NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation and General Information
The accompanying condensed consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the “Company,” “we”, “our” or similar terms). The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership, charter and operation of dry bulk vessels. The Company’s fleet is comprised of Supramax, Ultramax and Handymax dry bulk carriers and the Company operates its business in one business segment.
As of March 31, 2017, the Company owned and operated a modern fleet of 41 oceangoing vessels, 38 Supramax, 2 Ultramax and 1 Handymax, with a combined carrying capacity of 2,269,062 dwt and an average age of approximately 8.9 years.
Additionally, the Company chartered-in a 37,000 dwt newbuilding Japanese vessel that was delivered in October 2014 for seven years with an option for one additional year
. Subsequent to March 31, 2017, the Company signed an agreement dated April 3, 2017 to cancel this existing time charter contract. See “Note 1
0. Subsequent Events” to the condensed consolidated financial statements
.
For the three-month periods ended on March 31, 2017 and 2016, respectively, the Company’s charterers did not individually account for more than 10% of the Company’s gross charter revenue during those periods.
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), and the rules and regulations of the SEC which apply to interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes normally included in consolidated financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2016 Annual Report on Form 10-K, filed with the SEC on March 31, 2017.
The accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed consolidated financial position and results of operations for the interim periods presented.
The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
We adopted the provisions of Accounting Standard Update (“ASU”) 2015-11 “Simplifying the Measurement of Inventory.” issued by the Financial Accounting Standards Board (“FASB”) as of January 1, 2017. Accordingly, we report our bunker inventory at lower of cost and net realizable value. There is no impact on the condensed consolidated financial statements because of the adoption of the new accounting standard.
The preparation of condensed 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. The significant estimates and assumptions of the Company are useful lives of fixed assets, the period of amortization, asset impairment, the fair value of warrants and stock-based compensation.
Note 2. Equity Offerings
On December 13, 2016, the Company entered into a Stock Purchase Agreement with certain investors (the “Investors”), pursuant to which the Company agreed to issue to the Investors in a private placement exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act (the “December Private Placement”) approximately 22.2 million shares of the Company’s common stock, par value $0.01 per share, at an initial purchase price of $4.50 per share, for aggregate gross proceeds of $100.0 million. On January 20, 2017, the Company closed its previously announced December Private Placement for aggregate net proceeds of $96.0 million. The Company plans to use the proceeds for the acquisition of dry bulk tonnage and general corporate purposes.
Note 3. New Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers. This update provides further guidance on applying collectability criterion to assess whether the contract is valid and represents a substantive transaction on the basis whether a customer has the ability and intention to pay the promised consideration. The requirements of this standard include an increase in required disclosures. Management has not yet selected a transition method and is currently analyzing the impact of the adoption of this guidance on the Company’s condensed consolidated financial statements, including assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting. The Company believes that the adoption of the standard will impact the timing of recognition of revenue.
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 is intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In order to meet that objective, the new standard requires recognition of the assets and liabilities that arise from leases. A lessee will be required to recognize on the balance sheet the assets and liabilities for leases with lease terms of more than 12 months. Accounting by lessors will remain largely unchanged from current U.S. GAAP. The requirements of this standard include an increase in required disclosures. The new standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The Company is currently evaluating the effect that adopting this standard will have on our financial statements and related disclosures. Management expects that the Company will recognize increases in reported amounts for vessel and other fixed assets and related lease liabilities upon adoption of the new standard. Refer to “Note 7. Commitments and Contingencies” to the condensed consolidated financial statements for disclosure about the Company’s time charter and lease commitments as of March 31, 2017.
Note 4. Vessels
Vessel and Vessel Improvements
As of March 31, 2017, the Company’s owned operating fleet consisted of 41 drybulk vessels.
