(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.
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.
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.
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
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.
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.
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 (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company that prepares its financial statements
in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard”
refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5,
2012.
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filling:
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. N/A
If this is an annual report, indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
(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
This annual report on Form 20-F contains forward-looking
statements and information within the meaning of U.S. securities laws, and Globus Maritime Limited desires to take advantage of
the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in
connection with this safe harbor legislation.
The “Company,” “Globus,” “Globus
Maritime,” “we,” “our” and “us” refer to Globus Maritime Limited and its subsidiaries,
unless the context otherwise requires.
Forward-looking statements provide our current expectations
or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives,
intentions, assumptions and other statements that are not historical facts or that are not present facts or conditions. Forward-looking
statements and information can generally be identified by the use of forward-looking terminology or words, such as “anticipate,”
“approximately,” “believe,” “continue,” “estimate,” “expect,” “forecast,”
“intend,” “may,” “ongoing,” “pending,” “perceive,” “plan,”
“potential,” “predict,” “project,” “seeks,” “should,” “views”
or similar words or phrases or variations thereon, or the negatives of those words or phrases, or statements that events, conditions
or results “can,” “will,” “may,” “must,” “would,” “could”
or “should” occur or be achieved and similar expressions in connection with any discussion, expectation or projection
of future operating or financial performance, costs, regulations, events or trends. The absence of these words does not necessarily
mean that a statement is not forward-looking. Forward-looking statements and information are based on management’s current
expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult
to predict.
Without limiting the generality of the foregoing, all
statements in this annual report on Form 20-F concerning or relating to estimated and projected earnings, margins, costs, expenses,
expenditures, cash flows, growth rates, future financial results and liquidity are forward-looking statements. In addition, we,
through our senior management, from time to time may make forward-looking public statements concerning our expected future operations
and performance and other developments. Such forward-looking statements are necessarily estimates reflecting our best judgment
based upon current information and involve a number of risks and uncertainties. Other factors may affect the accuracy of these
forward-looking statements and our actual results may differ materially from the results anticipated in these forward-looking statements.
While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated
by us may include, but are not limited to, those factors and conditions described under “Item 3.D. Risk Factors”
as well as general conditions in the economy, dry bulk industry and capital markets. We undertake no obligation to revise any forward-looking
statement to reflect circumstances or events after the date of this annual report on Form 20-F or to reflect the occurrence of
unanticipated events or new information, other than any obligation to disclose material information under applicable securities
laws. Forward-looking statements appear in a number of places in this annual report on Form 20-F including, without limitation,
in the sections entitled “Item 5. Operating and Financial Review and Prospects,” “Item 4.A. History
and Development of the Company” and “Item 8.A. Consolidated Statements and Other Financial Information—Dividend
Policy.”
References to our common shares are references to Globus
Maritime Limited’s registered common shares, par value $0.004 per share, or, as applicable, the ordinary shares of Globus
Maritime Limited prior to our redomiciliation into the Marshall Islands on November 24, 2010.
References to our Class B shares are references to
Globus Maritime Limited’s registered Class B shares, par value $0.001 per share, none of which are currently outstanding.
We refer to both our common shares and Class B shares as our shares. References to our shareholders are references to the holders
of our common shares and Class B shares. References to our Series A Preferred Shares are references to our shares of Series A preferred
stock, par value $0.001 per share, none of which were outstanding on December 31, 2018 and 2019 as well as on the date of this
annual report on Form 20-F.
On July 29, 2010, we effected
a four-for-one reverse split of our common shares. On October 20, 2016, we effected a four-for-one reverse stock split which reduced
the number of outstanding common shares from 10,510,741 to 2,627,674 shares (adjustments were made based on fractional shares).
On October 15, 2018, the Company effected a ten-for-one reverse stock split which reduced the number of outstanding common shares
from 32,065,077 to 3,206,495 shares (adjustments were made based on fractional shares). Unless otherwise noted, all historical
share numbers and per share amounts in this annual report on Form 20-F have been adjusted to give effect to these reverse splits.
Unless otherwise indicated, all references to “dollars”
and “$” in this annual report on Form 20-F are to, and amounts are presented in, U.S. dollars. References to our ships,
our vessels or out fleet relates to the ships that we own, unless context otherwise requires.
Certain financial information has been rounded, and,
as a result, certain totals shown in this annual report on Form 20-F may not equal the arithmetic sum of the figures that should
otherwise aggregate to those totals.
PART I
Item 1. Identity of Directors, Senior
Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected
Timetable
Not Applicable.
Item 3. Key Information
A. Selected Financial
Data
The following tables set forth our selected consolidated
financial and operating data. The summary consolidated financial data as of and for the years ended December 31, 2019, 2018, 2017,
2016 and 2015 are derived from our audited consolidated financial statements, which have been prepared in accordance with International
Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. The data set forth
below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our
audited consolidated financial statements, related notes and other financial information included elsewhere in this annual report
on Form 20-F for the years 2017, 2018 and 2019. The data for the years 2015 and 2016 are included in prior year annual reports
on Form 20-F. Results of operations in any period are not necessarily indicative of results in any future period.
|
|
Year
Ended December 31,
|
|
|
|
(Expressed
in Thousands of U.S. Dollars, except per share data)
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Consolidated Statement
of comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues(1)
|
|
|
15,623
|
|
|
|
17,354
|
|
|
|
13,852
|
|
|
|
8,423
|
|
|
|
12,252
|
|
Management
fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
278
|
|
|
|
—
|
|
Total
Revenues
|
|
|
15,623
|
|
|
|
17,354
|
|
|
|
13,883
|
|
|
|
8,701
|
|
|
|
12,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses(1)
|
|
|
(2,098
|
)
|
|
|
(1,188
|
)
|
|
|
(1,352
|
)
|
|
|
(954
|
)
|
|
|
(1,921
|
)
|
Vessel
operating expenses
|
|
|
(8,882
|
)
|
|
|
(9,925
|
)
|
|
|
(9,135
|
)
|
|
|
(8,688
|
)
|
|
|
(10,321
|
)
|
Depreciation
|
|
|
(4,721
|
)
|
|
|
(4,601
|
)
|
|
|
(4,854
|
)
|
|
|
(5,014
|
)
|
|
|
(6,085
|
)
|
Depreciation
of drydocking costs
|
|
|
(1,704
|
)
|
|
|
(1,166
|
)
|
|
|
(862
|
)
|
|
|
(1,005
|
)
|
|
|
(1,062
|
)
|
Amortization
of fair value of time charter attached to vessels
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(41
|
)
|
Administrative
expenses
|
|
|
(1,583
|
)
|
|
|
(1,356
|
)
|
|
|
(1,224
|
)
|
|
|
(2,094
|
)
|
|
|
(1,751
|
)
|
Administrative
expenses payable to related parties
|
|
|
(371
|
)
|
|
|
(528
|
)
|
|
|
(514
|
)
|
|
|
(351
|
)
|
|
|
(465
|
)
|
Share-based
payments
|
|
|
(40
|
)
|
|
|
(40
|
)
|
|
|
(40
|
)
|
|
|
(50
|
)
|
|
|
(60
|
)
|
Impairment
loss
|
|
|
(29,902
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,144
|
)
|
Gain
from sale of subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,257
|
|
|
|
—
|
|
Other
(expenses)/income, net
|
|
|
29
|
|
|
|
2
|
|
|
|
83
|
|
|
|
(30
|
)
|
|
|
(110
|
)
|
Operating
(loss)/profit before financing activities
|
|
|
(33,649
|
)
|
|
|
(1,448
|
)
|
|
|
(4,015
|
)
|
|
|
(7,228
|
)
|
|
|
(29,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
47
|
|
|
|
—
|
|
|
|
3
|
|
|
|
5
|
|
|
|
8
|
|
Interest
expense and finance costs
|
|
|
(4,703
|
)
|
|
|
(2,056
|
)
|
|
|
(2,221
|
)
|
|
|
(2,676
|
)
|
|
|
(2,783
|
)
|
Gain/(Loss)
on derivative financial instruments
|
|
|
1,950
|
|
|
|
(131
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreign
exchange gains/(losses), net
|
|
|
4
|
|
|
|
67
|
|
|
|
(242
|
)
|
|
|
74
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss for the year
|
|
|
(36,351
|
)
|
|
|
(3,568
|
)
|
|
|
(6,475
|
)
|
|
|
(9,825
|
)
|
|
|
(32,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per share for the year(2)
|
|
|
(8.73
|
)
|
|
|
(1.11
|
)
|
|
|
(2.51
|
)
|
|
|
(37.73
|
)
|
|
|
(126.22
|
)
|
Diluted earnings/(loss) per share for the year(2)
|
|
|
(8.73
|
)
|
|
|
(1.11
|
)
|
|
|
(2.51
|
)
|
|
|
(37.73
|
)
|
|
|
(126.22
|
)
|
Weighted average number of common shares, basic(2)
|
|
|
4,165,919
|
|
|
|
3,200,927
|
|
|
|
2,574,995
|
|
|
|
260,384
|
|
|
|
256,667
|
|
Weighted average number of common shares, diluted(2)
|
|
|
4,165,919
|
|
|
|
3,200,927
|
|
|
|
2,574,995
|
|
|
|
260,384
|
|
|
|
256,667
|
|
Dividends declared per common share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dividends declared per Series A Preferred Share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
174.65
|
|
Adjusted EBITDA (3) (unaudited)
|
|
|
2,678
|
|
|
|
4,319
|
|
|
|
1,701
|
|
|
|
(3,466
|
)
|
|
|
(2,376
|
)
|
(1) In respect of the election to apply IFRS 15
fully retrospectively, prior year figures have been adjusted in order to present Voyage revenues net of address commissions. Address
commissions prior to the adoption of IFRS 15 were included in Voyage expenses.
(2) These figures reflect the 4-1 reverse stock
split which occurred in October 2016 and the 10-1 reverse stock split which occurred in October 2018.
(3) Adjusted EBITDA represents net earnings before
interest and finance costs net, gains or losses from the change in fair value of derivative financial instruments, foreign exchange
gains or losses, income taxes, depreciation, depreciation of drydocking costs, amortization of fair value of time charter attached
to vessels, impairment and gains or losses from sale of vessels. Adjusted EBITDA does not represent and should not be considered
as an alternative to total comprehensive income/(loss) or cash generated from operations, as determined by IFRS, and our calculation
of Adjusted EBITDA may not be comparable to that reported by other companies. Adjusted EBITDA is not a recognized measurement under
IFRS.
Adjusted EBITDA is included herein because it is a basis upon which we
assess our financial performance and because we believe that it presents useful information to investors regarding a company’s
ability to service and/or incur indebtedness and it is frequently used by securities analysts, investors and other interested parties
in the evaluation of companies in our industry.
Adjusted EBITDA has limitations as an analytical tool, and you should
not consider it in isolation, or as a substitute for analysis of our results as reported under IFRS. Some of these limitations
are:
|
»
|
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
|
|
»
|
Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
|
|
»
|
Adjusted EBITDA does not reflect changes in or cash requirements for our working capital needs; and
|
|
»
|
other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
Because of these limitations, Adjusted EBITDA should not be considered
a measure of discretionary cash available to us to invest in the growth of our business.
The following table sets forth a reconciliation of
Adjusted EBITDA (unaudited) to total comprehensive loss for the periods presented:
|
|
Year Ended December 31,
|
|
|
|
(Expressed in Thousands of U.S. Dollars)
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Total
comprehensive loss for the year
|
|
|
(36,351
|
)
|
|
|
(3,568
|
)
|
|
|
(6,475
|
)
|
|
|
(9,825
|
)
|
|
|
(32,396
|
)
|
Interest
and finance costs, net
|
|
|
4,656
|
|
|
|
2,056
|
|
|
|
2,218
|
|
|
|
2,671
|
|
|
|
2,775
|
|
(Gain)/loss
on derivative financial instruments
|
|
|
(1,950
|
)
|
|
|
131
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreign
exchange (gains)/losses, net
|
|
|
(4
|
)
|
|
|
(67
|
)
|
|
|
242
|
|
|
|
(74
|
)
|
|
|
(87
|
)
|
Depreciation
|
|
|
4,721
|
|
|
|
4,601
|
|
|
|
4,854
|
|
|
|
5,014
|
|
|
|
6,085
|
|
Depreciation
of drydocking costs
|
|
|
1,704
|
|
|
|
1,166
|
|
|
|
862
|
|
|
|
1,005
|
|
|
|
1,062
|
|
Amortization
of fair value of time charter attached to vessels
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41
|
|
Impairment
Loss
|
|
|
29,902
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,144
|
|
Gain
from sale of subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,257
|
)
|
|
|
—
|
|
Adjusted
EBITDA (unaudited)
|
|
|
2,678
|
|
|
|
4,319
|
|
|
|
1,701
|
|
|
|
(3,466
|
)
|
|
|
(2,376
|
)
|
|
|
As
of December 31,
|
|
|
|
(Expressed in Thousands of U.S. Dollars)
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Statements
of financial position data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current assets
|
|
|
50,167
|
|
|
|
83,880
|
|
|
|
87,373
|
|
|
|
91,847
|
|
|
|
110,140
|
|
Total
current assets (including “Non-current assets classified as held for sale”)
|
|
|
5,489
|
|
|
|
2,794
|
|
|
|
4,230
|
|
|
|
2,149
|
|
|
|
4,697
|
|
Total
assets
|
|
|
55,656
|
|
|
|
86,674
|
|
|
|
91,603
|
|
|
|
93,996
|
|
|
|
114,837
|
|
Total
equity
|
|
|
9,879
|
|
|
|
41,050
|
|
|
|
43,968
|
|
|
|
20,760
|
|
|
|
30,535
|
|
Total
non-current liabilities
|
|
|
37,046
|
|
|
|
2,418
|
|
|
|
82
|
|
|
|
42,100
|
|
|
|
14,673
|
|
Total
current liabilities
|
|
|
8,731
|
|
|
|
43,206
|
|
|
|
47,553
|
|
|
|
31,136
|
|
|
|
69,629
|
|
Total
equity and liabilities
|
|
|
55,656
|
|
|
|
86,674
|
|
|
|
91,603
|
|
|
|
93,996
|
|
|
|
114,837
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Consolidated
statements of cash flows data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash generated/(used in) from operating activities
|
|
|
213
|
|
|
|
3,851
|
|
|
|
631
|
|
|
|
(3,600
|
)
|
|
|
(60
|
)
|
Net cash
(used in)/generated from investing activities
|
|
|
(20
|
)
|
|
|
(126
|
)
|
|
|
(263
|
)
|
|
|
362
|
|
|
|
5,351
|
|
Net cash
(used in)/generated from financing activities
|
|
|
2,127
|
|
|
|
(6,435
|
)
|
|
|
2,225
|
|
|
|
1,396
|
|
|
|
(8,369
|
)
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Ownership days(1)
|
|
|
1,825
|
|
|
|
1,825
|
|
|
|
1,825
|
|
|
|
1,908
|
|
|
|
2,380
|
|
Available days(2)
|
|
|
1,788
|
|
|
|
1,755
|
|
|
|
1,787
|
|
|
|
1,885
|
|
|
|
2,336
|
|
Operating days(3)
|
|
|
1,756
|
|
|
|
1,723
|
|
|
|
1,745
|
|
|
|
1,830
|
|
|
|
2,252
|
|
Bareboat
charter days(4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
Fleet utilization(5)
|
|
|
98.2%
|
|
|
|
98.2%
|
|
|
|
97.6%
|
|
|
|
97.1%
|
|
|
|
96.4%
|
|
Average number of vessels(6)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.2
|
|
|
|
6.5
|
|
Daily time
charter equivalent (TCE) rate(7)
|
|
$
|
7,564
|
|
|
$
|
9,213
|
|
|
$
|
6,993
|
|
|
$
|
3,962
|
|
|
$
|
4,333
|
|
Daily operating
expenses(8)
|
|
$
|
4,867
|
|
|
$
|
5,438
|
|
|
$
|
5,005
|
|
|
$
|
4,553
|
|
|
$
|
4,337
|
|
(1) Ownership days are the aggregate number of days
in a period during which each vessel in our fleet has been owned by us.
