total
14,426
14,511
14,511
14,511
188,281
246,240
As of December 31, 2022 and 2023, the Company was in compliance with all debt covenants with respect to its loans and credit facilities. The fair value of debt outstanding on December
31, 2023, after excluding unamortized financing fees and debt discounts, approximates its carrying amount.
Financing Costs: The net additions in deferred financing costs amounted to $3,417 and $1,958 during the years ended December 31, 2022 and 2023 respectively.
8.
Commitments and Contingencies:
Legal proceedings:
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. As part of the
normal course of operations, the Company’s customers may disagree on amounts due to the Company under the provision of the contracts which are normally settled through
negotiations with the customer. Disputed amounts are normally reflected in revenues at such time as the Company reaches agreement with the customer on the amounts due.
Other than the cases mentioned above, the Company is not a party to any material litigation where claims or counterclaims have been filed against the Company other than routine legal
proceedings incidental to its business.
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Guarantee on performance of loans of the New 2020 Joint Venture
On December 10, 2020, the Company entered into a corporate guarantee agreement with Alpha Bank of Greece (which was amended on February 2, 2022) in respect of the obligations of
its 50% subsidiary California 19 Inc. and California 20 Inc. under the Loan Agreement dated March 12, 2020 for a secured loan facility of $37,660 ($18,830 for each vessel at inception and
$18,500 as of December 31, 2023) for the financing of M/T Eco Yosemite Park and M/T Eco Joshua Park (the “Alpha Corporate Guarantee”). The Company assigns zero probability of
default to said loan agreements and hence has not established any provisions for losses relating to this matter.
Environmental Liabilities:
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 consolidated financial
statements.
9.
Common and Preferred Stock, Additional Paid-In Capital and Dividends:
Reverse stock split: On September 29, 2023 the Company effected a 1-for-12 reverse stock split of its common stock. There was no change in the number of authorized common shares
of the Company, or the floor price of the Company’s Series E Shares, or the number of votes of the Company’s Series D, E and F Shares. All numbers of common share and earnings per
share amounts, as well as warrant shares eligible for purchase under the Company’s warrants, exercise price of said warrants and conversion prices of the Company’s Series E Shares, in
these consolidated financial statements have been retroactively adjusted to reflect this 1-for-12 reverse stock split.
Series D preferred shares: On May 8, 2017, the Company issued 100,000 shares of Series D preferred shares (the “Series D shares”) to Tankers Family Inc., a company controlled by
Lax Trust for one thousand dollars ($1,000) pursuant to a stock purchase agreement. The Series D shares are not convertible into common shares and each Series D share has the voting
power of 1,000 common shares. The Series D shares have no dividend or distribution rights and shall expire and all outstanding Series D shares shall be redeemed by the Company for
par value on the date that any financing facility with any financial institution, which contain covenants that require that any member of the family of Mr. Evangelos J. Pistiolis maintain a
specific minimum ownership or voting interest (either directly and/or indirectly through companies or other entities beneficially owned by any member of the Pistiolis family and/or
trusts or foundations of which any member of the Pistiolis family are beneficiaries) of the Company’s issued and outstanding common shares, respectively, are fully repaid or reach their
maturity date. The Series D shares shall not be otherwise redeemable and upon any liquidation, dissolution or winding up of the Company, the Series D shares shall have a liquidation
preference of $0.01 per share. Currently the SLBs with CMBFL, AVIC Leasing and Huarong as well as the Alpha Corporate Guarantee and the Navigare Lease have similar provisions
that are satisfied via the existence of the Series D Shares. As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis guaranteed the performance of the bareboat charters, under
certain circumstances, and in exchange, the Company agreed to indemnify him for any losses suffered as a result of the guarantee provided and in addition, the Company has amended
the Certificate of Designation governing the terms of the Series D Shares, to adjust the voting rights per share of Series D Shares such that during the term of the Navigare Lease, the
combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of the total voting power of the Company, irrespective of any new
common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. Due to the related party
nature of the transactions involving Mr. Evangelos J. Pistiolis, such transactions were unanimously approved by the Company’s Board of Directors, including all three independent
directors.