As of December 31, 2016, the Company considered divesting some of its older as well as inefficient vessels from its fleet to achieve operating cost savings as well as potentially acquiring newer and more efficient vessels. The expected sale of vessels in the next two years reduces the useful life of the vessels resulting in impairment charge. As a result, we reduced the carrying value of each vessel to its fair market value as of December 31, 2016 and recorded an impairment charge of $122,860,600. In addition, the Company previously recorded an impairment loss of $6,167,262 as of March 31, 2016.
On November 14, 2016, the Company, through its subsidiary Eagle Bulk Shipco LLC, signed a memorandum of agreement to acquire a 2017 built 64,000 dwt SDARI-64 Ultramax dry bulk vessel constructed at Chengxi Shipyard Co., Ltd for $17.9 million. The Company took delivery of the vessel, the Singapore Eagle, on January 11, 2017.
On January 6, 2017, the Company sold the vessel Redwing for $5.8 million, after brokerage commissions and associated selling expenses, and recorded a net gain of approximately $92,000.The vessel was classified as asset held for sale as of December 31, 2016. A portion of the proceeds was used towards repayment of the term loan under the First Lien Facility (as defined herein).
On March 15, 2017, the Company signed a memorandum of agreement to sell the vessel Sparrow for $4.8 million after brokerage commissions and associated selling expenses. The vessel was delivered to the buyers in the second quarter of 2017.The Company is expected to record a gain of $1.8 million in the second quarter of 2017. A portion of the proceeds is expected to be used towards repayment of the term loan under the First Lien Facility. As of March 31, 2017, the Company reported the carrying amount of the vessel as a current asset in its condensed consolidated balance sheet.
Vessel and vessel improvements consist of the following:
Vessels and Vessel Improvements, at December 31, 2016
|
|
$
|
567,592,950
|
|
Advance paid for purchase of Singapore Eagle at December 31, 2016
|
|
|
1,926,886
|
|
Purchase of Vessel and Vessel Improvements
|
|
|
17,297,323
|
|
Depreciation Expense
|
|
|
(6,472,507
|
)
|
Vessels and Vessel Improvements, at March 31, 2017
|
|
$
|
580,344,652
|
|
Note 5. Debt
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
First Lien Facility
|
|
$
|
206,203,750
|
|
|
$
|
209,099,000
|
|
Debt issuance costs - First Lien
|
|
|
(4,319,000
|
)
|
|
|
(4,746,682
|
)
|
First Lien Facility, net of debt issuance costs
|
|
|
201,884,750
|
|
|
|
204,352,318
|
|
Second Lien Facility
|
|
|
69,662,736
|
|
|
|
67,327,843
|
|
Debt discount and Debt issuance costs - Second Lien Facility
|
|
|
(14,719,336
|
)
|
|
|
(15,736,617
|
)
|
Second Lien Facility, net of Debt issuance costs and debt discount
|
|
|
54,943,400
|
|
|
|
51,591,226
|
|
Total debt
|
|
$
|
256,828,150
|
|
|
$
|
255,943,544
|
|
First Lien Facility
On March 30, 2016, Eagle Shipping LLC, a limited liability company organized under the laws of the Marshall Islands (“Eagle Shipping”), as borrower, and certain of its subsidiaries that were guarantors of the Company’s obligations under the Company’s senior secured credit facility (the “Exit Financing Facility”), as guarantors, entered into an Amended and Restated First Lien Loan Agreement (the “A&R First Lien Loan Agreement”) with the lenders thereunder (the “First Lien Lenders”) and ABN AMRO Capital USA LLC, as agent and security trustee for the lenders. The A&R First Lien Loan Agreement amends and restates the Exit Financing Facility in its entirety, provides for Eagle Shipping to be the borrower in the place of the Company, and further provides for a waiver of any and all events of default occurring as a result of the voluntary OFAC Disclosure (as defined in “Note 7. Commitments and Contingencies - Legal Proceedings” to the condensed consolidated financial statements. The A&R First Lien Loan Agreement provides for a term loan that was outstanding as of March 30, 2016, in the amount of $201,468,750 after giving effect to the entry into the A&R First Lien Loan Agreement and the Second Lien Loan Agreement (as defined below) as well as a $50,000,000 revolving credit facility, of which $10,000,000 was undrawn as of March 30, 2016 (the term loan, together with the revolving credit facility, the “First Lien Facility”). The First Lien Facility matures on October 15, 2019. An aggregate fee of $600,000 was paid to the agent and First Lien Lenders in connection with the First Lien Facility.