(2) Available days are the number of our ownership
days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel
upgrades or special surveys.
(3) Operating days are the number of available days
in a period less the aggregate number of days that the vessels are off-hire due to any reason, including unforeseen circumstances.
(4) Bareboat charter days are the aggregate number
of days in a period during which the vessels in our fleet are subject to a bareboat charter.
(5) We calculate fleet utilization by dividing the
number of our operating days during a period by the number of our available days during the period.
(6) Average number of vessels is measured by the
sum of the number of days each vessel was part of our fleet during a relevant period divided by the number of calendar days in
such period.
(7) Time Charter Equivalent (TCE) rates are our
revenue less net revenue from our bareboat charters less voyage expenses during a period divided by the number of our available
days during the period excluding bareboat charter days. TCE is a measure not in accordance with generally accepted accounting principles,
or GAAP. Please read “Item 5. Operating and Financial Review and Prospects.”
(8) We calculate daily vessel operating expenses
by dividing vessel operating expenses by ownership days for the relevant time period excluding bareboat charter days.
The following table reflects the Voyage Revenues to
Daily Time Charter Equivalent Reconciliation for the periods presented.
|
|
Year Ended December 31,
|
|
|
|
(Expressed in Thousands of U.S. Dollars,
except number of days and daily TCE rates)
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
15,623
|
|
|
|
17,354
|
|
|
|
13,852
|
|
|
|
8,423
|
|
|
|
12,252
|
|
Less: Voyage
expenses
|
|
|
2,098
|
|
|
|
1,188
|
|
|
|
1,352
|
|
|
|
954
|
|
|
|
1,921
|
|
Less:
bareboat charter net revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
304
|
|
Net revenue
excluding bareboat charter net revenue
|
|
|
13,525
|
|
|
|
16,166
|
|
|
|
12,500
|
|
|
|
7,469
|
|
|
|
10,027
|
|
Available
days net of bareboat charter days
|
|
|
1,788
|
|
|
|
1,755
|
|
|
|
1,787
|
|
|
|
1,885
|
|
|
|
2,314
|
|
Daily TCE rate*
|
|
|
7,564
|
|
|
|
9,213
|
|
|
|
6,993
|
|
|
|
3,962
|
|
|
|
4,333
|
|
*The amounts are subject to rounding.
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for
the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
This annual report on Form 20-F contains forward-looking
statements and information within the meaning of U.S. securities laws that involve risks and uncertainties. Our actual results
may differ materially from the results discussed in the forward-looking statements and information. Factors that may cause such
a difference include those discussed below and elsewhere in this annual report on Form 20-F.
Some of the following risks relate principally to
the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership
of our common shares. The occurrence of any of the events described in this section could significantly and negatively affect our
business, financial condition, operating results, and ability to pay dividends or the trading price of our common shares.
Risks relating to Our Industry
The international dry bulk shipping industry
is cyclical and volatile.
The international seaborne transportation industry
is cyclical and has high volatility in charter rates, vessel values and profitability. Fluctuations in charter rates result from
changes in the supply and demand for vessel capacity and changes in the supply and demand for energy resources, commodities, semi-finished
and finished consumer and industrial products internationally carried at sea. Since the early part of 2009, rates have been volatile
and low, relative to previous years. In 2018 rates were relatively stable throughout the year. In 2019 although the rates reduced
again at the beginning, they reached a peak during the third quarter, followed by a decreasing trend again. In the beginning of
2020 the rates continued to drop and have reached close to the all-time low. Currently all of our vessels are chartered on short-term
time charters and on the spot market, and we are exposed therefore to changes in spot market and short-term charter rates for dry
bulk vessels and such changes affect our earnings and the value of our dry bulk vessels at any given time. The supply of and demand
for shipping capacity strongly influences freight rates. The factors affecting the supply and demand for vessels are outside of
our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
Factors that influence demand for vessel capacity include:
|
•
|
port and canal congestion charges;
|
|
•
|
general dry bulk shipping market conditions, including fluctuations in charterhire rates and vessel values and demand for and
production of dry bulk products;
|
|
•
|
global and regional economic and political conditions, including exchange rates, trade deals, and the rate and geographic distributions
of economic growth;
|
|
•
|
environmental and other regulatory developments;
|
|
•
|
the distance dry bulk cargoes are to be moved by sea;
|
|
•
|
changes in seaborne and other transportation patterns; and
|
|
•
|
natural disasters and/or world pandemics such as the COVID-19 that has disrupted the markets worldwide.
|
Factors that influence the supply of vessel capacity
include:
|
•
|
the size of the newbuilding orderbook;
|
|
•
|
the price of steel and vessel equipment;
|
|
•
|
technological advances in vessel design and capacity;
|
|
•
|
the number of newbuild deliveries, which among other factors relates to the ability of shipyards to deliver newbuilds by contracted
delivery dates and the ability of purchasers to finance such newbuilds;
|
|
•
|
the scrapping rate of older vessels;
|
|
•
|
port and canal congestion;
|
|
•
|
the number of vessels that are in or out of service, including due to vessel casualties; and
|
|
•
|
changes in environmental and other regulations that may limit the useful lives of vessels.
|
In addition to the prevailing and anticipated freight
rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values
in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys,
normal maintenance costs, insurance coverage costs, the efficiency and age profile of the existing dry bulk fleet in the market,
and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations.
These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to
correctly assess the nature, timing and degree of changes in industry conditions.
We anticipate that the future demand for our dry bulk
vessels and charter rates will be dependent upon continued economic growth in the world’s economies, seasonal and regional
changes in demand and changes to the capacity of the global dry bulk vessel fleet and the sources and supply of dry bulk cargo
to be transported by sea. Adverse economic, political, social or other developments could negatively impact charter rates and therefore
have a material adverse effect on our business, results of operations and ability to pay dividends. We may also decide that it
makes economic sense to lay up one or more vessels. While our vessels are laid up, we will pay lay-up costs, but those vessels
will not be able to earn any hire.
The dry bulk vessel charter market remains significantly
below its high in 2008.
The revenues, earnings and profitability of companies
in our industry are affected by the charter rates that can be obtained in the market, which is volatile and has experienced significant
declines since its highs in the middle of 2008. The Baltic Dry Index, or the BDI, which is published daily by the Baltic Exchange
Limited, or the Baltic Exchange, a London-based membership organization that provides daily shipping market information to the
global investing community, is an average of selected ship brokers’ assessments of time charter rates paid by a customer
to hire a dry bulk vessel to transport dry bulk cargoes by sea. The BDI has long been viewed as the main benchmark to monitor the
movements of the dry bulk vessel charter market and the performance of the entire dry bulk shipping market. The BDI declined from
a high of 11,793 in May 2008 to a low of 663 in December 2008, which represents a decline of 94% within a single calendar year.
Since 2009, the BDI has remained fairly depressed compared to historical numbers. The BDI reached a new all-time low of 290 on
February 10, 2016. In 2017 rates increased and the BDI went as high as 1,743 on December 12, 2017. In 2018 the BDI ranged from
948 to 1,774 and in 2019 from 595 to 2,518. On February 10, 2020, the BDI dropped to 411, representing an over 80% decrease from
the rates in the third quarter of 2019. The dry bulk market remains volatile and significantly depressed.
The decline and volatility in charter rates in the
dry bulk market also affects the value of our dry bulk vessels, which follows the trends of dry bulk charter rates, and earnings
on our charters, and similarly affects our cash flows, liquidity and compliance with the covenants contained in our loan arrangements.
The international shipping industry and dry bulk
market are highly competitive.
The shipping industry and dry bulk market are capital
intensive and highly fragmented with many charterers, owners and operators of vessels and are characterized by intense competition.
Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. The trend
towards consolidation in the industry is creating an increasing number of global enterprises capable of competing in multiple markets,
which may result in a greater competitive threat to us. Our competitors may be better positioned to devote greater resources to
the development, promotion and employment of their businesses than we are. Competition for the transportation of cargo by sea is
intense and depends on customer relationships, operating expertise, professional reputation, price, location, size, age, environmental,
social, and governance criteria, condition and the acceptability of the vessel and its operators to the charterers. Competition
may increase in some or all of our principal markets, including with the entry of new competitors, who may operate larger fleets
through consolidations or acquisitions and may be able to sustain lower charter rates and offer higher quality vessels than we
are able to offer. We may not be able to continue to compete successfully or effectively with our competitors and our competitive
position may be eroded in the future, which could have an adverse effect on our fleet utilization and, accordingly, business, financial
condition, results of operations and ability to pay dividends.
The Euro may not be stable and countries may
not be able to refinance their debts.
As a result of the credit crisis in Europe, in particular
in Greece, Cyprus, Italy, Ireland, Portugal and Spain, concerns persist regarding the debt burden of certain Eurozone countries
and their ability to meet future financial obligations and the overall stability of the Euro. Despite efforts by European Council
in establishing the European Financial Stability Facility and the European Stability Mechanism, and the work of central bankers
to renegotiate sovereign debt, concerns persist regarding the debt burden of Eurozone countries, their ability to meet future financial
obligations, and the overall stability of the Euro. As we earn revenue in United States Dollars, the strengthening of the Euro
(with which we pay some of our expenses) as compared to the United States Dollar could increase our expenses. An extended period
of adverse development in the outlook for European countries could reduce the overall demand for dry bulk cargoes and for our services.
We are exposed to political,
social and macroeconomic risks relating to the United Kingdom’s exit from the European Union.
In January 2020, the United
Kingdom withdrew from the European Union (commonly referred to as “Brexit”). There are a number of areas of uncertainty
in connection with the future of the United Kingdom and its relationship with the EU, which uncertainty may take years to fully
resolve. It is not currently possible to determine the impact that the United Kingdom’s departure from the EU and/or any
related matters may have on general economic conditions in the United Kingdom or the EU. The exit of the United Kingdom (or any
other country) from the EU or prolonged periods of uncertainty relating to any of these possibilities could result in significant
macroeconomic deterioration, including, but not limited to, further decreases in global stock exchange indices,
increased foreign exchange volatility, decreased GDP in the European Union or other markets in which we operate, issues with cross-border
trade, political and regulatory uncertainty and further sovereign credit downgrades. In addition, there could be changes to tax
regulation affecting the repatriation of dividends from other countries, which may negatively affect us. Additionally, the impact
of potential changes to the United Kingdom’s migration policy could adversely impact our employees of non-U.K. nationality
currently working in the United Kingdom as well as have an uncertain impact on cross-border labor. The potential loss of the
EU “passport”, or any other potential restrictions on free travel of UK citizens to Europe, and vice versa, could adversely
impact the jobs market in general and our operations in Europe. Finally, Brexit is likely to lead to legal uncertainty in areas
such as data protection, taxation, and potentially divergent national laws and regulations as the UK determines which EU laws to
replace or replicate, including the GDPR. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect
our business, results of operations and financial condition.
Disruptions in global financial markets from terrorist
attacks, regional armed conflicts, general political unrest, the emergence of a pandemic or epidemic crisis and the resulting governmental
action could have a material adverse impact on our results of operations, financial condition and cash flows.
Terrorist attacks in certain parts of the world and
the continuing response of the United States and other countries to these attacks, as well as the threat of future terrorist attacks,
continue to cause uncertainty and volatility in the world financial markets and may affect our business, results of operations
and financial condition. The continuing refugee crisis in the European Union, the continuing war in Syria and the presence of terrorist
organizations in the Middle East, conflicts and turmoil in Yemen, Iraq, Afghanistan and Iran, general political unrest in Ukraine,
political tension, continuing concerns relating to Brexit (as defined herein), concerns regarding the recent emergence of the COVID19,
and its spread throughout Asia, Europe, North America and other parts of the world, and other viral outbreaks or conflicts in the
Asia Pacific Region such as in the South China Sea, mainland China and North Korea have led to increased volatility in global credit
and equity markets. Further, as a result of the ongoing political, social and economic turmoil in Greece resulting from the sovereign
debt crisis and the influx of refugees from Syria and other areas, the operations of our Manager located in Greece may be subjected
to new regulations and potential shift in government policies that may require us to incur new or additional compliance or other
administrative costs and may require the payment of new taxes or other fees. We also face the risk that strikes, work stoppages,
civil unrest and violence within Greece may disrupt the shoreside operations of our Manager located in Greece.
In addition, global financial markets and economic
conditions have been severely disrupted and volatile in recent years and remain subject to significant vulnerabilities, such as
the deterioration of fiscal balances and the rapid accumulation of public debt, continued deleveraging in the banking sector and
a limited supply of credit. Credit markets as well as the debt and equity capital markets were exceedingly distressed during 2008
and 2009 and have been volatile since that time. The resulting uncertainty and volatility in the global financial markets may accordingly
affect our business, results of operations and financial condition. These uncertainties, as well as future hostilities or other
political instability in regions where our vessels trade, could also affect trade volumes and patterns and adversely affect our
operations, and otherwise have a material adverse effect on our business, results of operations and financial condition, as well
as our cash flows and cash available for distributions to our shareholders.
Specifically, these issues, along with the re-pricing
of credit risk and the difficulties currently experienced by financial institutions, have made, and will likely continue to make
it difficult to obtain financing. As a result of the disruptions in the credit markets and higher capital requirements, many lenders
have increased margins on lending rates, enacted tighter lending standards, required more restrictive terms (including higher collateral
ratios for advances, shorter maturities and smaller loan amounts), or have refused to refinance existing debt at all. Furthermore,
certain banks that have historically been significant lenders to the shipping industry have reduced or ceased lending activities
in the shipping industry. Additional tightening of capital requirements and the resulting policies adopted by lenders, could further
reduce lending activities. We may experience difficulties obtaining financing commitments or be unable to fully draw on the capacity
under our committed term loans in the future if our lenders are unwilling to extend financing to us or unable to meet their funding
obligations due to their own liquidity, capital or solvency issues. We cannot be certain that financing will be available on acceptable
terms or at all. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet
our future obligations as they come due. Our failure to obtain such funds could have a material adverse effect on our business,
results of operations and financial condition, as well as our cash flows, including cash available for distributions to our shareholders.
In the absence of available financing, we also may be unable to take advantage of business opportunities or respond to competitive
pressures.
The current state of the global financial markets
and current economic conditions may adversely impact the dry bulk shipping industry.