Equity distribution agreement: On April 15, 2022, the Company, entered into an equity distribution agreement, or as they are commonly known, at-the-market offering (“ATM”), with
Maxim Group LLC (“Maxim”). Under the ATM the Company could sell up to $19,700 of its common stock with Maxim acting as a sales agent. Since Maxim was acting solely as a sales
agent, it had no right to require any common stock sales. No warrants, derivatives, or other share classes were associated with this ATM. The Company terminated the ATM on
October 6, 2022. The Company has received proceeds from the ATM (net of 2% fees), amounting to $2,025, issued 10,786 common shares and incurred $81 of expenses related to this
equity distribution agreement.
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Issuance of common stock and warrants as part of the June 2022 Registered Direct Offering: On June 3, 2022, the Company entered into a placement agency agreement with Maxim
Group LLC relating to the sale of the Company’s securities, or the Placement Agent Agreement. Pursuant to the Placement Agent Agreement, the Company entered into a Securities
Purchase Agreement, with an institutional investor (the “Investor”) in connection with a registered direct offering of an aggregate of 19,583 of the Company’s common shares at a
public offering price of $120.00 per share, registered on the Company’s Registration Statement on Form F-3 (333-234281), or the Registered Offering. Concurrently with the Registered
Offering and pursuant to the Securities Purchase Agreement, the Company also commenced a private placement whereby the Company issued and sold 9,603,000 pre-funded warrants
(“Pre-Funded Warrants”) to purchase up to 40,012 of the Company’s common shares at $120.00 per pre-funded warrant share and 14,303,000 warrants (or the “June 2022 Warrants”) to
purchase up to 59,595 of the Company’s common shares. The Pre-Funded Warrants had an exercise price of $0.024. All of the prefunded warrants were exercised from July to September
2022. The June 2022 Warrants had an exercise price per warrant share of $120.00 and expire five years after issuance. The June 2022 Registered Direct Offering resulted in gross proceeds
of $7,151 before deducting placement agent fees, commissions and other offering expenses that amounted to $544.
Accounting Treatment of the June 2022 Warrants
The Company accounted for the June 2022 Warrants as equity in accordance with the accounting guidance for derivatives. The Company concluded these warrants should be equity-
classified since they contained no provisions which would require the Company to account for the warrants as a derivative liability.
Accounting Treatment of the Pre-Funded Warrants
The Pre-Funded Warrants were classified as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date. The Pre-Funded
Warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are
immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon
exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or
return.
Repricing of the June 2022 Warrants: On October 7, 2022 the Company entered into an agreement with the Investor holding 100% of the June 2022 Warrants to induce him to exercise
all of his June 2022 Warrants at an exercise price reduced from $120.00 per warrant share to $81.00 per warrant share. In consideration for the immediate exercise of the June 2022
Warrants for cash that resulted in gross proceeds of $4,827 before related fees and commissions, the Investor received new warrants to purchase up to an aggregate of 89,393 common
shares (the “October 2022 Warrants”) with identical terms as the June 2022 Warrants with the exception of the exercise price per warrant share now set at $81.00.
The Company treated this warrant inducement agreement as a warrant modification and has recognized the incremental fair value of $1,345 of the October 2022 Warrants as a deemed
dividend. As the Company is in an accumulated deficit position, the offsetting amount is recorded against additional paid-in-capital.
During the year ended December 31, 2022 and 2023, no October 2022 Warrants were exercised.
Accounting Treatment of the October 2022 Warrants
The Company accounted for the October 2022 Warrants as equity in accordance with the accounting guidance for derivatives. The Company concluded these warrants should be
equity-classified since they contained no provisions which would require the Company to account for the warrants as a derivative liability.
Issuance of common stock and warrants as part of the December 2022 Public Equity Offering: On December 6, 2022, the Company closed a public offering of 562,500 of the
Company’s common shares at a public offering price of $24.00 per share and 6,750,000 warrants (the “Class C Warrants”) to purchase up to 562,500 of the Company’s common shares,
(the “December 2022 Public Equity Offering”), with Maxim Group LLC acting as a placement agent. The Class C Warrants are immediately exercisable at an exercise price of $24.00 per
warrant share and expire five years after issuance. The December 2022 Public Equity Offering resulted in gross proceeds of $13,500 before deducting placement agent fees, commissions
and other offering expenses that amounted to $1,104. During the year ended December 31, 2022 and 2023, 0 and 500 common shares were issued pursuant to Class C Warrant exercises.