As of March 31, 2017, Eagle Shipping’s total availability in the revolving credit facility under the First Lien Facility was $25,000,000.
The A&R First Lien Agreement contains financial covenants requiring Eagle Shipping, among other things, to ensure that the aggregate market value of the vessels in Eagle Shipping’s fleet (plus the value of certain additional collateral) at all times on or after July 1, 2017 does not fall below 100% in the third and fourth quarters of 2017, 110% in 2018 and 120% in 2019 of the aggregate principal amount of debt outstanding (subject to certain adjustments) under the First Lien Facility and maintain minimum liquidity of not less than the greater of (i) $8,140,000 and (ii) $185,000 per vessel in Eagle Shipping’s fleet. In addition, the A&R First Lien Agreement imposes operating restrictions on Eagle Shipping including limiting Eagle Shipping’s ability to, among other things: incur additional indebtedness; create liens on assets; acquire and sell capital assets (including vessels); and merge or consolidate with, or transfer all or substantially all of Eagle Shipping’s assets to, another person. The A&R First Lien Loan Agreement also includes customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, representation or warranty, a cross-default to other indebtedness and non-compliance with security documents. Further, there would be a default if any event occurs or circumstances arise in light of which, in the First Lien Lenders’ judgment, there is significant risk that Eagle Shipping is or would become insolvent. Eagle Shipping is not permitted to pay dividends. Indebtedness under the First Lien Facility may also be accelerated if Eagle Shipping experiences a change of control.
Upon entering into the A&R First Lien Loan Agreement, Eagle Shipping paid three quarters of amortization payments with respect to the term loan under the First Lien Facility in the aggregate amount of $11,718,750, paid down $30,158,500, a portion of the amount outstanding in respect of the revolving credit facility under the First Lien Facility, maintained a minimum liquidity of $8,140,000 and added cash to the balance sheet. In addition, Eagle Shipping paid the first quarter amortization of $3,906,250 under the previously outstanding Exit Financing Facility. For the fiscal quarters ending June 30, 2017, and June 30, 2018 and the fiscal years ending December 31, 2017 and December 31, 2018 (each, a “Semi-Annual Determination Date”), Eagle Shipping is obligated to repay the term loan under the First Lien Facility in an amount equal to 75% of Eagle Shipping’s excess cash flow for the two fiscal quarters ended as of such Semi-Annual Determination Date, subject to a cap of such mandatory prepayments of $15,625,000 in any fiscal year. Thereafter, Eagle Shipping will make payments of $3,906,250 on January 15, 2019, April 15, 2019, and July 15, 2019, and a final balloon payment equal to the remaining amount outstanding under the term loan under the First Lien Facility on October 15, 2019.
Eagle Shipping has prepaid $8,546,250 of the term loan as of March 31, 2017 pursuant to the terms of the A&R First Lien Loan Agreement relating to mandatory prepayments upon sales of vessels. The repayment schedule above has therefore been adjusted to account for such prepayments made through March 31, 2017, such that Eagle Shipping is required to make payments of $3,680,939 on January 15, 2019, April 15, 2019, and July 15, 2019, and a final balloon payment equal to the remaining amount outstanding under the First Lien Facility on October 15, 2019. As a result of the mandatory prepayments made through March 31, 2017, Eagle Shipping is not required to comply with the minimum security covenant until October 2017 pursuant to the terms of the A&R First Lien Loan Agreement.