Global financial markets and economic conditions have
been, and continue to be, volatile. Recently, operating businesses in the global economy have faced tightening credit, weakening
demand for goods and services, deteriorating international liquidity conditions, and declining markets. There has been a general
decline in the willingness by banks and other financial institutions to extend credit, particularly in the shipping industry, due
to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit
to finance and expand operations, it has been negatively affected by this decline.
Also, as a result of concerns about the stability of
financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets
has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt
at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these
factors, we cannot be certain that financing will be available if needed and to the extent required, on acceptable terms. If financing
is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come
due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of
business opportunities as they arise.
If the current global economic environment persists
or worsens, we may be negatively affected in the following ways:
|
•
|
we may not be able to employ our vessels at charter rates as favorable to us as historical rates or operate our vessels profitably;
and
|
|
•
|
the market value of our vessels could decrease, which may cause us to recognize losses if any of our vessels are sold.
|
In addition, lower demand for dry bulk cargoes as well
as diminished trade credit available for the delivery of such cargoes have led to decreased demand for dry bulk carriers, creating
downward pressure on charter rates and vessel values. The relatively weak global economic conditions have and may continue to have
a number of adverse consequences for dry bulk and other shipping sectors, including, among other things:
|
•
|
low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
|
|
•
|
decreases in the market value of dry bulk vessels and limited secondhand market for the sale of vessels;
|
|
•
|
limited financing for vessels;
|
|
•
|
widespread loan covenant defaults; and
|
|
•
|
declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.
|
The occurrence of any of the foregoing could have a
material adverse effect on our business, results of operations, cash flows and financial condition. We may also decide that it
makes economic sense to lay up one or more vessels. While our vessels are laid up, we will pay lay-up costs, but those vessels
will not be able to earn any hire.
We depend on spot charters in volatile shipping
markets.
We currently charter all five vessels we own on the
spot charter market. The spot charter market is highly competitive and spot charter rates may fluctuate significantly based upon
available charters and the supply of and demand for seaborne shipping capacity. While our focus on the spot market may enable us
to benefit if industry conditions strengthen, we must consistently procure spot charter business. Conversely, such dependence makes
us vulnerable to declining market rates for spot charters and to the off-hire periods including ballast passages. Rates within
the spot charter market are subject to volatile fluctuations while longer-term time charters provide income at pre-determined rates
over more extended periods of time. There can be no assurance that we will be successful in keeping our vessels fully employed
in these short-term markets or that future spot rates will be sufficient to enable the vessels to be operated profitably. At current
spot charter rates, we don’t believe that we will be operating profitably. A significant decrease in charter rates would
affect value and further adversely affect our profitability, cash flows and ability to pay dividends. We cannot give assurances
that future available spot charters will enable us to operate our vessels profitably.
We may also decide that it makes economic sense to
lay up one or more vessels. While our vessels are laid up, we will pay lay-up costs, but those vessels will not be able to earn
any hire.
An over-supply of dry bulk carrier capacity may depress charter rates.
The market supply of dry bulk vessels has been increasing
as a result of the delivery of numerous newbuilding orders over the last few years. Newbuildings were delivered in significant
numbers starting at the beginning of 2006 and continued to be delivered through 2019, even though the fleet growth percentage has
substantially reduced during the last years. An oversupply of dry bulk vessel capacity, particularly during a period of economic
recession, may result in a reduction of charter hire rates. If we cannot enter into charters on acceptable terms, we may have to
secure charters on the spot market, where charter rates are more volatile and revenues are, therefore, less predictable, or we
may not be able to charter our vessels at all. In addition, a material increase in the net supply of dry bulk vessel capacity without
corresponding growth in dry bulk vessel demand could have a material adverse effect on our fleet utilization (including ballast
days) and our charter rates generally, and could, accordingly, materially adversely affect our business, financial condition, results
of operations and ability to pay dividends.
We may also decide that it makes economic sense to
lay up one or more vessels. While our vessels are laid up, we will pay lay-up costs, but those vessels will not be able to earn
any hire.
The market values of our vessels have declined,
and may decline further and have triggered certain financial covenants under our existing and potentially future loan and credit
facilities.
The market value of dry bulk vessels has generally
experienced high volatility, and is currently at a low value. The market prices for secondhand and newbuilding dry bulk vessels
in the recent past have declined from historically high levels to low levels within a short period of time. Especially, as of December
31, 2019, the Company concluded that the recoverable amounts of the vessels were lower than their carrying amounts and recognized
an impairment loss of approximately $29.9 million. The market value of our vessels may increase and decrease depending on a number
of factors including:
|
|
|
|
»
|
prevailing level of charter rates;
|
|
»
|
age of vessels;
|
|
»
|
the environmental friendliness of our vessels;
|
|
»
|
general economic and market conditions affecting the shipping industry;
|
|
»
|
competition from other shipping companies;
|
|
»
|
configurations, sizes and ages of vessels;
|
|
»
|
supply and demand for vessels;
|
|
»
|
other modes of transportation;
|
|
»
|
governmental or other regulations; and
|
|
»
|
technological advances.
|
Our loan agreement with EnTrust Global’s Blue
Ocean Fund (“EnTrust Loan Facility”) is secured by mortgages on our vessels, and requires us to maintain specified
collateral coverage ratios and to satisfy financial covenants, including requirements based on the market value of our vessels
and our liquidity. Our previous loan facilities had similar requirements, and we expect any future loan agreements to have similar
collateral requirements and provisions. Since the middle of 2008, the prevailing conditions in the dry bulk charter market coupled
with the general difficulty in obtaining financing for vessel purchases have led to a significant decline in the market values
of our vessels. Furthermore, such loan agreement contains a cross-default provision that may be triggered by a default under any
other financial indebtedness we may incur in an aggregate amount greater than $1,000,000. Our Convertible Note (“for details
see Item 4. Information on the Company”) also contains a cross-default provision that is triggered upon a material
default or an event of default under the existing agreements which would or is likely to have a material adverse effect on the
Company or any of its subsidiaries, individually or in the aggregate.
As of December 31, 2019, we satisfied the covenants
included in our EnTrust Loan Facility. For a more detailed discussion see Item 5.B Liquidity and Capital Resources—Indebtedness
and Note 11 in the Consolidated Financial Statements included herewith.
Further 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. Being in breach with the financial and other covenants under the EnTrust Loan Facility, our
lenders 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 would be very difficult in the current
financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders
foreclose upon their liens, which would adversely affect our business, financial condition, ability to continue our business and
pay dividends.
For a more detailed discussion on our loan covenants
and cross-default provisions, see “Item 5.B Liquidity and Capital Resources—Indebtedness.”
If we sell any vessel at a time when vessel prices
have fallen and before we have recorded an impairment adjustment to our consolidated financial statements, the sale price may be
agreed at a value lower than the vessel’s depreciated book value as in our consolidated financial statements at that time,
resulting in a loss and a respective reduction in earnings. If the market values of our vessels decrease, such decrease and its
effects could have a material adverse effect on our business, financial condition, results of operations and ability to pay dividends.
If a determination is made that a vessel’s future
useful life is limited or its future earnings capacity is reduced, it could result in an impairment of its value on our consolidated
financial statements that would result in a charge against our earnings and the reduction of our stockholders’ equity. These
impairment costs could be very substantial.
Our industry is subject to complex laws and regulations.
Our operations are subject to numerous laws and regulations
in the form of international conventions and treaties, national, state and local laws and national and international regulations
in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and
operation of our vessels. These requirements include but are not limited to: U.S. Oil Pollution Act 1990, as amended, which we
refer to as OPA; International Convention for the Safety of Life at Sea, 1974, as amended, which we refer to as SOLAS; International
Convention on Load Lines, 1966; International Convention for the Prevention of Pollution from Ships, 1973, as amended by the 1978
Protocol, which we refer to as MARPOL; International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, which
we refer to as the Bunker Convention; International Convention on Liability and Compensation for Damage in Connection with the
Carriage of Hazardous and Noxious Substances by Sea, 1996, as superseded by the 2010 Protocol, which we refer to as the HNS Convention;
International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by the 1992 Protocol and further amended
in 2000, which we refer to as the CLC; International Convention on the Establishment of an International Fund for Compensation
for Oil Pollution Damage, 1971, as amended, which we refer to as the Fund Convention; and Marine Transportation Security Act of
2002, which we refer to as the MTSA.
Government regulation of vessels, particularly in the
area of environmental requirements, can be expected to become more stringent in the future and could require us to incur significant
capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. Compliance
with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational changes
and increased management costs 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 water, recycling of vessels, maintenance and inspection, elimination of tin-based paint, development
and implementation of safety and emergency procedures and insurance coverage or other financial assurance of our ability to address
pollution incidents. For instance, the International Maritime Organization global 0.5% sulphur cap on marine fuels came into force
on January 1, 2020, as stipulated in 2008 amendments to Annex VI to the International Convention for the Prevention of Pollution
from ships (“MARPOL”). Our vessels require pricier low-sulphur fuel, which may reduce the amount charterers are willing
to pay to charter our vessels. These and other costs could have a material adverse effect on our business, results of operations,
cash flows and financial condition and our ability to pay dividends.
These requirements can also affect the resale prices
or useful lives of our vessels or require reductions in capacity, vessel modifications or operational changes or restrictions.
Failure to comply with these requirements could lead to decreased availability of or more costly insurance coverage for environmental
matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local,
national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup
obligations and claims for impairment of the environment, personal injury and property damages in the event that there is a release
of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. Violations of, or liabilities
under, environmental regulations can result in substantial penalties, fines and other sanctions, including, in certain instances,
seizure or detention of our vessels. Events of this nature would have a material adverse effect on our business, financial condition
and results of operations.
The operation of our vessels is affected by the requirements
set forth in the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code. The ISM
Code requires the party with operational control of the vessel to develop, implement and maintain 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 safe vessel operation and protection of the environment and describing procedures for dealing with emergencies.
Further details in relation to the ISM Code are set out below in the section headed “Environmental and Other Regulations”.
The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, and, if the
implementing legislation so provides, to criminal sanctions, may invalidate or result in the loss of 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.
In addition, if we fail to maintain ISM Code certification for our vessels, we may also breach covenants in certain of our credit
and loan facilities that require that our vessels be ISM-Code certified. If we breach such covenants due to failure to maintain
ISM Code certification and are unable to remedy the relevant breach, our lenders could accelerate our indebtedness and foreclose
on the vessels in our fleet securing those credit and loan facilities. As of the date of this annual report on Form 20-F, each
of our vessels is ISM Code-certified.
Climate change
and greenhouse gas restrictions may be imposed.
Due to concern over the risk of climate change, a number
of countries and the International Maritime Organization, or 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. For instance, the International Maritime
Organization imposed a global 0.5% sulphur cap on marine fuels which came into force on January 1, 2020. Our vessels do not have
scrubbers—air filters that remove sulphur, once burned, from the exhaust emitted by lower-cost, high-sulphur fuel, which
thereby allow ships to burn lower-cost, high-sulphur fuel despite the IMO’s cap on sulphur in marine fuels—and now
require pricier low-sulphur fuel, which may reduce the amount charterers are willing to pay to charter our vessels. In addition,
charterers may focus on how environmentally friendly our vessels are, generally, and our rates may be adjusted downwards accordingly.
We discuss this further in this annual report. See
“Business Overview—Environmental and Other Regulations—Regulations to Prevent Pollution from Ships”.
In addition, although the emissions of greenhouse
gases from international shipping currently are not 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, 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 could increase our costs related to operating and maintaining our 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.
We are dependent on our charterers and
other counterparties fulfilling their obligations under agreements with us, and their inability or unwillingness to honor these
obligations could significantly reduce our revenues and cash flow.
Payments to us by our charterers
under time charters are and will be our sole source of operating cash flow. Weaknesses in demand for container shipping services,
increased operating costs due to changes in environmental or other regulations and the oversupply of large containerships as well
as the oversupply of smaller size vessels due to a cascading effect would place our liner company customers under financial pressure.
Any declines in demand could result in worsening financial challenges to our liner company customers and may increase the likelihood
of one or more of our customers being unable or unwilling to pay us contracted charter rates or going bankrupt.
If we lose a time charter because the charterer is
unable to pay us or for any other reason, we may be unable to re-deploy the related vessel on similarly favorable terms or at all.
Also, we will not receive any revenues from such a vessel while it is un-chartered, but we will be required to pay expenses necessary
to maintain and insure the vessel and service any indebtedness on it. The combination of any surplus of containership capacity,
the expected entry into service of new technologically advanced containerships, and the expected increase in the size of the world
containership fleet over the next few years may make it difficult to secure substitute employment for any of our containerships
if our counterparties fail to perform their obligations under the currently arranged time charters, and any new charter arrangements
we are able to secure may be at lower rates. Furthermore, the surplus of containerships available at lower charter rates and lack
of demand for our customers’ liner services could negatively affect our charterers’ willingness to perform their obligations
under our time charters, particularly if the charter rates in such time charters are significantly above the prevailing market
rates. Accordingly we may have to grant concessions to our charterers in the form of lower charter rates for the remaining duration
of the relevant charter or part thereof, or to agree to re-charter vessels coming off charter at reduced rates compared to the
charter then ended. Because we enter into short-term and medium-term time charters from time-to-time, we may need to re-charter
vessels coming off charter more frequently than some of our competitors, which may have a material adverse effect on business,
results of operations and financial condition, as well as our cash flows, including cash available for distributions to our shareholders.
The loss of any of our charterers, time charters or
vessels, or a decline in payments under our time charters, could have a material adverse effect on our business, results of operations
and financial condition, as well as our cash flows, including cash available for distributions to our shareholders.
In addition to charter parties, we may, among other
things, enter into contracts for the sale or purchase of secondhand containerships or, in the future, shipbuilding contracts for
newbuildings, provide performance guarantees relating to shipbuilding contracts to sale and purchase contracts or to charters,
enter into credit facilities or other financing arrangements, accept commitment letters from banks, or enter into insurance contracts
and interest or exchange rate swaps or enter into joint ventures. Such agreements expose us to counterparty credit risk. The ability
and willingness of each of our counterparties to perform its obligations under a contract with us will depend upon a number of
factors that are beyond our control and may include, among other things, general economic conditions, the state of the capital
markets, the condition of the ocean-going container shipping industry and charter hire rates. Should a counterparty fail to honor
its obligations under agreements with us, we could sustain significant losses, which in turn could have a material adverse effect
on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions
to our shareholders.
Capital expenditures and other costs necessary
to operate and maintain our vessels may increase.
Changes in safety or other equipment standards, as
well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may
require us to make additional expenditures. In order to satisfy these requirements, we may, from time to time, be required to take
our vessels out of service for extended periods of time, with corresponding losses of revenues. In the future, market conditions
may not justify these expenditures or enable us to operate some or all of our vessels profitably during the remainder of their
economic lives.
Seasonal fluctuations in industry demand could
affect us.
We operate our vessels in markets that have historically
exhibited seasonal variations in demand and, as a result, in charter rates. This seasonality may result in quarter-to-quarter volatility
in our results of operations, which could affect the amount of dividends, if any, that we pay to our shareholders. The market for
marine dry bulk transportation services is typically stronger in the fall and winter months in anticipation of increased consumption
of coal and other raw materials in the northern hemisphere during the winter months. In addition, unpredictable weather patterns
in these months tend to disrupt vessel scheduling and supplies of certain commodities. This seasonality could have a material adverse
effect on our business, financial condition and results of operations.