Accounting Treatment of the Class C Warrants
The Company accounted for the June 2022 Class C Warrants as equity in accordance with the accounting guidance for derivatives. The Company concluded these warrants should be
equity-classified since they contained no provisions which would require the Company to account for the warrants as a derivative liability.
F-25
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Issuance of common stock and warrants as part of the February 2023 Registered Direct Offering: On February 14, 2023, the Company entered into a placement agency agreement
with Maxim Group LLC relating to the sale of the Company’s securities, or the Placement Agent Agreement. Pursuant to the Placement Agent Agreement, the Company entered into a
Securities Purchase Agreement, with a number of institutional investors (the “Investors”) in connection with a registered direct offering of an aggregate of 837,094 of the Company’s
common shares at a public offering price of $16.20 per share, or the February 2023 Registered Direct Offering. Concurrently with the February 2023 Registered Direct Offering and
pursuant to the Securities Purchase Agreement, the Company also commenced a private placement whereby the Company issued and sold 10,045,185 warrants (the “February 2023
Warrants”) to purchase up to 837,094 of the Company’s common shares. The February 2023 Warrants had an exercise price per warrant share of $16.20 and expire five years after
issuance. The February 2023 Registered Direct Offering closed on February 16, 2023 and it resulted in proceeds of $12,747 (net of 6% fees) and incurred $165 of expenses related to the
offering. Additionally, since over 80% of the investors in the February 2023 Registered Direct Offering were Class C Warrant holders, we agreed to reduce the exercise price per common
share of the Class C Warrants to $16.20 per warrant share from an original exercise price of $24.00 per common share to induce them to participate in the offering. The Company has
recognized the incremental fair value of $121 of the modified Class C Warrants as an equity issuance cost as the reduction of the exercise price of the Class C warrants was done in
conjunction with the February 2023 Registered Direct Offering.
During the year ended December 31, 2023, no February 2023 Warrants were exercised.
Accounting Treatment of the February 2023 Warrants
The Company accounted for the February 2023 Warrants as equity in accordance with the accounting guidance for derivatives. The Company concluded these warrants should be
equity-classified since they contained no provisions which would require the Company to account for the warrants as a derivative liability, and therefore were initially measured at fair
value in permanent equity with subsequent changes in fair value not measured.
Dividends to common stock holders: No dividends were paid to common stock holders in the years ended December 31, 2021, 2022 and 2023.
10. Earnings/(Loss) Per Common Share:
All shares issued are included in the Company’s common stock and have equal rights to vote and participate in dividends and in undistributed earnings.
The components of the calculation of basic and diluted earnings/(loss) per share for the years ended December 2021, 2022 and 2023 are as follows:
Net Income
Less: Deemed dividend for beneficial conversion feature of Series E Shares
Less: Deemed dividend equivalents on preferred shares related to redemption value
Less: Dividends of preferred shares
Less: Deemed dividend on warrant inducement
Less: Deemed dividend on Series E Shares conversion
Net Income / (Loss) attributable to common shareholders
Earnings / (Loss) per share:
Weighted average common shares outstanding, basic and dilutive
Earnings / (Loss) per share, basic and diluted
2021
Year Ended December 31,
2022
2023
8,616
(900)
(437)
(1,883)
-
-
5,396
165,966
32.51
18,948
-
(14,400)
(12,390)
(1,345)
-
(9,187)
252,815
(36.34)
6,066
-
-
(6,010)
-
(22,426)
(22,370)
1,798,761
(12.44)
For the years ended December 31, 2021, 2022 and 2023, 52,984, 81,231 and 1,177,547 dilutive shares on an as-if converted basis relating to Series E Shares were not included in the
computation of diluted earnings per share because to do so would have been antidilutive for the period presented.
F-26
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
11. Voyage and Vessel Operating Expenses:
The amounts in the consolidated statements of comprehensive income are as follows:
Voyage Expenses
Bunkers
Commissions (including $705, $1,008 and $1,037 respectively, to related party)
Total
Vessel Operating Expenses
Crew wages and related costs
Insurance
Repairs and maintenance (including $17, $37 and $42 respectively, to related party)
Spares and consumable stores
Registration and taxes (Note 13)
Total
12.