Second Lien Facility
On March 30, 2016, Eagle Shipping, as borrower, and certain of its subsidiaries that were guarantors of the Company’s obligations under the Exit Financing Facility, as guarantors, entered into a Second Lien Loan Agreement (the “Second Lien Loan Agreement”) with certain lenders (the “Second Lien Lenders”) and Wilmington Savings Fund Society, FSB as agent for the Second Lien Lenders (the “Second Lien Agent”). The Second Lien Lenders include certain of the Company’s existing shareholders as well as other investors. The Second Lien Loan Agreement provides for a term loan in the amount of $60,000,000 (the “Second Lien Facility”), and matures on January 14, 2020 (91 days after the original stated maturity of the First Lien Facility). The term loan under the Second Lien Facility bears interest at a rate of LIBOR plus 14.00% per annum (with a 1.0% LIBOR floor) or the Base Rate (as defined in the Second Lien Loan Agreement) plus 13.00% per annum, paid in kind quarterly in arrears. Eagle Shipping used the proceeds from the Second Lien Facility to pay down $30,158,500, a portion of the amount outstanding in respect of the revolving credit facility under the First Lien Facility, pay three quarters of amortization payments under the First Lien Facility, pay transaction fees in connection with the entry into the A&R First Lien Loan Agreement and the Second Lien Loan Agreement, maintain a minimum liquidity of $8,140,000 and add cash to its balance sheet.
The Second Lien Loan Agreement contains financial covenants substantially similar to those in the A&R First Lien Loan Agreement, subject to standard cushions, requiring Eagle Shipping, among other things, to ensure that the aggregate market value of the vessels in Eagle Shipping’s fleet (plus the value of certain additional collateral) at all times on or after July 1, 2017 does not fall below 100% in the third and fourth quarters of 2017, 110% in 2018 and 120% in 2019 of the aggregate principal amount of debt outstanding (subject to certain adjustments) under the Second Lien Facility (provided that Eagle Shipping will not be required to comply with such covenant until the discharge of its obligations under the A&R First Lien Loan Agreement) and to maintain a minimum liquidity of not less than the greater of (i) $6,512,000 and (ii) $148,000 per vessel in Eagle Shipping’s fleet. In addition, the Second Lien Loan Agreement also imposes operating restrictions on Eagle Shipping including limiting Eagle Shipping’s ability to, among other things: incur additional indebtedness; create liens on assets; acquire and sell capital assets (including vessels); and merge or consolidate with, or transfer all or substantially all of Eagle Shipping’s assets to, another person. Eagle Shipping may not prepay the Second Lien Facility while amounts or commitments under the First Lien Facility remain outstanding.
The Second Lien Loan Agreement also includes customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, representation or warranty, a cross-default to other indebtedness and non-compliance with security documents. Further, there would be a default if any event occurs or circumstances arise in light of which, in the Second Lien Lenders’ judgment, there is significant risk that Eagle Shipping is or would become insolvent. Eagle Shipping is not permitted to pay dividends. Indebtedness under the Second Lien Facility may also be accelerated if Eagle Shipping experiences a change of control.
For the three-month period ended March 31, 2017, interest rates on our outstanding debt under First Lien Facility ranged from 4.77% to 4.99%, including a margin over LIBOR and commitment fees of 40% of the margin on the undrawn portion of the facility. The weighted average effective interest rate was 5.31%. The interest rate on payment-in-kind interest on our Second Lien Facility was 15% including a margin over LIBOR. The weighted average effective interest rate on our Second Lien Facility including the amortization of debt discount for this period was 17.05%. The payment-in-kind interest is due January 19, 2020.
For the three-month period ended March 31, 2016, interest rates on our outstanding debt ranged from 3.86% to 6.39%, including a margin over LIBOR applicable under the terms of the Exit Financing Facility and commitment fees of 40% of the margin on the undrawn portion of the facility. The weighted average effective interest rate was 5.06%.