We may also decide that it makes economic sense to
lay up one or more vessels. While our vessels are laid up, we will pay lay-up costs, but those vessels will not be able to earn
any hire.
Our insurance may not be adequate to cover our
losses that may result from our operations.
We carry insurance to protect us against most of the
accident-related risks involved in the conduct of our business, including marine hull and machinery insurance, war risk insurance,
protection and indemnity insurance, which includes pollution risks, crew insurance and war risk insurance. However, we may not
be adequately insured to cover losses from our operational 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 and financial condition and our ability to pay dividends. It may also result in protracted legal litigation. In addition,
we may not be able to obtain adequate insurance coverage at reasonable rates in the future during adverse insurance market conditions.
We maintain, for each of our vessels, pollution liability coverage insurance for $1.0 billion per event. If damages from a catastrophic
spill exceed our insurance coverage, it would have a materially adverse effect on our business, results of operations and financial
condition and our ability to pay dividends to our shareholders.
Moreover, insurers have over the last few years increased
premiums and reduced or restricted coverage for losses caused by terrorist acts generally.
In addition, we do not currently carry and may not
carry loss-of-hire insurance, which covers 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. Accordingly, any loss of a vessel or extended vessel
off-hire, due to an accident or otherwise, could have a material adverse effect on our business, results of operations, financial
condition and our ability to pay dividends.
Our vessels are exposed to operational risks.
The operation of any vessel includes risks such as
weather conditions, mechanical failure, collision, fire, contact with floating objects, cargo or property loss or damage and business
interruption due to political circumstances in countries, piracy, terrorist attacks, armed hostilities and labor strikes. Such
occurrences could result in death or injury to persons, loss, damage or destruction of property or environmental damage, delays
in the delivery of cargo, loss of revenues from or termination of charter contracts, governmental fines, penalties or restrictions
on conducting business, higher insurance rates and damage to our reputation and customer relationships generally.
In the past, political conflicts have also resulted
in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf
region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea, the Gulf of Aden
and parts of the Indian Ocean and West Africa. Continuing conflicts and recent developments in the Middle East and North Africa,
including Egypt, Syria, Iran, Iraq and Libya, and the presence of United States and other armed forces in the Middle East and Asia
could produce armed conflict or be the target of terrorist attacks, and lead to civil disturbance and uncertainty in financial
markets. If these attacks and other disruptions result in areas where our vessels are deployed being characterized by insurers
as “war risk” zones or Joint War Committee “war, strikes, terrorism and related perils” listed areas, premiums
payable for such coverage could increase significantly and such insurance coverage may be more difficult or impossible to obtain.
In addition, there is always the possibility of a marine disaster, including oil spills and other environmental damage. Although
our vessels carry a relatively small amount of oil used for fuel (“bunkers”), a spill of oil from one of our vessels
or losses as a result of fire or explosion could be catastrophic under certain circumstances.
We may not be adequately insured against all risks,
and our insurers may not pay particular claims. With respect to war risks insurance, which we usually obtain for certain of our
vessels making port calls in designated war zone areas, such insurance may not be obtained prior to one of our vessels entering
into an actual war zone, which could result in that vessel not being insured. Even if our insurance coverage is adequate to cover
our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Under the terms of our credit facilities,
we will be subject to restrictions on the use of any proceeds we may receive from claims under our insurance policies. Furthermore,
in the future, we may not be able to maintain or obtain adequate insurance coverage at reasonable rates for our fleet. We may also
be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members
of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance
policies also contain deductibles, limitations and exclusions which may increase our costs in the event of a claim or decrease
any recovery in the event of a loss. If the damages from a catastrophic oil spill or other marine disaster exceeded our insurance
coverage, the payment of those damages could have a material adverse effect on our business and could possibly result in our insolvency.
In general, we do not carry loss of hire insurance.
Occasionally, we may decide to carry loss of hire insurance when our vessels are trading in areas where a history of piracy has
been reported. Loss of hire insurance covers the loss of revenue during extended vessel off-hire periods, such as those that occur
during an unscheduled drydocking or unscheduled repairs due to damage to the vessel. Accordingly, any loss of a vessel or any extended
period of vessel off- hire, due to an accident or otherwise, could have a material adverse effect on our business, financial condition
and results of operations.
We may also decide that it makes economic sense to
lay up one or more vessels. While our vessels are laid up, we will pay lay-up costs, but those vessels will not be able to earn
any hire.
We may be subject to funding calls by our protection
and indemnity clubs, and our clubs may not have enough resources to cover claims made against them.
We are indemnified for legal liabilities incurred while
operating our vessels through membership of protection and indemnity, or P&I, associations, otherwise known as P&I clubs.
P&I clubs are mutual insurance clubs whose members must contribute to cover losses sustained by other club members. The objective
of a P&I club is to provide mutual insurance based on the aggregate tonnage of a member’s vessels entered into the club.
Claims are paid through the aggregate premiums of all members of the club, although members remain subject to calls for additional
funds if the aggregate premiums are insufficient to cover claims submitted to the club. Claims submitted to the club may include
those incurred by members of the club, as well as claims submitted by other P&I clubs with which our club has entered into
interclub agreements. We cannot assure you that the P&I club to which we belong will remain viable or that we will not become
subject to additional funding calls, which could adversely affect us.
We may be subject to increased inspection procedures,
tighter import and export controls and new security regulations.
International shipping is subject to various security
and customs inspection and related procedures in countries of origin and destination and trans-shipment points. Inspection procedures
can result in the seizure of the cargo and contents of our vessels, delays in the loading, offloading or delivery and the levying
of customs duties, fines or other penalties against us. It is possible that changes to inspection procedures could impose additional
financial and legal obligations on us. 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 impractical. Any such changes or developments
may have a material adverse effect on our business, financial condition, results of operations and our ability to pay dividends.
Rising fuel prices may adversely affect our profits.
Fuel is a significant, if not the largest, 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 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
the Organization of the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries
and regions, regional production patterns and environmental concerns. 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.
A global 0.5% sulphur cap on marine fuels came into
force on January 1, 2020. Because we do not have scrubbers on our vessels, our vessels require pricier low-sulphur fuel, which
may reduce the amount charterers are willing to pay to charter our vessels. This could have a material adverse effect on our business,
results of operations, cash flows and financial condition and our ability to pay dividends.
Increases in crew costs may adversely affect
our profits.
Crew costs are a significant expense for us under our
charters. There is a limited supply of well-qualified crew. We generally bear crewing costs under our charters. Increases in crew
costs may adversely affect our profitability.
The operation of dry bulk vessels has certain
unique operational risks.
The operation of certain vessel types, such as dry
bulk vessels, has certain unique risks. With a dry bulk vessel, the cargo itself and its interaction with the vessel can be a risk
factor. By their nature, dry bulk cargoes are often heavy, dense, easily shifted and react badly to water exposure. In addition,
dry bulk vessels are often subjected to battering during unloading operations with grabs, jackhammers (to pry encrusted cargoes
out of the hold) and small bulldozers. This may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures
may be more susceptible to breach while at sea. Hull breaches in dry bulk vessels may lead to the flooding of the vessels holds.
If a dry bulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure
may buckle the vessels bulkheads leading to the loss of a vessel. If we are unable to adequately maintain our vessels we may be
unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition,
results of operations and ability to pay dividends. In addition, the loss of any of our vessels could harm our reputation as a
safe and reliable vessel owner and operator.
Maritime claimants could arrest our vessels.
Crew members, suppliers of goods and services to a
vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel, or other assets of the relevant
vessel-owning company, for unsatisfied debts, claims or damages even if we are not at fault, for example, if we pay a supplier
for bunkers who subcontracts the supply and does not pay such subcontractor. In many jurisdictions, a claimant may seek to obtain
security for its claim by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels,
could cause us to default on a charter, breach covenants in the EnTrust Loan Facility, interrupt our cash flow and require us to
pay large sums of money to have the arrest or attachment lifted. Please see “Item 5.B. Liquidity and Capital Resources—Indebtedness”
for further information.
In addition, in some jurisdictions, such as South Africa,
under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s
maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could
attempt to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our vessels.
Governments could requisition our vessels during
a period of war or emergency.
A government could requisition one or more of our vessels
for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes 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 governments may elect to requisition vessels in other circumstances.
Even if we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing
of payment would be uncertain. Government requisition of one or more of our vessels may negatively impact our business, financial
condition, results of operations and ability to pay dividends.
Compliance with safety and other vessel requirements
imposed by classification societies may be costly.
The hull and machinery of every commercial vessel must
be certified as safe and seaworthy in accordance with applicable rules and regulations, and accordingly vessels must undergo regular
surveys. All of the vessels that we operate or manage are classed by one of the major classification societies, including Nippon
Kaiji Kyokai (Class NK), DNV GL and Bureau Veritas. Vessels must undergo annual surveys, immediate surveys and special surveys.
In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be
surveyed over a five-year period. Our vessels are on special survey cycles for hull inspection and continuous survey cycles for
machinery inspection. Every vessel is also required to be drydocked every two to three years for inspection of its underwater parts.
If any vessel does not maintain its class and/or fails any annual, intermediate or special survey, certain covenants in the EnTrust
Loan Facility may be triggered, including as a result of the vessel being unable to trade between ports and being unemployable.
Such an occurrence could have a material adverse impact on our business, financial condition, results of operations and ability
to pay dividends. Please see “Item 5.B. Liquidity and Capital Resources—Indebtedness” for further information.
A further economic slowdown or changes in the
economic, regulatory and political environment in the Asia Pacific region could reduce dry bulk trade demand.
A significant number of the port calls made by our
vessels involve the transportation of dry bulk products to ports in the Asia Pacific region. As a result, continued economic slowdown
in the region or changes in the regulatory environment, and particularly in China or Japan, could have an adverse effect on our
business, results of operations, cash flows and financial condition. Before the global economic financial crisis that began in
2008, China had one of the world’s fastest growing economies as measured by gross domestic product, or GDP, which had a significant
impact on shipping demand. The growth rate of China’s GDP continues to remain lower than originally anticipated. In addition,
China previously imposed measures to restrain lending, which may further contribute to a slowdown in its economic growth. China
and other countries in the Asia Pacific region may continue to experience slowed or even negative economic growth in the future.
Many of the economic and political reforms adopted
by the Chinese government are unprecedented or experimental and may be subject to revision, change or abolition based upon the
outcome of such experiments. If the Chinese government does not continue to pursue a policy of economic reform, the level of imports
of exports of dry bulk products to and from China could be adversely affected by changes to these economic reforms by the Chinese
government, as well as by changes in political, economic and social conditions or other relevant policies of the Chinese government,
such as changes in laws, regulations or restrictions on importing commodities into the country. Notwithstanding economic reform,
the Chinese government may adopt policies that favor domestic shipping companies and may hinder our ability to compete with them
effectively. Moreover, a significant or protracted slowdown in the economies of the United States, the European Union or various
Asian countries or changes in the regulatory environment may adversely affect economic growth in China and elsewhere. Our business,
results of operations, cash flows and financial condition could be materially and adversely affected by an economic downturn or
changes in the regulatory environment in any of these countries.
The Coronavirus global pandemic could decrease
the demand and supply for the raw materials we transport and the rates that we are paid to carry them.
The World Health Organization has declared the outbreak
of a novel coronavirus (COVID-19) a global pandemic. The measures taken by governments worldwide in response to the outbreak, which
included numerous factory closures, self-quarantining, and restrictions on travel, as well as potential labor shortages resulting
from the outbreak, are expected to slow down production of goods worldwide and decrease the amount of goods exported and imported
worldwide. Some experts fear that the economic consequences of the coronavirus could cause a recession that outlives the pandemic.
Besides reducing demand for cargo, coronavirus may
functionally limit the amount of cargo that we and our competitors are able to move because countries worldwide have imposed quarantine
checks on arriving vessels, which have caused delays in loading and delivery of cargoes. It is possible that charterers may try
to invoke force majeure clauses as a result.
Although it is too early to assess the full impact
of the coronavirus outbreak on global markets, and particularly on the shipping industry, the pandemic has already added, and could
continue to add, pressure to shipping freight rates. Further depressed rates could have a material adverse impact on our business,
financial condition, results of operations, and cash flows. We note that future impacts may take some time to materialize and may
not be fully reflected in the results for the year ended December 31, 2019.
We conduct a substantial amount of business in
China.
The Chinese legal system is based on written statutes
and their legal interpretation by the Standing Committee of the National People’s Congress. Prior court decisions may be
cited for reference but have limited precedential value. Since 1979, the Chinese government has been developing a comprehensive
system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters
such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and
regulations are relatively new, there is a general lack of internal guidelines or authoritative interpretive guidance and because
of the limited number of published cases and their non-binding nature interpretation and enforcement of these laws and regulations
involve uncertainties. We conduct a substantial portion of our business in China or with Chinese counter parties. For example,
we enter into charters with Chinese customers, which charters may be subject to new regulations in China. We may, therefore, be
required to incur new or additional compliance or other administrative costs, and pay new taxes or other fees to the Chinese government.
Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect
our vessels that are either chartered to Chinese customers or that call to Chinese ports and could have a material adverse effect
on our business, results of operations and financial condition and our ability to pay dividends.
The Chinese economy differs from the economies of western
countries in such respects as structure, government involvement, level of development, growth rate, capital reinvestment, allocation
of resources, bank regulation, currency and monetary policy, rate of inflation and balance of payments position. Although state-owned
enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese government is reducing
the level of direct control that it exercises over the economy. There is an increasing level of freedom and autonomy in areas such
as allocation of resources, production, pricing and management and a gradual shift in emphasis to a “market economy”
and enterprise reform, although it still acts with greater control than a truly free-market economy. Many of the Chinese government’s
reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such experiments.
The level of imports to and exports from China could be adversely affected by the failure to continue market reforms or changes
to existing pro-export economic policies. The level of imports to and exports from China may also be adversely affected by changes
in political, economic and social conditions (including a slowing of economic growth), the coronavirus, or other relevant policies
of the Chinese government, such as changes in laws, regulations or export and import restrictions, internal political instability,
changes in currency policies, changes in trade policies and territorial or trade disputes. A decrease in the level of imports to
and exports from China could adversely affect our business, operating results and financial condition.
If economic conditions throughout the world do
not improve, it will impede our operations.
Negative trends in the global economy that emerged
in 2008 continue to adversely affect global economic conditions. In addition, the world economy continues to face a number of new
challenges, including uncertainty related to the winding down of the U.S. Federal Reserve’s bond buying program and declining
global growth rates. These challenges also include continuing turmoil and hostilities in the Middle East, Ukraine, North Africa,
the Middle East, and other geographic areas and countries and continuing economic weakness in the European Union. An extended period
of deterioration in the outlook for the world economy could increase our bunker prices and lessen overall demand for our services.
Such changes could adversely affect our results of operations and cash flows.
We face risks attendant to changes in economic
environments, changes in interest rates and instability in the banking and securities markets around the world, among other factors.
We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental
factors, together with the concurrent decline in charter rates and vessel values, may have a material adverse effect on our results
of operations and may cause the price of our common shares to decline.