Interest and Finance Costs:
The amounts in the consolidated statements of comprehensive income are analyzed as follows:
Interest and Finance Costs
Interest on debt (including $-, $207 and $- respectively, to related party)
Bank charges
Amortization and write-off of financing fees
Amortization of debt discount relating to Vessel fair value participation liability (Note 7)
Total
Less interest capitalized
Total
13.
Income Taxes:
2021
Year Ended December 31,
2022
2023
165
1,152
1,317
80
1,568
1,648
20
1,589
1,609
2021
Year Ended December 31,
2022
2023
11,066
1,026
747
2,530
310
15,679
11,881
1,577
1,592
3,339
239
18,628
11,898
1,670
1,138
3,538
283
18,527
2021
Year Ended December 31,
2022
2023
7,342
20
840
-
8,202
(1,204)
6,998
11,895
132
2,522
-
14,549
(184)
14,365
18,142
120
1,190
3,537
22,989
-
22,989
Marshall Islands and Greece does not impose a tax on international shipping income. Under the laws of Marshall Islands and Greece the countries of the companies’ incorporation and
vessels’ registration, the companies are subject to registration and tonnage taxes, which have been included in Vessel operating expenses in the consolidated statements of
comprehensive income.
Under the United States Internal Revenue Code of 1986, as amended (the “Code”), the U.S. source gross transportation income of a ship-owning or chartering corporation, such as the
Company, is 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
Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 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.
F-27
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Under Section 883 of the Code and the regulations thereunder, the Company will be exempt from U.S. federal income tax on our U.S.-source shipping income if:
(1) the Company is organized in a foreign country, or its country of organization, grants an “equivalent exemption” to corporations organized in the United States; and
(2) either
A. 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 (each such individual a “qualified shareholder” and such individuals
collectively, “qualified shareholders”), which the Company refers to as the “50% Ownership Test,” or
B. the Company’s stock is “primarily and regularly traded on an established securities market” in the Company’s country of organization, in another country that grants an
“equivalent exemption” to U.S. corporations, or in the United States, which the Company refers to as the “Publicly-Traded Test.”
The Marshall Islands, the jurisdiction where the Company and the Company’s ship-owning subsidiaries are incorporated, grants an “equivalent exemption” to U.S. corporations.
Therefore, the Company will be exempt from U.S. federal income tax with respect to the Company’s U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded
Test is met.
Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be “primarily traded” on an established securities market if the number of shares
of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during
that year on established securities markets in any other single country. The Company’s common shares, which is the Company’s sole class of issued and outstanding stock that is
traded, is and the Company anticipates will continue to be “primarily traded” on the Nasdaq Capital Market.
The Treasury Regulations also require that the Company’s stock be “regularly traded” on an established securities market. Under the Treasury Regulations, the Company’s stock will
be considered to be “regularly traded” if one or more classes of the Company’s stock representing more than 50% of the Company’s 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, which the Company refers to as
the “listing threshold.” The Company’s common stock, which is listed on the Nasdaq Capital Market and is the Company’s only class of publicly-traded stock, did not constitute more
than 50% of the Company’s outstanding shares by value for the 2021 taxable year, and accordingly, the Company didn’t satisfy the 50% Ownership Test for the 2021 taxable year and
consequently the Company didn’t qualify for exemption from tax under Section 883 for the 2021 taxable year.
The Company for the 2021 taxable year was subject to an effective 2% United States federal tax on the U.S. source shipping income that is attributable to the transport of cargoes to or
from the United States which is not considered an income tax. The amount of this tax for the year ended December 31, 2021 was $152 and it was recorded within “Vessel operating
expenses” in the consolidated statements of comprehensive income. For 2022 and for 2023 the Company qualified for the exemption from tax under Section 883.
14. Financial Instruments:
The principal financial assets of the Company consist of cash on hand and at banks, restricted cash, prepaid expenses and other receivables and long term deposits. The principal
financial liabilities of the Company consist of long-term loans, accounts payable due to suppliers, amounts due to related parties and accrued liabilities.
a)
Interest rate risk: The Company as of December 31, 2023 is subject to market risks relating to changes in interest rates, since all of its debt except the Cargill Facility is
subject to floating interest rates.
b) Credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash. The Company places its
temporary cash investments, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit
standing of those financial institutions with which it places its temporary cash investments.
c) Fair value:
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short term maturities. The Company considers its creditworthiness when
determining the fair value of its liquid assets.