Interest Expense consisted of:
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
First Lien Facility/Exit Financing Facility
|
|
$
|
2,665,175
|
|
|
$
|
2,509,142
|
|
Amortization of Debt issuance costs
|
|
|
1,444,963
|
|
|
|
308,504
|
|
Payment in kind interest on Second Lien Facility
|
|
|
2,334,893
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
$
|
6,445,031
|
|
|
$
|
2,817,646
|
|
Interest paid amounted to $2,694,046 and $2,529,674 for the three months ended March 31, 2017 and 2016, respectively.
Note 6. Derivative Instruments and Fair Value Measurements
Forward freight agreements and bunker swaps
The Company trades in forward freight agreements (“FFAs”), with the objective of utilizing this market as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market. The Company’s FFAs have not qualified for hedge accounting treatment. As such, unrealized and realized losses are recognized as a component of other expense in the condensed consolidated statement of operations for the three months ended March 31, 2017. As of March 31, 2017, the Company recorded $293,007 as fair value of the derivatives which are classified as a current liability in the accompanying condensed consolidated balance sheet. As of December 31, 2016, the Company did not have any open positions and as such, no asset or liability is recorded in the accompanying consolidated balance sheets.
The effect of non-designated derivative instruments on the consolidated statements of operations is as follows:
Derivatives not designated as hedging instruments
|
Location of loss recognized
|
|
Amount of Loss
|
|
|
|
|
For the
three
months
ended
March 31,
2017
|
|
|
For the three
months ended
March 31,
2016
|
|
FFAs
|
Other expense
|
|
$
|
306,559
|
|
|
$
|
-
|
|
Total
|
|
$
|
306,559
|
|
|
$
|
-
|
|
Cash Collateral Disclosures
The Company does not offset fair value amounts recognized for derivatives by the right to reclaim cash collateral or the obligation to return cash collateral. The amount of collateral to be posted is defined in the terms of respective master agreement executed with counterparties or exchanges and is required when agreed upon threshold limits are exceeded. As of March 31, 2017 and December 31, 2016, the Company posted cash collateral related to derivative instruments under its collateral security arrangements of $738,201 and nil, respectively, which is recorded as other current assets in the condensed consolidated balance sheets.
Fair Value Measurements
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash, cash equivalents and restricted cash—
the carrying amounts reported in the consolidated balance sheets for interest-bearing deposits approximate their fair value due to their short-term nature thereof.
Debt
—the carrying amounts of borrowings under the revolving credit agreement approximate their fair value, due to the variable interest rate nature thereof.
The Company defines fair value, establishes a framework for measuring fair value and provides disclosures about fair value measurements. The fair value hierarchy for disclosure of fair value measurements is as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 non-derivatives include cash, money-market accounts and restricted cash accounts.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level 2 non-derivatives include our debt balances under First Lien Facility.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Note 7. Commitments and Contingencies
Legal Proceedings
The Company is involved in legal proceedings and may become involved in other legal matters arising in the ordinary course of its business. The Company evaluates these legal matters on a case-by-case basis to make a determination as to the impact, if any, on its business, liquidity, results of operations, financial condition or cash flows.