Continued economic slowdown in the Asia Pacific region,
particularly in China, may exacerbate the effect on us, as we anticipate a significant number of the port calls made by our vessels
will continue to involve the loading or discharging of dry bulk commodities in ports in the Asia Pacific region. Before the global
economic financial crisis that began in 2008, China had one of the world’s fastest growing economies in terms of GDP, which
had a significant impact on shipping demand. The growth rate of China’s GDP is estimated by the National Bureau of Statistics
of China to have decreased from 6.6% for the former year of 2018 to approximately 6.3% for the year ended December 31, 2019, which
would be the lowest rate in 29 years. China has previously imposed measures to restrain lending, which may further contribute to
a slowdown in its economic growth. China has also announced plans to gradually transition from an investment led growth model to
a consumption driven economic growth model, which could lead to smaller demand for iron ore and other commodities. This transition
may take place over the span of a number of years, and there can be no assurance as to the time frame for such a transformation
or that any such transformation will occur at all. It is possible that China and other countries in the Asia Pacific region
will continue to experience slowed or even negative economic growth in the near future. Moreover, the current economic slowdown
in the economies of the United States, the European Union and other Asian countries may further adversely affect economic growth
in China and elsewhere. Our business, financial condition and results of operations, ability to pay dividends, if any, as well
as our future prospects, will likely be materially and adversely affected by a further economic downturn in any of these countries.
Sulphur regulations to reduce air pollution from
ships may require retrofitting of vessels and may cause us to incur significant costs.
January 1, 2020 was the implementation date for vessels
to comply with the IMO’s low sulphur fuel oil requirement, which cuts sulphur levels from 3.5% to 0.5%. 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% sulphur fuels on board, which costs more than higher Sulphur fuel; (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. Costs of compliance with these regulatory changes
may be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial
position. It is unclear how the new emissions standard will affect the employment of our vessels, given that the cost of fuel
is borne by our charterers when our vessels are on time charter employment. In particular, it is not known what the price differential
between high sulphur content fuel and the more expensive low sulphur fuel will be or if low sulphur fuel will be available in the
quantities needed at the areas where the vessels are trading. Over time, however, it is possible that ships not retrofitted to
comply with the new emissions standard may become less competitive (compared with ships equipped with exhaust gas scrubbers that
can utilize less expensive high sulphur fuel), may have difficulty finding employment, may command lower charter hire and/or may
need to be scrapped.
Environmental, social and governance matters
may impact our business and reputation.
In addition to the importance of their financial performance,
companies are increasingly being judged by their performance on a variety of environmental, social and governance matters, or ESG,
which are considered to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance
of companies on such ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that
specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have
publicly emphasized the importance of such ESG measures to their investment decisions. Topics taken into account in such assessments
include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law,
and the role of the company’s board of directors in supervising various sustainability issues.
We actively manage a broad range of such ESG matters,
taking into consideration their expected impact on the sustainability of our business over time, and the potential impact of our
business on society and the environment. However, in light of investors’ increased focus on ESG matters, there can be no
certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our
proper role. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and on
our business, share price, financial condition, or results of operations, including the sustainability of our business over time.
On December 31, 2018, EU-flagged vessels became subject
to Regulation (EU) No. 1257/2013 of the European Parliament and of the Council of 20 November 2013 on ship recycling (the “EU
Ship Recycling Regulation” or “ESRR”) and exempt from the Regulation (EC) No. 1013/2006 of the European Parliament
and of the Council of 14 June 2006 on shipments of waste (the “European Waste Shipment Regulation” or “EWSR”),
which had previously governed their disposal and recycling. The EWSR continues to be applicable to Non-European Union Member State-flagged
(“non-EU-flagged”) vessels.
Under the ESRR, commercial EU-flagged vessels of 500
gross tonnage and above may be recycled only at shipyards included on the European List of Authorised Ship Recycling Facilities
(the “European List”). As of December 31, 2019, 33 of our EU-flagged vessels met this tonnage specification. The European
List presently includes six facilities in Turkey, but no facilities in the major ship recycling countries in Asia. The combined
capacity of the European List facilities may prove insufficient to absorb the total recycling volume of EU-flagged vessels. This
circumstance, taken in tandem with the possible decrease in cash sales, may result in longer wait times for divestment of recyclable
vessels as well as downward pressure on the purchase prices offered by European List shipyards. Furthermore, facilities located
in the major ship recycling countries generally offer significantly higher vessel purchase prices, and as such, the requirement
that we utilize only European List shipyards may negatively impact revenue from the residual values of our vessels.
In addition, the EWSR requires that non-EU-flagged
ships departing from European Union ports be recycled only in Organisation for Economic Cooperation and Development (OECD) member
countries. In March 2018, the Rotterdam District Court ruled that the sale of four recyclable vessels by third-party Dutch ship
owner Seatrade to cash buyers, who then reflagged and resold the vessels to non-OECD country recycling yards, were effectively
indirect sales to non-OECD country yards, in violation of the EWSR. If European Union Member State courts widely adopt this analysis,
it may negatively impact revenue from the residual values of our vessels and we may be subject to a heightened risk of non-compliance,
due diligence obligations and costs in instances where we sell older ships to cash buyers.
Company Specific Risk Factors
There are substantial doubts about our ability
to continue as a going concern and if we are unable to continue our business, our shares may have little or no value.
We had a working capital deficit (being our total consolidated
current liabilities exceeding our total consolidated current assets) of $3.2 million as of December 31, 2019.
See “At December 31, 2019, Globus’s current
liabilities exceeded its current assets” for more information.
Our ability to become a profitable operating company
is dependent upon our ability to generate revenues and/or obtain financing adequate to fulfill our shipping activities, and achieving
a level of revenues adequate to support our operating expenses. Our inability to generate net revenues has raised substantial doubts
about our ability to continue as a going concern. All of our vessels are pledged as collateral for the benefit of our lenders,
and therefore if we were to sell one or more vessels, the net proceeds of such sale would be used first to repay the outstanding
debt to which the vessel is collateralized, and the remainder, if any, would be for our use, subject to the terms of our remaining
loan and credit arrangements. The doubts raised relating to our ability to continue as a going concern may make our securities
an unattractive investment for potential investors. These factors, among others, may make it difficult to raise any additional
capital.
At December 31, 2019, Globus’s current liabilities exceeded
its current assets.
As of December 31, 2019, we were in compliance with
the loan covenants of the EnTrust Loan Facility.
As of December 31, 2019, our working capital, measured
as our current assets, minus our current liabilities, including the current portion of long-term debt, amounted to a working capital
deficit of $3.2 million. Our total assets exceeded our total liabilities as of December 31, 2019.
Based on our cash flow projections for the twelve-month
period ending following the issuance of these consolidated financial statements, cash on hand and cash generated from operating
activities will not be sufficient for us to be in compliance with the minimum liquidity requirement contained in certain of our
loan and credit facilities or to cover scheduled debt payments due in this period. The period of time that we will be able to continue
to operate as a going concern will depend on our ability to restructure our loan and credit arrangements and to finance our operations
through the sale of equity, potential sale of assets, incurring debt, or other financing alternatives. All of our vessels are pledged
as collateral to the banks, and therefore if we were to sell one or more vessels, the net proceeds of such sale would be used first
to repay the outstanding debt to which the vessel is collateralized, and the remainder, if any, would be for our use, subject to
the terms of our remaining loan and credit arrangements. We acknowledge that uncertainty remains over our ability to meet our liabilities
as they fall due. If for any reason we are unable to continue as a going concern, our investors may lose all or a portion of their
investment, and we may be unable to pay all of our outstanding debts and other obligations.
Our convertible note may be redeemed under circumstances out of our
control.
Under the terms of the convertible note, the convertible
note may be redeemed or immediately due upon an Event of Default (as defined within the convertible note), a Change of Control
(as defined within the convertible note), or a ten trading day period in which our stock trades below the Floor Price then in effect,
in some cases at a premium to the principal and interest outstanding under the convertible note. Some of the events giving rise
to these rights are out of the Company’s immediate control (such as our stock price being below the floor price, which has
already occurred), and could trigger cross-default provisions under our other loan agreements. If we are unable to come up with
the cash when due, we may be unable to pay the redemption price, which could negatively affect our stork price.
Restrictive covenants in the EnTrust Loan Facility may impose financial
and other restrictions on us, including cross-default provisions, and we cannot assure you that we will be able to borrow funds
from future debt arrangements.
The EnTrust Loan Facility imposes operating and financial
restrictions on us. These restrictions may limit our ability to, among other things:
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create or permit liens on our assets;
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engage in mergers or consolidations, or sales of certain of our assets;
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change the flag or classification society of our vessels;
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change the management of our vessels.
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These restrictions could limit our ability to finance
our future operations or capital needs, make acquisitions or pursue available business opportunities. In addition, the EnTrust
Loan Facility will, and future credit arrangements will likely, require us to maintain specified financial ratios and satisfy financial
covenants during the remaining terms of such agreements, some of which are based upon the market value of our fleet. If the market
value of our fleet declines sharply, we may not be in compliance with certain provisions of the EnTrust Loan Facility, and we may
not be able to refinance our debt or obtain additional financing. The market value of dry bulk vessels is sensitive, among other
things, to changes in the dry bulk charter market, with vessel values deteriorating in times when dry bulk charter rates are falling
and improving when charter rates are anticipated to rise. The current low charter rates in the dry bulk market, along with the
oversupply of dry bulk carriers and the prevailing difficulty in obtaining financing for vessel purchases, have adversely affected
dry bulk vessel values, including the vessels in our fleet. As a result, we may not meet certain minimum asset coverage ratios
and other financial ratios which are included in our loan arrangement.
For a more detailed discussion on our loan covenants,
including breaches of them and relaxations and/or waivers we obtained, see “Item 5.B Liquidity and Capital Resources—Indebtedness.”
Certain of our loan agreements include covenants regarding the continued
service of our officers and directors or minimum equity interest held by our chairman, Mr. Feidakis and trigger default under cross-default
provision.
The Fiment Shipping Credit Agreement includes covenants
regarding the continued service of our officers and directors, including the continued service of Mr. Athanasios Feidakis as Chief
Executive Officer, which covenants would be breached if certain of our officers or directors resigned, died, were not reelected,
or otherwise could not continue to serve the Company in such capacity. If one of those events occurred, the lender under this loan
agreement could declare an event of default. Additionally, the acquisition of control of the Company by any person or group of
persons acting in concert constitutes an event of default under the EnTrust Loan Facility, and a reduction in the equity interest
held by our chairman Mr. George Feidakis below 40% of the voting securities or economic interest in the Company, other than due
to actions taken by Mr. George Feidakis (such as sale of shares by such major shareholder), constitutes an event of default under
the Firment Shipping Credit Facility.
The EnTrust Loan Facility contains a cross-default
provision that may be triggered by a default under any financial indebtedness we may incur in an amount greater than $1,000,000.
A cross-default provision means that a default on one loan could result in a default on all of our other loans. Because of the
presence of this cross-default provision in such loan facility, the refusal of any one lender to grant or extend a relaxation or
waiver could result in most of our indebtedness being accelerated even if our other lenders have relaxed or waived covenant defaults
under their respective loan arrangements. Our Convertible Note also contains a cross-default provision that is triggered upon a
material default or an event of default under the existing agreements which would or is likely to have a material adverse effect
on the Company or any of its subsidiaries, individually or in the aggregate. If our indebtedness is accelerated, it will be very
difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our
vessels if our lenders foreclose their liens, and our ability to conduct our business would be severely impaired.
Our stock price has been volatile and no assurance
can be made that it will not substantially depreciate.
Our stock price has been volatile
recently. The closing price of our common shares within 2019 has ranged from a peak of $8.54 on March 11, 2019 to a low of $0.96
on December 23, 2019, representing a decrease of 89%. We can offer no comfort or assurance that our stock price will stop being
volatile or not substantially depreciate. Our stock further declined in 2020 and was $0.49 on February 25, 2020. On March 6, 2020,
we announced that we had received written notification from The Nasdaq Stock Market dated March 2, 2020, indicating that because
the closing bid price of our common stock for the last 30 consecutive business days was below $1.00 per share, we no longer meet
the minimum bid price continued listing requirement for the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5450(a)(1).
Pursuant to Nasdaq Listing Rules, the applicable grace period to regain compliance is 180 days, or until August 31, 2020. We intend
to cure the deficiency within the prescribed grace period. During this time, our common stock will continue to be listed and trade
on the Nasdaq Capital Market.
Our existing shareholders will be diluted each
time our convertible note is converted into common shares.
Our convertible note is convertible
into shares of our common stock at the election of its holder at a fixed price of $4.50, or if our common stock price is lower
than $4.50 after June 7, 2019, a floating conversion price at a discount to the market price of our common stock.
A blocker provision limits
the ability of the entire convertible note to be converted at once, but does not prohibit its holder from exercising a portion
of the note, selling all of the common shares issued, and then further converting the note.
We have no control over whether
the holder will exercise its right to convert its convertible note. We cannot predict the market price of our common stock at any
future date, and therefore, cannot predict the applicable prices at which the convertible notes may be converted. For these reasons,
we are unable to accurately forecast or predict with any certainty the total number of shares that may be issued under the convertible
note. However, the number of shares of our common stock issuable upon conversion of the convertible note increases when
the price of our common stock declines. There is a floor price in our convertible note, which is currently $1.00. Although it was
originally agreed that the floor price would not adjust upon share splits, share dividends, share combinations, and similar transactions,
we and the holder subsequently agreed that the floor price would adjust proportionately under these circumstances. The existence
and potentially dilutive impact of the convertible note may prevent us from obtaining additional financing in the future on acceptable
terms, or at all. Our current shareholders will be diluted when we issue shares of our common stock issuable upon conversion of
the convertible note.
Furthermore, in the future, we may
issue additional common shares or other equity or debt securities convertible into common shares in connection with a financing,
acquisition, litigation settlement, employee arrangements, or otherwise. Any such issuance would result in substantial dilution
to our existing shareholders (unless they purchased additional shares to maintain their ownership) and could cause our stock price
to decline.
The issuance or sale of a substantial amount
of our common shares in the public market, or the perception that such could occur, could adversely affect the prevailing market
price of our common shares.
Sales or issuances (including by
conversion of the convertible note or issuance of shares pursuant to the Firment Shipping Credit Facility) of substantial amounts
of our common shares in the public market, or the perception that such sales might occur, could adversely affect the market price
of our common shares. Such sales could also cause our stock price to be volatile and would cause our shareholders to be diluted
(unless they purchased additional shares to maintain their ownership). Furthermore, in the future, we may issue additional common
shares or other equity or debt securities convertible into common shares in connection with a financing, acquisition, litigation
settlement, employee arrangements, or otherwise. Any such issuance would result in substantial dilution to our existing shareholders
(unless they purchased additional shares to maintain their ownership) and could cause our stock price to decline.
If we are unable to deliver common shares free
of restrictive legends where required, we must make whole any purchaser who loses money by purchasing common shares on the market
to complete a trade.
Our convertible note and the purchase
agreement relating thereto require us, within five full trading days of the exercise of the convertible note, to issue common shares,
which, where called for therein, must be free of restrictive legends. If we are unable to deliver proof that the above has occurred
when required and if a note holder or shareholder has traded the common shares that we have failed to deliver unlegended, penalty
provisions of these documents require us to make whole the holder who loses money by purchasing shares on the common market to
complete its trade or potentially paying cash to the person to cover his costs. Depending on our share price during this time and
the number of shares to which the payments relate, we could be required to pay a substantial sum.