The Company follows the accounting guidance for Fair Value Measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires assets and liabilities carried at fair
value to be classified and disclosed in one of the following three categories:
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.
15. Mezzanine Equity
SERIES E PREFERRED SHARES
On March 29, 2019, the Company entered into a Stock Purchase Agreement with Family Trading for the sale of 27,129 newly issued perpetual convertible preferred shares (the “Series E
Shares”) at a price of one thousand dollars ($1,000) per share. The proceeds of the sale were used for the full and final settlement of all amounts due under the Further Amended Family
Trading Credit Facility. The issuance of the Series E Shares was approved by a committee of the Company’s board of directors, of which all of the directors were independent.
Each holder of Series E Shares, at any time, had the right, subject to certain conditions, to convert all or any portion of the Series E Shares then held by such holder into the Company’s
common shares at the conversion rate then in effect. Each Series E Share was convertible into the number of the Company’s common shares equal to the quotient of one thousand
dollars ($1,000) plus any accrued and unpaid dividends divided by the lesser of the following four prices (the “Series E Conversion Price”): (i) $120,000.00, (ii) 80% of the lowest daily
VWAP of the Company’s common shares over the twenty consecutive trading days expiring on the trading day immediately prior to the date of delivery of a conversion notice, (iii) the
conversion price or exercise price per share of any of the Company’s then outstanding convertible shares or warrants, (iv) the lowest issuance price of the Company’s common shares
in any transaction from the date of the issuance the Series E Shares onwards, but in no event could the Series E Conversion Price be less than the floor price ($0.60). The floor price was
adjusted (decreased) in case of splits or subdivisions of the Company’s outstanding shares and was not adjusted in case of reverse stock splits or combinations of the Company’s
outstanding shares. The holders of each Series E Share were entitled to the voting power of one thousand (1,000) common shares of the Company. Upon any liquidation, dissolution or
winding up of the Company, the holders of Series E Shares would have been entitled to receive the net assets of the Company pari-passu with the common shareholders. Furthermore,
the Company at its option had the right to redeem a portion or all of the outstanding Series E Shares. The Company could pay an amount equal to one thousand dollars ($1,000) per each
Series E Share (the “Liquidation Amount”), plus a redemption premium equal to fifteen percent (15%) of the Liquidation Amount being redeemed if that redemption took place up to and
including March 29, 2020 and twenty percent (20%) of the Liquidation Amount being redeemed if that redemption took place after March 29, 2020, plus an amount equal to any accrued
and unpaid dividends on such Series E Shares (collectively referred to as the “Redemption Amount”).
The Series E Shares were not subject to redemption in cash at the option of the holders thereof under any circumstance. Finally, the holders of outstanding Series E Shares were entitled
to receive, semi-annual dividends payable in cash on the last day of June and December of each year (each such date being referred to herein as a “Semi Annual Dividend Payment
Date”), commencing on the first Semi Annual Dividend Payment Date, being June 30, 2019 in an amount per share (rounded to the nearest cent) equal to fifteen percent (15%) per year of
the liquidation amount of the then outstanding Series E Shares computed on the basis of a 365-day year and the actual days elapsed. Accrued but unpaid dividends shall bore interest
at fifteen percent (15%). Dividends would not have been payable in cash, if such payment violated any provision of any senior secured facility of the Company or any senior secured
facility for which the Company had provided a guarantee, for as long as such provisions, remained in effect.
F-29
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The Company determined that the Series E shares were more akin to equity than debt and that the above identified conversion feature, subject to adjustments, was clearly and closely
related to the host instrument, and accordingly bifurcation and classification of the conversion feature as a derivative liability was not required. Given that the Series D and Series E
preferred stock’s holder (Lax Trust) controlled a majority of the Company votes, the preferred equity was in essence redeemable at the option of the holder and hence was classified in
Mezzanine equity as per ASC 480-10-S99 “Distinguishing liabilities from Equity – SEC Materials”.
On February 17, 2020 the Company issued 16,004 Series E Shares to Family Trading, as settlement of $14,350 of consideration then outstanding for the purchase of the M/T Eco City of
Angels and M/T Eco Los Angeles from Mr. Evangelos J. Pistiolis, $1,621 of Series E Share dividends of the second half of 2019 and $32 of accrued interest on unpaid dividends from
2019. On September 8, 2021 the Company issued 2,188 Series E Shares to Family Trading, as partial settlement for $2,188 of the consideration payable for the VLCC Transaction (see
Note 1).