In November 2015, the Company filed a voluntary self-disclosure report with OFAC regarding certain apparent violations of U.S. sanctions regulations in the provision of shipping services for third party charterers with respect to the transportation of cargo to or from Myanmar (formerly Burma) (the “OFAC Disclosure”). At the time of such apparent violations, the Company had a different senior operational management team. Notwithstanding the fact that the apparent violations took place under a different senior operational management team and although the Company’s new board and management have implemented robust remedial measures and significantly enhanced its compliance safeguards, there can be no assurance that OFAC will not conclude that these past actions warrant the imposition of civil penalties and/or referral for further investigation by the U.S. Department of Justice. The report was provided to OFAC for the agency’s review, consideration and determination regarding what action, if any, may be taken in resolution of this matter. The Company will continue to cooperate with the agency regarding this matter and cannot estimate when such review will be concluded. While the ultimate impact of these matters cannot be determined, there can be no assurance that the impact will not be material to the Company’s financial condition or results of operations
Other Commitments
On July 28, 2011, the Company entered into an agreement to charter-in a 37,000 dwt newbuilding Japanese vessel that was delivered in October 2014 for seven years with an option for an additional one year. The hire rate for the first to seventh year is $13,500 per day and $13,750 per day for the eighth year option. Subsequent to March 31, 2017, the Company signed an agreement on April 3, 2017 to cancel this existing time chartered-in contract. See “Note 1
0. Subsequent Events” to the condensed consolidated financial statements.
On February 28, 2017, Eagle Bulk Ultraco LLC, a wholly-owned subsidiary of the Company, entered into a framework agreement (the “Agreement”) with Greenship Bulk Manager Pte. Ltd., as Trustee-Manager of Greenship Bulk Trust, a Norwegian OTC-listed entity (the “Sellers”), for the purchase of nine modern sister vessels built between 2012 and 2015 (each a “Vessel,” and collectively, the “Vessels”). Of the nine Vessels, three Vessels were subject to certain customary conditions as well as the approval of the requisite majority of the unitholders of the Sellers (the “Contingent Vessels”). The approval to acquire the Contingent Vessels was obtained subsequently on March 27, 2017. The aggregate purchase price for the nine Vessels is $153.0 million. The allocated purchase price for each Vessel is $17.0 million. The Company paid a deposit of $10.3 million in the first quarter of 2017 for the purchase of the first six Vessels.
Subsequent to close of the first quarter, the Company took delivery of two Vessels, Mystic Eagle, and Southport Eagle and the remaining Vessels are expected to be delivered charter free between May 2017 to September 2017.
Note 8. Loss Per Common Share
The computation of basic net loss per share is based on the weighted average number of common shares outstanding for the three-month periods ended March 31, 2017 and March 31, 2016. Diluted net loss per share gives effect to stock awards, stock options and restricted stock units using the treasury stock method, unless the impact is anti-dilutive. Diluted net loss per share as of March 31, 2017 does not include 1,843,211 unvested stock awards, 2,279,908 stock options and 152,266 warrants, as their effect was anti-dilutive. Diluted net loss per share as of March 31, 2016 does not include 39,231 stock awards, 68,867 stock options and 152,266 warrants, as their effect was anti-dilutive.
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
Net loss
|
|
$
|
(11,068,448
|
)
|
|
$
|
(39,278,670
|
)
|
Weighted Average Shares-Basic
|
|
|
65,637,692
|
|
|
|
1,891,463
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
-
|
|
|
|
-
|
|
Weighted Average Shares Diluted
|
|
|
65,637,692
|
|
|
|
1,891,463
|
|
Basic loss per share *
|
|
$
|
(0.17
|
)
|
|
$
|
(20.77
|
)
|
Diluted loss per share *
|
|
$
|
(0.17
|
)
|
|
$
|
(20.77
|
)
|
*Adjusted to give effect for the 1 for 20 reverse stock split that became effective as of the opening of trading on August 5, 2016.