If we are unable to maintain
the effectiveness of a resale registration statement for the shares into which our convertible note may convert, we will breach
agreements and be subject to consequences.
The documentation relating to the
issuance of the convertible note contains an agreement to file a registration statement and have it effective within 120 days of
the issuance of the convertible note. We are currently in compliance with this requirement. But if for any reason we are unable
to keep such a registration statement active and effective, we would be required to pay certain liquidated damages, and could be
sued for breach of contract.
We cannot assure you that we will be able to refinance our existing
indebtedness or obtain additional financing.
We may finance future fleet expansion with additional
secured indebtedness. While we may refinance amounts drawn under the EnTrust Loan Facility or secure new debt facilities with the
net proceeds of future debt and equity offerings, we cannot assure you that we will be able to do so at an interest rate or on
terms that are acceptable to us or at all. Our ability to obtain bank financing or to access the capital markets for future offerings
may be limited by our financial condition at the time of any such financing or offering, including the actual or perceived credit
quality of our charterers and the market value of our fleet, as well as by adverse market conditions resulting from, among other
things, general economic conditions, weakness in the financial markets and contingencies and uncertainties that are beyond our
control. Significant contraction, de-leveraging and reduced liquidity in credit markets worldwide is reducing the availability
and increasing the cost of credit.
If we are not able to refinance the EnTrust Loan Facility
or obtain new debt financing on terms acceptable to us, we will have to dedicate a portion of our cash flow from operations to
pay the principal and interest of this indebtedness. If we are not able to satisfy these obligations, we may have to undertake
alternative financing plans. In addition, debt service payments under the EnTrust Loan Facility or alternative financing may limit
funds otherwise available for working capital, capital expenditures, the payment of dividends and other purposes. Our inability
to obtain additional or replacement financing at anticipated costs or at all may materially affect our results of operation, our
ability to implement our business strategy, our payment of dividends and our ability to continue as a going concern.
Our common shares may be delisted from Nasdaq,
which could affect their market price and liquidity.
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 net income from continuing operations of $500,000),
as well as other corporate governance standards, to maintain the listing of our common shares on the Nasdaq Capital Market. 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, net income requirements
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. In such event, Nasdaq rules permit us to appeal any delisting determination
to a Nasdaq Hearings Panel. If we are unable to maintain or regain compliance in a timely manner and our common shares are delisted,
it could be more difficult to buy or sell our common shares and obtain accurate quotations, and the price of our shares could suffer
a material decline. Delisting may also impair our ability to raise capital. Delisting of our shares would breach a number of our
credit facilities and loan arrangements, some of which contain cross default provisions. There could also be adverse tax consequences—please
read “Item 10.E Taxation – United States Tax Considerations - United States Federal Income Taxation of United States
Holders – Distributions” for further information. In calendar year 2019, the closing price of our common shares ranged
from a peak of $8.54 on March 11, 2019 to a low of $0.96 on December 23, 2019. Our stock price further declined in 2020 to $0.49
on February 25, 2020.
On May 4, 2018, the Company received
written notification from The Nasdaq Stock Market dated April 30, 2018, indicating that because the closing bid price of our common
stock for the last 30 consecutive business days was below $1.00 per share, we no longer meet the minimum bid price continued listing
requirement for the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5450(a)(1). Pursuant to Nasdaq Listing Rules, the
applicable grace period to regain compliance is 180 days, or until October 29, 2018. On October 15, 2018, we effected a ten-for-one
reverse stock split which reduced the number of outstanding common shares from 32,065,077 to 3,206,495 shares (adjustments were
made based on fractional shares). On October 30, 2018 we received a letter from Nasdaq, indicating that the Company has regained
compliance with the $1.00 per share minimum closing bid price requirement for continued listing on the Nasdaq Capital Market, pursuant
to the Nasdaq marketplace rules. Because for at least 10 consecutive business days after the reverse stock split, the closing bid
price had been greater than $1.00, NASDAQ indicated within its letter that the Company regained compliance with the minimum bid
price rule and the matter had closed.
On March 6, 2020, the Company
received written notification from The Nasdaq Stock Market dated March 2, 2020, indicating that because the closing bid price of
our common stock for the last 30 consecutive business days was below $1.00 per share, we no longer meet the minimum bid price continued
listing requirement for the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5450(a)(1). Pursuant to Nasdaq Listing Rules,
the applicable grace period to regain compliance is 180 days, or until August 31, 2020. The Company intends to monitor the closing
bid price of its common stock between now and August 31, 2020 and is considering its options, including a potential reverse stock
split, in order to regain compliance with the Nasdaq Capital Market minimum bid price requirement. The Company can cure this deficiency
if the closing bid price of its common stock is $1.00 per share or higher for at least ten consecutive business days during the
grace period. In the event the Company does not regain compliance within the 180-day grace period, and it meets all other listing
standards and requirements it may be eligible for an additional 180- day grace period. The Company intends to cure the deficiency
within the prescribed grace period. During this time, the Company’s common stock will continue to be listed and trade on
the Nasdaq Capital Market.
Our business operations are not affected
by the receipt of the notification.
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 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. If we are unable to maintain or regain compliance in a timely manner and our common shares are delisted, it
could be more difficult to buy or sell our common shares and obtain accurate quotations, and the price of our shares could suffer
a material decline. Delisting of our shares would breach a number of our credit facilities and loan arrangements, some of which
contain cross default provisions. Delisting may also impair our ability to raise capital.
We may be unable to successfully employ our vessels
on long-term time charters or take advantage of favorable opportunities involving short-term or spot market charter rates.
Our strategy involves employing our vessels primarily
on time charters generally with durations between three months and five years. As of December 31, 2019, two of our vessels were
in drydock and the other three vessels were in ballast, meaning that they were travelling empty or partially empty to collect cargo.
Although time charters with durations of one to five years may provide relatively steady streams of revenue, if our vessels were
committed to such charters they may not be available for re-chartering or for spot market voyages when such employment would allow
us to realize the benefits of comparably more favorable charter rates. In addition, in the future, we may not be able to enter
into new time charters on favorable terms. The dry bulk market is volatile, and in the past charter rates have declined below operating
costs of vessels and such is currently the case. If we are required to enter into a charter when charter rates are low, employ
our vessels on the spot market during periods when charter rates have fallen or we are unable to take advantage of short-term opportunities
on the spot or charter market, our earnings and profitability could be adversely affected. We cannot assure you that future charter
rates will enable us to cover our costs, operate our vessels profitably or to pay dividends, or all of them.
We may also decide that it makes economic sense to
lay up one or more vessels. While our vessels are laid up, we will pay lay-up costs, but those vessels will not be able to earn
any hire.
As we expand our business, we may have difficulty
improving our operating and financial systems and recruiting suitable employees and crew for our vessels.
Our current operating and financial systems may not
be adequate if we expand the size of our fleet, and our attempts to improve those systems may be ineffective. In addition, as we
seek to expand our internal technical management capabilities and our fleet, we or our crewing agents may need to recruit suitable
additional seafarers and shore based administrative and management personnel. We cannot guarantee that we or our crewing agents
will be able to hire suitable employees or a sufficient number of employees if and as we expand our fleet. If we or our crewing
agent encounter business or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to develop
and maintain effective financial and operating systems or to recruit suitable employees as we expand our fleet, our financial performance
may be adversely affected and, among other things, the amount of cash available for distribution as dividends to our shareholders
may be reduced or eliminated.
Recently, the limited supply of and increased demand
for well-qualified crew, due to the increase in the size of the global shipping fleet, has created upward pressure on crewing costs,
which we generally bear under our time and spot charters. Increases in crew costs may adversely affect our profitability, results
of operations, cash flows, financial condition and ability to pay dividends.
The smuggling of drugs or other contraband onto
our vessels may lead to governmental claims against us.
We expect that our vessels will call at ports where
smugglers may attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent
that our vessels are found with contraband, whether inside or attached to the hull of our vessel, and whether with or without the
knowledge of any of our crew, we may face governmental or other regulatory claims that could have an adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay dividends.
Labor interruptions could disrupt our business.
Our vessels are manned by masters, officers and crews
(totaling 113 as of December 31, 2019). Seafarers manning the vessels in our fleet are covered by industry-wide collective bargaining
agreements that set basic standards. Any labor interruptions or employment disagreements with our crew members could disrupt our
operations and could have a material adverse effect on our business, results of operations, cash flows, financial condition and
ability to pay dividends. We cannot assure you that collective bargaining agreements will prevent labor interruptions.
Our charterers may renegotiate or default on
their charters.
Our charters provide the charterer the right to terminate
the charter on the occurrence of stated events or the existence of specified conditions. In addition, the ability and willingness
of each of our charterers to perform its obligations under its charter with us will depend on a number of factors that are beyond
our control. These factors may include general economic conditions, the condition of the dry bulk shipping industry and the overall
financial condition of the counterparties. The costs and delays associated with the default of a charterer of a vessel may be considerable
and may adversely affect our business, results of operations, cash flows, financial condition and ability to pay dividends.
In the recent depressed dry bulk market conditions,
there have been numerous reports of charterers renegotiating their charters or defaulting on their obligations under their charters.
If a current or future charterer defaults on a charter, we will seek the remedies available to us, which may include arbitration
or litigation to enforce the contract, although such efforts may not be successful and for short term charters may cost more to
enforce than the potential recovery. We cannot predict whether our charterers will, upon the expiration of their charters, re-charter
our vessels on favorable terms or at all. If our charterers decide not to re-charter our vessels, we may not be able to re-charter
them on terms similar to the terms of our current charters or at all. If we receive lower charter rates under replacement charters
or are unable to re-charter all of our vessels, this may adversely affect our business, results of operations, cash flows, financial
condition and ability to pay dividends.
The aging of our fleet may result in increased
operating costs in the future.
In general, the cost of maintaining a vessel in good
operating condition increases with the age of the vessel. As of December 31, 2019 and 2018, the weighted average age of the vessels
in our fleet was 11.8 and 10.8 years, respectively. Our oldest vessel was built in 2005, and our youngest vessel was built in 2010.
As our fleet ages, we will incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than
more recently constructed vessels due to improvements in engine technology. Cargo insurance rates, paid by charterers, increase
with the age of a vessel, making older vessels less desirable to charterers. 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 our vessels may engage. We cannot assure you that, as our vessels age, further
market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their
useful lives. We may also decide that it makes economic sense to lay up one or more vessels. While our vessels are laid up, we
will pay lay-up costs, but those vessels will not be able to earn any hire.
We may have difficulty managing our planned growth
properly.
Any future acquisitions of additional vessels will
impose additional responsibilities on our management and staff and may require us to increase the number of our personnel. In the
event of a future acquisition of additional vessels, we will also have to increase our customer base to provide continued employment
for the new vessels.
We intend to continue to stabilize and then to try
to grow our business through disciplined acquisitions of vessels that meet our selection criteria and newly built vessels if we
can negotiate attractive purchase prices. Our future growth will primarily depend on:
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locating and acquiring suitable vessels;
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identifying and consummating acquisitions;
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enhancing our customer base;
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managing our expansion; and
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obtaining required financing on acceptable terms.
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A delay in the delivery to us of any such vessel, or
the failure of the shipyard to deliver a vessel at all, could cause us to breach our obligations under a related charter and could
adversely affect our earnings. In addition, the delivery of any of these vessels with substantial defects could have similar consequences.
A shipyard could fail to deliver a new-building on time or at all because of:
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work stoppages or other hostilities or political or economic disturbances that disrupt the operations of the shipyard;
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quality or engineering problems;
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bankruptcy or other financial crisis of the shipyard;
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a backlog of orders at the shipyard;
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weather interference or catastrophic events, such as major earthquakes or fires;
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our requests for changes to the original vessel specifications or disputes with the shipyard;
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shortages of or delays in the receipt of necessary construction materials, such as steel; or
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shortages of or delays in the receipt of necessary equipment, such as main engines, electricity generators and propellers.
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In addition, if we enter a newbuilding or secondhand
contract in the future, we may seek to terminate the contract due to market conditions, financing limitations or other reasons.
The outcome of contract termination negotiations may require us to forego deposits on construction or purchase and pay additional
cancellation fees. In addition, where we have already arranged a future charter with respect to the terminated new-building contract,
we would need to provide an acceptable substitute vessel to the charterer to avoid breaching our charter agreement.
During periods in which charter rates are high, vessel
values generally are high as well, and it may be difficult to consummate vessel acquisitions or enter into new-building contracts
at favorable prices. During periods when charter rates are low, such as the current market, we may be unable to fund the acquisition
of new-buildings, whether through lending or cash on hand. For these reasons, we may be unable to execute our growth plans or avoid
significant expenses and losses in connection with our future growth efforts.
Growing any business by acquisition presents numerous
risks, such as undisclosed liabilities and obligations, the possibility that indemnification agreements will be unenforceable or
insufficient to cover potential losses and difficulties associated with imposing common standards, controls, procedures and policies,
obtaining additional qualified personnel, managing relationships with customers and integrating newly acquired assets and operations
into existing infrastructure. We cannot give any assurance that we will be successful in executing our growth plans or that we
will not incur significant expenses and losses in connection with our future growth.
To the extent we scrap or sell vessels, we may decide
to terminate the employment of some of our staff.
Legislative or regulatory changes in Greece may
adversely affect our results from operations.
Globus Shipmanagement Corp., our ship management subsidiary,
who we refer to as our Manager, is regulated under Greek Law 89/67, and conducts its operations and those on our behalf primarily
in Greece. Greece has been implementing new legislative measures to address financial difficulties, several of which as a response
from oversight by the International Monetary Fund and by European regulatory bodies such as the European Central Bank. Such legislative
actions may impose new regulations on our operations in Greece that will require us to incur new or additional compliance or other
administrative costs and may require that our Manager or we pay to the Greek government new taxes or other fees. Any such taxes,
fees or costs we incur could be in amounts that are significantly greater than those in the past and could adversely affect our
results from operations.
For example, in 2013, tax law 4110/2013 amended the
long-standing provisions of art. 26 of law 27/1975 by imposing a fixed annual tonnage tax on vessels flying a foreign (i.e., non-Greek)
flag which are managed by a Law 89 company, establishing an identical tonnage tax regime as the one already in force for vessels
flying the Greek flag. This tax varies depending on the size of the vessel, calculated in gross registered tonnage, as well as
on the age of each vessel. Payment of this tonnage tax completely satisfies all income tax obligations of both the shipowning company
and of all its shareholders up to the ultimate beneficial owners. Any tax payable to the state of the flag of each vessel as a
result of its registration with a foreign flag registry (including the Marshall Islands) is subtracted from the amount of tonnage
tax due to the Greek tax authorities.
The tax residents of Greece who receive dividends
from such shipowning or their holding companies are taxed at 10% on the dividends which they receive and which they import into
Greece, not being liable to any other taxation for these, which include those dividends which either remain with the holding company
or are paid to the individual Greek tax resident abroad.
We rely on our information systems to conduct
our business.
The efficient operation of our business is dependent
on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers, cyber terrorists,
and garden variety computer viruses. We rely on what we believe to be industry accepted security measures and technology to securely
maintain confidential and proprietary information maintained on our information systems. However, these measures and technology
may not adequately prevent security breaches. 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 and results of operations.