At each issuance of Series E Shares, the Company recognized the beneficial conversion feature by allocating the intrinsic value of the conversion option, which is the number of shares
of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of the Company’s common stock per share
on the commitment date, to additional paid-in capital. As the Company was in an accumulated deficit position, the offsetting amount was amortized as a deemed dividend recorded
against additional paid-in-capital. During the year ended December 31, 2021, pursuant to issuances of Series E Shares, the Company recognized the beneficial conversion feature to
additional paid-in capital, resulting in a discount of $900 respectively on the Series E Shares which has been recognized as a deemed dividend. In the years ended December 31, 2022 and
2023 the Company didn't issue any Series E Shares.
During the years ended December 31, 2021, 2022 and 2023 the Company didn’t redeem any Series E Shares.
After March 29, 2020 as per the original Series E Shares Statement of Designations all redemptions of Series E Shares would incur a redemption premium equal to twenty percent (20%)
of the Liquidation Amount being redeemed instead of fifteen percent (15%). As a result, as of December 31, 2021, the Company adjusted the carrying value of the Series E Shares to the
maximum redemption amount, resulting in an increase of $437, which has been accounted as deemed dividend. No such adjustment took place in the year ended December 31, 2022 and
2023 as no Series E Shares were issued during 2022 and 2023.
During the years ended December 31, 2021, 2022 and 2023 the Company declared $1,883, $2,046 and $1,001 of dividends to the Series E Shares holder.
On December 6, 2023 the Company received a conversion notice for the conversion of all the outstanding Series E Shares (13,452 shares) into 2,930,718 of the Company’s common
shares. The Series E Shares were converted on the same date of the receipt of the conversion notice with a conversion price of $4.59, which represented 80% of the lowest daily volume
weighted average price of the Company’s common stock over the 20 consecutive trading days expiring on the trading day immediately prior to the date of delivery of the conversion
notice.
The Company, based on ASC 470-20-40-5, determined that the Series E Shares conversion feature is in essence a redemption, since such conversion was settled by a delivery of a
variable number of shares of common stock with a fixed monetary amount and by applying ASC 260-10-S99-2 has recognized the difference between the carrying amount of the Series E
Shares at the date of conversion and the fair value of the common stock delivered on the same date as a deemed dividend.
SERIES F PREFERRED SHARES
On January 17, 2022, the Company entered into a stock purchase agreement with Africanus Inc., an affiliate of Evangelos J. Pistiolis for the sale of up to 7,560,759 newly-issued Series F
Non-Convertible Perpetual Preferred Shares (“Series F Shares”), in exchange for (i) the assumption by Africanus Inc. of an amount of $47,630 of shipbuilding costs for its newbuilding
vessels M/T Eco Oceano CA (Hull No. 871), M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214), and (ii) settlement of the Company’s remaining payment
obligations relating to the VLCC Transaction, in an amount of up to $27,978. From January 17 to March 16, 2022 a total of 7,200,000 Series F Shares have been issued, to cover $47,630 of
shipbuilding costs in connection with the deliveries of M/T Julius Caesar, M/T Legio X Equestris and M/T Eco Oceano CA and as a consideration for the settlement of $24,370 of Due
to related parties. During the years ended December 31, 2022 and 2023 the Company redeemed a total of 1,349,252 and 2,191,121 Series F Shares for $16,191 and $26,293.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The holders of Series F Shares are entitled to the voting power of ten of the Company’s common shares per Series F Preferred Shares. Upon any liquidation, dissolution or winding up
of the Company, the holders of Series F Preferred Shares shall be entitled to receive the net assets of the Company pari passu with the Company’s common shares. The Series F Shares
shall not be subject to redemption in cash at the option of the holders and only the Company at its option shall have the right to redeem a portion or all of the outstanding Series F
Shares at an amount equal to $10 (ten) per Series F Share redeemed (the “Liquidation Amount”), plus a redemption premium of 20% of the Liquidation Amount. The Series F Shares
include a mandatory redemption provision tied to minimum voting requirements for the Company’s major shareholders, including affiliates of the CEO, pursuant to which if such
minimum voting rights fall below 50% the Company is obliged to redeem the full amount of the then outstanding Series F Shares at a redemption premium of 40%. The holders of
outstanding Series F Shares are entitled to receive semi-annual dividends payable in cash at a rate of 13.5% per year of the Liquidation Amount of the then outstanding Series F Shares.