Note 9. Stock Incentive Plans
2016 Equity Compensation Plan
On December 15, 2016, the Company’s shareholders approved the 2016 Equity Compensation Plan (the “2016 Plan”) and the Company registered 5,348,613 shares of common stock which may be issued under the 2016 Plan. The 2016 Plan replaced the post-emergence Management Incentive Program (the “2014 Plan”) and no other awards will be granted under the 2014 Plan. Outstanding awards under the 2014 Plan will continue to be governed by the terms of the 2014 Plan until exercised, expired, otherwise terminated, or canceled. As of December 31, 2016, 24,644 shares of common stock were subject to outstanding awards under the 2014 Plan. Under the terms of the 2016 Plan, awards for up to a maximum of 3,000,000 shares may be granted under the 2016 Plan to any one employee of the Company and its subsidiaries during any one calendar year, and awards in the form of options and stock appreciation rights for up to a maximum of 3,000,000 shares may be granted under the 2016 Plan. The total number of shares of common stock with respect to which awards may be granted under the 2016 Plan to any non-employee director during any one calendar year shall not exceed 500,000, subject to adjustment as provided in the 2016 Plan. Any director, officer, employee or consultant of the Company or any of its subsidiaries (including any prospective officer or employee) is eligible to be designated to participate in the 2016 Plan.
On March 1, 2017, the Company granted 429,750 restricted shares of common stock to certain employees and management of the Company under the 2016 Plan. The shares vest ratably over three years. The fair value of the restricted shares at the date of the grant was $2.35 million. Amortization of this charge calculated using the graded method of vesting, which is included in general and administrative expenses for the three months ended March 31, 2017 was $123,215.
On March 1, 2017, the Company granted 337,000 options at an exercise price of $5.56 representing the average closing price per share of common stock, as quoted on the Nasdaq Global Select Market for the ten trading days immediately preceding March 15, 2017. The options have a five year term and will vest and become exercisable ratably in four equal installments on each of the four anniversaries of the grant date. The fair value of each option was determined to be $2.59. For the purposes of determining the non-cash compensation cost for the Company’s stock option plan using the fair value method of ASC 718 "Compensation-Stock Compensation,” the fair value of the options was estimated on the date of grant using the Black-Scholes option pricing model. The weighted average assumptions used included a risk free interest rate of 1.72%, an expected stock price volatility factor of 64% and a dividend rate of 0%. Amortization of this charge calculated using the graded method of vesting, which is included in general and administrative expenses for the three months ended March 31, 2017 was $39,222.
As of March 31, 2017 and 2016, stock awards covering a total of 1,843,211 and 39,231 of the Company’s common shares, respectively, are outstanding under the 2014 Plan and 2016 Plan. The vesting terms range between one to three years from the grant date. The Company is amortizing to non-cash compensation expense included in general and administrative expenses the fair value of non-vested stock awards at the grant date.
As of March 31, 2017 and 2016, options covering 1,865,865 and 68,867 of the Company’s common shares, respectively, are outstanding with exercise prices ranging from $4.28 to $505.00 per share. The options vest and become exercisable in four equal installments beginning on the grant date. All options expire within seven years from the effective date.
Non-cash compensation expense for all stock awards and options included in General and administrative expenses:
|
|
For the three
months ended
March 31, 2017
|
|
|
For the three
months ended
March 31, 2016
|
|
Stock awards /Stock Option Plans
|
|
$
|
2,170,700
|
|
|
$
|
826,613
|
|
|
|
|
|
|
|
|
|
|
Total non-cash compensation expense
|
|
$
|
2,170,700
|
|
|
$
|
826,613
|
|
The future compensation to be recognized for all the grants issued for the nine months ending December 31, 2017, and the years ending December 31, 2018 and 2019 will be $4,584,037, $6,891,228 and $1,258,777, respectively.
Note
10
. Subsequent Events
On April 3, 2017, the Company signed an agreement to cancel an existing time charter contract on a 37,000 dwt newbuilding Japanese vessel as discussed in “Note 7. Commitments and Contingencies” to the condensed consolidated financial statements. The Company agreed to pay a lump sum termination fee of $1.5 million relating to the cancellation. At the same time, the Company entered into an agreement, which is expected to be effective May 2017 to charter in a 61,400 dwt, 2013 built Japanese vessel for approximately four years (having the same redelivery dates as the aforementioned cancelled charter) with options for two additional years. The hire rate for the first four years is $12,800 per day and the hire rate for the first optional year is $13,800 per day and $14,300 per day for the second optional year.