We expect that a limited number of financial
institutions will hold our cash including financial institutions that may be located in Greece.
We expect that a limited number of financial institutions
will hold all of our cash, including some institutions located in Greece. Our bank accounts are with banks in Switzerland, Germany
and Greece. Of the financial institutions located in Greece, none are subsidiaries of international banks. We do not expect that
these balances will be covered by insurance in the event of default by these financial institutions. The occurrence of such a default
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.
Purchasing and operating secondhand vessels may
result in increased operating costs and reduced fleet utilization.
While we have the right to inspect previously owned
vessels prior to our purchase of them, such an inspection does not provide us with the same knowledge about their condition that
we would have if these vessels had been built for and operated exclusively by us. A secondhand vessel may have conditions or defects
that we are not aware of when we buy the vessel and which may require us to incur costly repairs to the vessel. These repairs may
require us to put a vessel into drydocking, which would increase cash outflows and related expenses, while reducing our fleet utilization.
Furthermore, we usually do not receive the benefit of warranties on secondhand vessels.
Our ability to declare and pay dividends to holders
of our common shares will depend on a number of factors and will always be subject to the discretion of our board of directors.
If we are not in compliance with our loan covenants
and received a notice of default and were unable to cure it under the terms of our loan covenants, we may be forbidden from issuing
dividends. There can be no assurance that dividends will be paid to holders of our shares in any anticipated amounts and frequency
at all. We may incur other expenses or liabilities that would reduce or eliminate the cash available for distribution as dividends,
including as a result of the risks described in this section of this annual report on Form 20-F. The EnTrust Loan Facility prohibit
our declaration and payment of dividends under some circumstances, as does our convertible note. Under the EnTrust Loan Facility
we will be prohibited from paying dividends if an event of default has occurred or any event has occurred or circumstance arisen
which with the giving of notice or the lapse of time or the satisfaction of any other condition would constitute an event of default
under the EnTrust Loan Facility or where the payment of dividends would result in any such event or circumstance. Please read “Item
5.B. Liquidity and Capital Resources—Indebtedness” for further information. We may also enter into new financing or
other agreements that may restrict our ability to pay dividends even without an event of default. In addition, we may pay dividends
to the holders of our preferred shares prior to the holders of our common shares, depending on the terms of the preferred shares.
Our Convertible Note also contains a cross-default provision that is triggered upon a material default or an event of default under
an existing agreement which would or is likely to have a material adverse effect on the Company or any of its subsidiaries, individually
or in the aggregate.
The declaration and payment of dividends to holders
of our shares will be subject at all times to the discretion of our board of directors, and will be paid equally on a per-share
basis between our common shares and our Class B shares, to the extent any are issued and outstanding. We can provide no assurance
that dividends will be paid in the future.
There may be a high degree of variability from period
to period in the amount of cash, if any, that is available for the payment of dividends based upon, among other things:
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the rates we obtain from our charters as well as the rates obtained upon the expiration of our existing charters;
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the level of our operating costs;
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the number of unscheduled off-hire days and the timing of, and number of days required for, scheduled drydocking of our vessels;
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vessel acquisitions and related financings;
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restrictions in the EnTrust Loan Facility and in any future debt arrangements;
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our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy;
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prevailing global and regional economic and political conditions;
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the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business;
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our overall financial condition;
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our cash requirements and availability;
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the amount of cash reserves established by our board of directors; and
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restrictions under Marshall Islands law.
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Marshall Islands law generally prohibits the payment
of dividends other than from surplus or certain net profits, or while a company is insolvent or would be rendered insolvent by
the payment of such a dividend. We may not have sufficient funds, surplus, or net profits to make distributions.
We may incur expenses or liabilities or be subject
to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends,
if any. Our growth strategy contemplates that we will finance the acquisition of our new-buildings or selective acquisitions of
vessels through a combination of our operating cash flow and debt financing through our subsidiaries or equity financing. If financing
is not available to us on acceptable terms, our board of directors may decide to finance or refinance acquisitions with a greater
percentage of cash from operations to the extent available, which would reduce or even eliminate the amount of cash available for
the payment of dividends. We may also enter into other agreements that will restrict our ability to pay dividends.
The amount of cash we generate from our operations
may differ materially from our net income or loss for the period, which will be affected by non-cash items. We may incur other
expenses or liabilities that could reduce or eliminate the cash available for distribution as dividends. As a result of these and
the other factors mentioned above, we may pay dividends during periods when we record losses and may not pay dividends during periods
when we record net income, if we pay dividends at all.
We are a holding company, and we will depend
on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations or to make dividend
payments.
We are a holding company and our subsidiaries, which
are all directly and wholly owned by us, will conduct all of our operations and own all of our operating assets. We have no significant
assets other than the equity interests in our wholly owned subsidiaries. As a result, our ability to make dividend payments depends
on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our subsidiaries, our board
of directors may exercise its discretion not to declare or pay dividends. In addition, our subsidiaries are subject to limitations
on the payment of dividends under Marshall Islands or Maltese law.
Management may be unable to provide reports as
to the effectiveness of our internal control over financial reporting or, when applicable, our independent registered public accounting
firm may be unable to provide us with unqualified attestation reports as to the effectiveness of our internal control over financial
reporting when required.
Under Section 404 of the Sarbanes-Oxley Act of 2002,
which we refer to as Sarbanes-Oxley, we are required to include in each of our annual reports on Form 20-F a report containing
our management’s assessment of the effectiveness of our internal control over financial reporting and we may also be required
to include, in our future annual reports, a related attestation of our independent registered public accounting firm. Our Manager,
Globus Shipmanagement, will provide substantially all of our financial reporting, and we will depend on the procedures it has in
place. If in such annual reports on Form 20-F our management cannot provide a report as to the effectiveness of our internal control
over financial reporting or, when applicable, our independent registered public accounting firm is unable to provide us with an
unqualified attestation report as to the effectiveness of our internal control over financial reporting as required by Section
404, investors could lose confidence in the reliability of our consolidated financial statements, which could result in a decrease
in the value of our common shares.
Unless we set aside reserves or are able to borrow
funds for vessel replacement, at the end of a vessel’s useful life our revenues will decline.
As of December 31, 2019 and December 31, 2018, the
vessels in our current fleet had a weighted average age of 11.8 and 10.8 years, respectively. Our oldest vessel was built in 2005,
and our youngest vessel was built in 2010. 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, which we expect to be
25 years from the date of their construction. Our cash flows and income are dependent on the revenues earned by the chartering
of our vessels 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, financial condition and ability to pay dividends will be materially adversely affected. Any reserves
set aside for vessel replacement may not be available for dividends.
We depend upon a few significant customers for
a large part of our revenues.
We may derive a significant part of our revenue from
a small number of customers. During the years ended December 31, 2019, 2018 and 2017, we derived substantially all of our revenues
from approximately 22, 24 and 22 customers, respectively, and approximately 50%, 48% and 44%, respectively, of our revenues during
those years, were derived from four customers. If one or more of our major customers defaults under a charter with us and we are
not able to find a replacement charter, or if such a customer exercises certain rights to terminate the charter, we could suffer
a loss of revenues that could materially adversely affect our business, financial condition, results of operations and cash available
for distribution as dividends to our shareholders.
We could lose a customer or the benefits of a time
charter if, among other things:
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the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
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the customer terminates the charter because of our non-performance, including failure to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, serious deficiencies in the vessel, prolonged periods of off-hire or our default under the charter; or
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the customer terminates the charter because the vessel has been subject to seizure for more than 30 days.
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If we lose a key customer, we may be unable to obtain
charters on comparable terms with charterers of comparable standing or we may have increased exposure to the volatile spot market,
which is highly competitive and subject to significant price fluctuations. We would not receive any revenues from such a vessel
while it remained unchartered, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition,
insure it and service any indebtedness secured by such vessel. The loss of any of our customers, time charters or vessels or a
decline in payments under our charters could have a material adverse effect on our business, results of operations and financial
condition and our ability to pay dividends.
Provisions of our articles of incorporation and
bylaws may have anti-takeover effects.
Several provisions of our articles of incorporation
and bylaws, which are summarized below, 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 our company. However, these anti-takeover provisions could
also discourage, delay or prevent 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 the removal of incumbent officers and directors.
Multi Class Stock. Our multi-class stock structure,
which consists of common shares, Class B shares, and preferred shares, can provide holders of our Class B shares or preferred shares
a significant degree of control over all matters requiring shareholder approval, including the election of directors and significant
corporate transactions, such as a merger or other sale of our company or its assets, because our different classes of shares can
have different numbers of votes. For instance, our articles of incorporation grant 20 votes to each Class B share, as compared
to one vote per common share; although no Class B shares are currently issued and outstanding, any person who held Class B shares
representing more than 4.762% of the Company’s total issued and outstanding shares could control a majority of the Company’s
votes and would be able to exert substantial control over our management and all matters requiring shareholder approval, including
electing directors and significant corporate transactions, such as a merger. Such holder’s interest could differ from yours,
and the issuance of such shares could decrease the price of our common shares.
Blank Check Preferred Shares. Under the terms
of our articles of incorporation, our board of directors has authority, without any further vote or action by our shareholders,
to issue up to 100 million shares of “blank check” preferred shares. Our board could authorize the issuance of preferred
shares with voting or conversion rights that could dilute the voting power or rights of the holders of common shares. The issuance
of preferred shares, while providing flexibility in connection with possible acquisitions and other corporate purposes, could,
among other things, have the effect of delaying, deferring or preventing a change in control of us or the removal of our management
and may harm the market price of our common shares.
Classified Board of Directors. Our 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 beginning upon the expiration of the initial term for each class.
Approximately one-third of our board of directors is 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 us. It could also delay shareholders who do
not agree with the policies of our board of directors from removing a majority of our board of directors for up to two years.
Election of Directors. Our articles of incorporation
do not provide for cumulative voting in the election of directors. Our bylaws require parties, other than the chairman of the board
of directors, board of directors and shareholders holding 30% or more of the voting power of the aggregate number of our shares
issued and outstanding and entitled to vote, to provide advance written notice of nominations for the election of directors. These
provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Advance Notice Requirements for Shareholder Proposals
and Director Nominations. Our bylaws provide that shareholders, other than shareholders holding 30% or more of the voting power
of the aggregate number of our shares issued and outstanding and entitled to vote, seeking to nominate candidates for election
as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing
to the corporate secretary. Generally, to be timely, a shareholder’s notice must be received at our principal executive offices
not less than 150 days or more than 180 days prior to the first anniversary date of the immediately preceding annual meeting of
shareholders. Our bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions
may impede a shareholder’s ability to bring matters before an annual meeting of shareholders or make nominations for directors
at an annual meeting of shareholders.
We generate revenues from the trading of our
vessels in U.S. dollars but incur a portion of our expenses in other currencies.
We generate substantially all of our revenues from
the trading of our vessels in U.S. dollars, but during the years ended December 31, 2019, 2018 and 2017 we incurred approximately
27%, 29% and 28%, respectively, of our vessel operating expenses, and certain administrative expenses, in currencies other than
the U.S. dollar. This difference could lead to fluctuations in net profit due to changes in the value of the U.S. dollar relative
to the other currencies. Expenses incurred in foreign currencies against which the U.S. dollar falls in value can increase, decreasing
our revenues. We have not hedged our currency exposure, and, as a result, our results of operations and financial condition, denominated
in U.S. dollars, and our ability to pay dividends could suffer.
Increases in interest rates may cause the market
price of our shares to decline.
An increase in interest rates may cause a corresponding
decline in demand for equity investments in general. Any such increase in interest rates or reduction in demand for our shares
resulting from other relatively more attractive investment opportunities may cause the trading price of our shares to decline.
If LIBOR (or its successor) increases, then our payments pursuant to certain existing loans will increase. See “Item 11.
Quantitative and Qualitative Disclosures About Market Risk.”
If volatility in the London InterBank Offered
Rate, or LIBOR, occurs, or when LIBOR is replaced as the reference rate under our debt obligations, it could affect our profitability,
earnings and cash flow
LIBOR may be volatile, with the spread between LIBOR
and the prime lending rate widening significantly at times. These conditions are the result of disruptions in the international
markets. Because the interest rates borne by some of our outstanding loan facilities fluctuate with changes in LIBOR, it would
affect the amount of interest payable on those debts, which, in turn, could have an adverse effect on our profitability, earnings
and cash flow.
On July 27, 2017, the UK Financial Conduct Authority
announced that it would phase-out LIBOR by the end of 2021. As a result, lenders have insisted on provisions that entitle the lenders,
in their discretion, to replace published LIBOR as the basis for the interest calculation with their cost-of-funds rate. Certain
of our existing financing arrangements, provide for the use of replacement rates if LIBOR is discontinued. We are in the process
of evaluating the impact of LIBOR discontinuation on us. While we cannot predict the effect of the potential changes to LIBOR or
the establishment and use of alternative rates or benchmarks, the interest payable on our debt could be subject to volatility and
our lending costs could increase, which would have an adverse effect on our profitability, earnings and cash flow.
Our chairman of the board of directors beneficially
owns a significant number of our total outstanding common shares and could control matters on which our shareholders are entitled
to vote.
Mr. George Feidakis, the chairman of our board of directors,
beneficially owns a significant number (but not a majority) of our outstanding common shares as of March 31, 2020. Please read
“Item 7.A. Major Shareholders.” Until such time that we issue a significant number of securities (which could occur
upon conversion of the convertible note) to persons other than Mr. George Feidakis or entities nor beneficially owned by Mr. George
Feidakis, or Mr. George Feidakis sells all or a portion of his common shares, Mr. George Feidakis may be able to control the outcome
of many matters on which our shareholders are entitled to vote, including the election of directors and other significant corporate
actions. The interests of Mr. George Feidakis may be different from your interests.
The public market may not continue to be active
and liquid enough for you to resell our common shares in the future.
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 quarterly and annual results and those of other public companies in our industry;
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mergers and strategic alliances in the dry bulk shipping industry;
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market conditions in the dry bulk shipping industry;
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changes in government regulation;
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shortfalls in our operating results from levels forecast by securities analysts;
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announcements concerning us or our competitors; and
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the general state of the securities market.
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Furthermore, Mr. George Feidakis, the chairman of our
board of directors, beneficially owns a significant number (but not a majority) of our outstanding common shares. Please read “Item
7.A. Major Shareholders.” Where a substantial percentage of the shares of publicly traded companies are held by a small number
of shareholders, the shares may have a lower trading volume than similarly-sized publicly traded companies. Until such time as
we issue a significant number of securities (which could occur upon conversion of the convertible note) to persons other than Mr.
George Feidakis or entities not beneficially owned by Mr. George Feidakis, or Mr. George Feidakis sells all or a portion of his
common shares, we may have a lower trading volume than similarly-sized companies, which means shareholders who buy or sell relatively
small amounts of our common shares could have a disproportionately large impact on our share price, either positively or negatively,
and could thus make our share price more volatile than it otherwise would be. The dry bulk shipping industry has been highly unpredictable
and volatile. The market for common shares in this industry may be equally volatile.
We may have to pay tax on U.S. source shipping
income.