Accrued but unpaid dividends shall bear interest at 13.5%. In addition, a one-time cash dividend equal to 4.0% of the Liquidation Amount is payable following each issuance of Series F
Preferred Perpetual Shares. Finally, the Series F Preferred Perpetual Shares are not convertible into the Company’s common shares under any circumstances.
The Company determined that the Series F shares were more akin to equity than debt and hence they have been classified in Mezzanine equity. As of March 16, 2022 (the date of the
last series F Shares issuance), the Company adjusted the carrying value of the Series F Shares to the maximum redemption amount ($86,400), resulting in an increase of $14,400, which
has been accounted as deemed dividend.
During the year ended December 31, 2022 and 2023 the Company declared $10,344 and $5,009 of dividends to the Series F Shares holder.
16.
Investments in Unconsolidated Joint Ventures
New 2020 Joint Venture
On April 24, 2020 the Company acquired from a company affiliated with Mr. Evangelos J. Pistiolis, or the MR Seller, a 50% interest in two vessel owning companies (California 19 Inc.
and California 20 Inc.) that owned two scrubber-fitted 50,000 dwt eco MR product tankers, M/T Eco Yosemite Park and M/T Eco Joshua Park respectively for $27,000, representing the
Company’s share of interest in the fair value of the net assets acquired. Both vessels were delivered in March 2020 to the MR Seller from Hyundai Mipo shipyard of South Korea. The
MR Seller had already entered into two joint venture agreements, for the two vessels, each with an equal ownership interest of 50%, with Just-C Limited, a wholly owned subsidiary of
Gunvor Group Ltd (the other 50% owner). The abovementioned acquisition was approved by a special committee of the Company’s board of directors (the “JV Special Committee”), of
which all of the directors were independent and for which the JV Special Committee obtained a fairness opinion relating to the consideration of the transaction from an independent
financial advisor. Sale and purchase commissions due to CSI related to these investments amounting to $454 were accounted for as part of the investment.
Out of the purchase price of $27,000, $1,646 and $1,654 were recognized as excess of the purchase price over the underlying net book value (“Basis Differences”) for California 19 Inc.
and California 20 Inc. respectively, attributed to the value assigned to the attached time charter. These Basis Differences are amortized over the duration of the firm period of the charter
(5 years) and their amortization is included as a reduction in Equity gain/(loss) in unconsolidated joint ventures. Furthermore $1,963 and $1,963 were also recognized as Basis
Differences for California 19 Inc. and California 20 Inc. respectively, attributed to the fair market value over the carrying value of the vessels. These Basis Differences are amortized over
the useful life of the vessels (25 years) and their amortization is also included as a reduction in Equity gain/(loss) in unconsolidated joint ventures.
On March 12, 2020, California 19 Inc. together with California 20 Inc. entered into a loan agreement with Alpha Bank for a senior debt facility of $37,660 ($18,830 for each vessel). The
loan has a term of five years and is payable on maturity via a balloon payment of $18,830 per vessel. The credit facility bears interest at LIBOR plus a margin of 3.00%. The facility carries
customary covenants and restrictions, including the covenant that during the life of the facility, the market value of the vessels should be at least 200% of the facility outstanding and
any shortfall should be covered by partial prepayments. Vessels are to be valued three times per year, every March, July and December. Provided that there is no breach of the above-
mentioned covenant and no event of default has occurred and is continuing or would occur if such dividend distribution would take place, California 19 Inc. and California 20 Inc. may
distribute dividends, without any consent from Alpha Bank. The loans are guaranteed by the Company in their entirety and this guarantee is not limited to the Company’s share of the
net assets of California 19 Inc. and California 20 Inc (see Note 8). On April 22, 2021 California 19 Inc. and California 20 Inc. prepaid $330 each to reduce each of the outstanding loans to
$18,500.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Each of the two product tankers are on time charters that commenced in March 2020 with Clearlake Shipping Pte Ltd, a subsidiary of Gunvor Group Ltd for a firm term of five years plus
two additional optional years.
The Company’s exposure is limited to its share of the net assets of California 19 Inc. and California 20 Inc., proportionate to its 50% equity interest in these companies. Generally, the
Company will share the profits and losses, cash flows and other matters relating to its investments in California 19 Inc. and California 20 Inc. in accordance with its ownership
percentage. The vessels are managed by CSI, pursuant to management agreements. The Company accounts for investments in joint ventures using the equity method since it has joint
control over the investment.
California 19 Inc. and California 20 Inc. made the following disbursements to the Company in 2021, 2022 and 2023:
Total disbursements
2,359
2,141
1,475
1,475
1,260
1,260
December 31, 2021
December 31, 2022
December 31, 2023
California 19
Inc.
California
20 Inc.
California 19
Inc.
California
20 Inc.
California 19
Inc.
California
20 Inc.
Recognition of Equity gain/(loss) in unconsolidated joint ventures of the 2020 Joint Venture for the years ended December 31, 2021, 2022 and 2023 are summarized below:
December 31, 2021
December 31, 2022
December 31, 2023
California 19
Inc.
California 20
Inc.
California 19
Inc.
California 20
Inc.
California 19
Inc.
California 20
Inc.
Net profit attributable to the Company
Amortization of Basis Differences
Equity gains in unconsolidated joint ventures
(attributed to the 2020 Joint Venture)
880
(408)
472
684
(409)
275
725
(408)
317
738
(409)
329
399
(408)
(9)
400
(409)
(9)
17. Revenues
Revenues are comprised of the following:
Time charter revenues
Time charter revenues from related party (Note 5)
Total
2021
2022
2023
56,367
-
56,367
73,362
7,294
80,656
74,006
8,943
82,949
The Company typically enters into time charters for periods ranging between three to fifteen years and includes a charterer’s option to renew for a further two one-year periods at
predetermined daily rates. Due to the volatility of the charter rates, the Company only accounts for the options when the charterer gives notice that the option will be exercised. In a time
charter contract, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. The charterer has the full discretion
over the ports visited, shipping routes and vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance of the vessel. The
charter party generally has some owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction
laws, and carry only lawful or non-hazardous cargo. In a time charter contract, the Company is responsible for all the costs incurred for running the vessel such as crew costs, vessel
insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges and canal tolls during the hire period. The charterer
generally pays the charter hire in advance of the upcoming contract period.
As of December 31, 2023, all of the Company’s vessels are employed under time charters.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
18.
Subsequent Events
On January 16 and January 23, 2024, the Company exercised its purchase options under the CMBFL SLB and took full ownership of M/Ts Julius Caesar and Legio X Equestris for
$48,604 and $49,272 respectively. Following the vessels purchase that was facilitated via Company’s cash and a short-term revolving bridge loan from HSBC (the “HSBC Bridge”), the
Company on January 18 and January 25, 2024 concluded SLBs (the “New CMBFL SLBs”) for the financing of M/Ts Julius Caesar and Legio X Equestris respectively from the same
institution (CMBFL). The duration of the New CMBFL SLBs is for eight years and the Company has continuous options, after the first year, to buy back the vessels at purchase prices
stipulated in the New CMBFL SLBs depending on when the option will be exercised and at the end of the eight-year period the Company has an option to buy back the vessels for a
consideration of $37,500 per vessel. The New CMBFL SLBs have a fixed bareboat hire rate of $7,300 per annum that includes both interest and repayment. The consideration from the
New CMBFL SLBs amounted to $125,000 ($62,500 per vessel) and the SLBs have similar customary covenants and event of default clauses as the SLBs that preceded them with
CMBFL. Under the HSBC Bridge the Company drew down $20,000 on January 16, 2024 for the purchase of M/T Julius Caesar that were repaid on January 18, 2024 and another $8,000 on
January 23, 2024 for the purchase of M/T Legio X Equestris that were repaid on January 25, 2024. The HSBC Bridge was for a maximum amount of $24,000 at any time, carried an interest
of 3% plus term SOFR and was guaranteed by Mr. Evangelos J. Pistiolis, for which guarantee Mr. Evangelos J. Pistiolis charged the Company a 1% fee on the amounts drawn down.
On February 6, 2024 the Company redeemed 3,659,627 Series F Shares for $43,916.
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