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 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 deductions, unless that corporation qualifies
for exemption from tax under section 883 of the Code and the U.S. Treasury regulations promulgated thereunder, which we refer to
as the Section 883 Exemption, or through the application of a comprehensive income tax treaty between the United States and the
corporation’s country of residence. The eligibility of Globus Maritime and our subsidiaries to qualify for the Section 883
Exemption is determined each taxable year and is dependent on certain circumstances related to the ownership of our shares and
on interpretations of existing U.S. Treasury regulations, each of which could change. We can therefore give no assurance that we
will in fact be eligible to qualify for the Section 883 Exemption for all taxable years. In addition, changes to the Code, the
U.S. Treasury regulations or the interpretation thereof by the U.S. Internal Revenue Service, or IRS, or the courts could adversely
affect the ability of Globus Maritime and our subsidiaries to take advantage of the Section 883 Exemption.
If we are not entitled to the Section 883 Exemption
or an exemption under a tax treaty for any taxable year in which any company in the group earns U.S. source shipping income, any
company earning such U.S. source shipping income, would be subject to a 4% U.S. federal income tax on the gross amount of the U.S.
source shipping income for the year (or an effective rate of 2% on shipping income attributable to the transportation of freight
to or from the United States). The imposition of this taxation could have a negative effect on our business and revenues and would
result in decreased earnings available for distribution to our shareholders.
For a more complete discussion, please read the section
entitled “Item 10.E. Taxation— United States Tax Considerations— United States Federal Income Taxation of the
Company.”
U.S. tax authorities could treat us as a “passive
foreign investment company,” which could result in 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 at least 75% of its gross income for
any taxable year consists of certain types of “passive income” or at least 50% of the average value of the corporation’s
assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive
income” includes dividends, interest and gains from the sale or exchange of investment property, and rents and royalties
other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business.
For purposes of these tests, income derived from the performance of services does not constitute “passive income.”
U.S. shareholders of a PFIC are subject to a disadvantageous
U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and
the gain, if any, they derive from the sale or other disposition of their shares in the PFIC, unless those shareholders make an
election available under the Code (which election could itself have adverse consequences for such shareholders). In particular,
U.S. shareholders who are individuals would not be eligible for the preferential tax rate on qualified dividends. Please read “Item
10.E. Taxation—United States Tax Considerations—United States Federal Income Taxation of United States Holders”
for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.
Based on our current operations and anticipated future
operations, we believe we should not be treated as a PFIC. In this regard, we intend to treat 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 should not constitute “passive income,” and that the assets we own and operate
in connection with the production of that income do not constitute assets that produce or are held for the production of “passive
income.”
There are legal uncertainties involved in this determination
because there is no direct legal authority under the PFIC rules addressing our current and projected future operations. Moreover,
a case decided in 2009 by the U.S. Court of Appeals for the Fifth Circuit held that, contrary to the position of the IRS in that
case, and for purposes of a different set of rules under the Code, income received under a time charter of vessels should be treated
as rental income rather than services income. If the reasoning of this case were extended to the PFIC context, the gross income
we derive or are deemed to derive from our time chartering activities would be treated as rental income, and we would be a PFIC
unless an active leasing exception applies. Although the IRS has announced that it will not follow the reasoning of this case,
and that it intends to treat the income from standard industry time charters as services income, no assurance can be given that
a U.S. court will not follow the aforementioned case. 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 our assets, income or operations.
If the IRS were to find that we are or have been a
PFIC for any taxable year, our U.S. shareholders will face adverse U.S. tax consequences and information reporting obligations,
as more fully described under “Item 10.E. Taxation—United States Tax Considerations—United States Federal Income
Taxation of United States Holders.”
We could face penalties under European Union,
United States or other economic sanctions.
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, are frequently updated or changed and have vague application in many
situations.
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. The imposition
of Ukrainian-related economic sanctions on Russian persons, first imposed in March 2014, is an example of economic sanctions with
a potentially widespread and unpredictable impact on shipping. Certain of our charterers or other parties with whom we have
entered into contracts regarding our vessels may be affiliated with persons or entities that are the subject of sanctions imposed
by the U.S. government, the European Union and/or other international bodies relating to the annexation of Crimea by Russia in
2014. If we determine that such sanctions require us to terminate existing contracts 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.
Additionally, the U.S. Iran Threat Reduction Act (which
was signed into law in 2012) 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.
There can be no assurance that we will be in compliance
with all applicable sanctions and embargo laws and regulations in the future, particularly as the scope of certain laws may be
unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and 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. Even inadvertent violations of economic sanctions can result in the
imposition of material fines and restrictions and could adversely affect our business, financial condition and results of operations,
our reputation, and the market price of our common shares.
Our vessels may call on ports subject to economic
sanctions or embargoes.
From time to time on charterers’ instructions,
our vessels may call on ports located in countries subject to sanctions and embargoes imposed by the United States government and
countries identified by the U.S. government as state sponsors of terrorism, such as Iran, Sudan, North Korea, and Syria. The U.S.
sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe
the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. On May 1, 2012,
President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing
a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject
to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and
will be banned from all contacts with the United States, including conducting business in U.S. dollars.
On July 14, 2015, the P5+1 (the United States, United
Kingdom, Germany, France, Russia and China) and the EU announced that they reached a landmark agreement with Iran titled the Joint
Comprehensive Plan of Action, or the JCPOA, which was intended to restrict significantly Iran’s ability to develop and produce
nuclear weapons while simultaneously easing sanctions directed at non-U.S. persons for conduct involving Iran, but taking place
outside of U.S. jurisdiction and not involving U.S. persons. On January 16, 2016, the United States joined the EU and the United
Nations in lifting a significant number of sanctions on Iran following an announcement by the International Atomic Energy Agency,
or the IAEA, that Iran had satisfied its obligations under the JCPOA. However, in 2018, President Trump withdrew the United States
from the JCPOA, resulting in the complete reimposition of U.S. sanctions. As of now, the EU and other parties to the JCPOA have
not withdrawn, and the EU and United Nations sanctions that were lifted have not been reimposed.
Although we believe that we have been in compliance
with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance
that we will be in compliance in the future as such regulations and sanctions may be amended over time. 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. In addition, our reputation
and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters
with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments
of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are
unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common shares
may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these
and surrounding countries.
We are subject to Marshall Islands corporations
law, which is not well-developed.
Our corporate affairs are governed by our articles
of incorporation, our bylaws 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
Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the laws 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. The rights of shareholders of corporations incorporated in or redomiciled into
the Marshall Islands may differ from the rights of shareholders of corporations incorporated in the United States. While the BCA
provides that it is to be applied and construed to make the laws of the Marshall Islands, for non-resident entities such as us,
with respect of the subject matter of the BCA, uniform with the laws of the State of Delaware and other states with substantially
similar legislative provisions, there have been few court cases interpreting the BCA in the Marshall Islands and we cannot predict
whether Marshall Islands courts would reach the same conclusions as United States courts. Thus, you may have more difficulty in
protecting your interests in the face of actions by our management, directors or controlling shareholders than would shareholders
of a corporation incorporated in a United States jurisdiction that has developed a more substantial body of case law in the corporate
law area.
As a Marshall Islands corporation with principal
executive offices in Greece, and also having subsidiaries in the Marshall Islands and other offshore jurisdictions such as Malta,
our operations may be subject to economic substance requirements.
On March 12, 2019, the Council of the European Union
approved and published conclusions containing a list of “non-cooperative jurisdictions” for tax purposes in which the
Republic of the Marshall Islands, among others, was placed by the E.U. on its list of non-cooperative jurisdictions for tax purposes
for failing to implement certain commitments previously made to the E.U. by the agreed deadline. However, it was announced by the
Council of the European Union on October 10, 2019 that the Marshall Islands had been removed from the list of non-cooperative tax
jurisdictions. E.U. 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, special documentation requirements and anti-abuse provisions. 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 in 2019. E.U. legislation prohibits E.U. funds from being channeled or transited through entities in non-cooperative
jurisdictions.
We are a Marshall Islands corporation with principal
executive offices in Greece. Our management company is also a Marshall Islands entity and one of our subsidiaries is organized
in Malta. The Marshall Islands has enacted economic substance regulations with which we may be obligated to comply. Those regulations
require certain entities 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 could be 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.
We do not know: if the E.U. will add the Marshall Islands
or Malta to the list of non-cooperative jurisdictions; how quickly the E.U. would react to any changes in legislation of the Marshall
Islands or Malta; or how E.U. banks or other counterparties will react while we or any of our subsidiaries remain as entities organized
and existing under the laws of listed countries. The effect of the E.U. list of non-cooperative jurisdictions, and any noncompliance
by us with any legislation adopted by applicable countries to achieve removal from the list, including economic substance regulations,
could have a material adverse effect on our business, financial conditions and operating results.
It may be difficult to serve us with legal process
or enforce judgments against us, our directors, our significant shareholders, or our management.
Our business is operated primarily from our offices
in Greece. In addition, our largest shareholder and a majority of our directors and officers are non-residents of the United States,
and all of our assets and a substantial portion of the assets of these non-residents are located outside the United States. As
a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States
if you believe that your rights have been infringed under securities laws or otherwise. You may also have difficulty enforcing,
both within and outside of the United States, judgments you may obtain in the United States courts against us or these persons
in any action, including actions based upon the civil liability provisions of United States federal or state securities laws. There
is also substantial doubt that the courts of the Marshall Islands or Greece would enter judgments in original actions brought in
those courts predicated on United States federal or state securities laws.
The international nature of our operations may
make the outcome of any bankruptcy proceedings difficult to predict.
We redomiciled into the Marshall Islands and our subsidiaries
are incorporated under the laws of the Marshall Islands or Malta, we have limited operations in the United States and we maintain
limited assets, if any, in the United States. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution,
reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States
could apply. The Marshall Islands does not have a bankruptcy statute or general statutory mechanism for insolvency proceedings.
If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over
all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we
would become a debtor in the United States, or that a U.S. bankruptcy court would accept, or be entitled to accept, jurisdiction
over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize
a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction. These factors
may delay or prevent us from entering bankruptcy in the United States and may affect the ability of our shareholders to receive
any recovery following our bankruptcy.
We, or our large shareholders, may sell additional
securities in the future.
The market price of our common shares could decline
due to sales of a large number of our securities in the market, including sales of shares by our large shareholders, or the perception
that these sales could occur. These sales could also occur if our convertible note holder converts the convertible note and sells
the resulting common shares. These sales could also make it more difficult or impossible for us to sell equity securities in the
future at a time and price that we deem appropriate to raise funds through future offerings of shares.
We may issue additional common shares, including
Class B shares, or other equity securities without your approval.
We may issue additional common shares, including Class
B shares, or other equity securities of equal or senior rank in the future in connection with, among other things, future vessel
acquisitions, repayment of outstanding indebtedness or our equity incentive plan, without shareholder approval, in a number of
circumstances.
Our issuance of additional common shares (which will
occur each time the convertible note holder converts its note), including Class B shares, or other equity securities of equal or
senior rank would have the following effects:
|
•
|
our existing shareholders’ proportionate ownership interest in us will decrease;
|
|
•
|
the amount of cash available for dividends payable on our common shares may decrease;
|
|
•
|
the relative voting strength of each previously outstanding share may be diminished; and
|
|
•
|
the market price of our common shares may decline,
and we could be forced to delist our shares from Nasdaq.
|
Furthermore, we may sell securities at less than the
prevailing market price, and are obligated to do so pursuant to our convertible note under certain circumstances. Because we are
a foreign private issuer, we are not bound by Nasdaq rules that require shareholder approval for certain issuances of our securities.
We therefore can issue securities in such amounts and at such times as we feel appropriate, all without shareholder approval. See
“Item 16G. Corporate Governance.”
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks
in our operations and administration of our business. 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 maintained on our information systems. However, these measures and technology may not adequately prevent security breaches.
Our business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems
and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our
operations, or lead to unauthorized release of information or alteration of information in our systems. Any such attack or other
breach of our information technology systems could have a material adverse effect on our business and results of operations. 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 and results of operations.
Item 4. Information on the Company
A. History and Development of the Company
We originally incorporated as Globus Maritime Limited
on July 26, 2006 pursuant to the Companies (Jersey) Law 1991 (as amended), and began operations in September 2006. Following the
conclusion of our initial public offering on June 1, 2007, our common shares were listed on the London Stock Exchange’s Alternative
Investment Market, or AIM, under the ticker “GLBS.L.” On July 29, 2010, we effected a one-for-four reverse stock split,
with our issued share capital resulting in 7,240,852 common shares of $0.004 each.
On November 24, 2010, we redomiciled into the Marshall
Islands pursuant to the BCA and a resale registration statement for our common shares was declared effective by the SEC. Once the
resale registration statement was declared effective by the SEC, our common shares began trading on the Nasdaq Global Market under
the ticker “GLBS.” Our common shares were suspended from trading on the AIM on November 24, 2010 and were delisted
from the AIM on November 26, 2010.
On June 30, 2011, we completed a follow-on public offering
in the United States under the Securities Act of 1933, as amended, which we refer to as the Securities Act, of 2,750,000 common
shares at a price of $8.00 per share, the net proceeds of which amounted to approximately $20 million. (These figures do not reflect
the 4-1 reverse stock split which occurred in October 2016 or the 10-1 reverse stock split which occurred in October 2018.)
On April 11, 2016, our common shares began trading
on the Nasdaq Capital Market instead of the Nasdaq Global Market.
On October 20, 2016, we effected
a four-for-one reverse stock split which reduced the number of outstanding common shares from 10,510,741 to 2,627,674 shares (adjustments
were made based on fractional shares). (These figures do not reflect the 10-1 reverse stock split which occurred in October 2018.)
On February 8, 2017, we entered
into a Share and Warrant Purchase Agreement pursuant to which we sold for $5 million an aggregate of 5 million of our common shares
and warrants to purchase 25 million of our common shares at a price of $1.60 per share (subject to adjustment) to a number of investors
in a private placement. (These figures do not reflect the 10-1 reverse stock split which occurred in October 2018.) These securities
were issued in transactions exempt from registration under the Securities Act. The following day, we entered into a registration
rights agreement with the Purchasers providing them with certain rights relating to registration under the Securities Act of the
Shares and the common shares underlying the warrants.
In connection with the closing
of the February 2017 private placement, we also entered into two loan amendment agreements with existing lenders.
One loan amendment agreement
was entered into by the Company with Firment Trading Limited (“Firment”), a related party to the Company and the lender
under the Revolving Credit Facility dated December 16, 2014 (as amended, the “Firment Credit Facility”), which then
had an outstanding principal amount of $18,523,787. Firment released an amount equal to $16,885,000 (but left an amount equal to
$1,638,787 outstanding, which continued to accrue under the Firment Credit Facility as though it were principal) of the Firment
Credit Facility and the Company issued to Firment Shipping Inc., an affiliate of Firment, 16,885,000 common shares and a warrant
to purchase 6,230,580 common shares at a price of $1.60 per share (subject to adjustment). Subsequent to the closing of the February
2017 private placement, Globus repaid the outstanding amount on the Firment Credit Facility in its entirety. (These figures do
not reflect the 10-1 reverse stock split which occurred in October 2018.)
The other loan amendment agreement
was entered into by the Company with Silaner Investments Limited, a related party to the Company and the lender of the Silaner
Credit Facility. Silaner released an amount equal to the outstanding principal of $3,115,000 (but left an amount equal to $74,048
outstanding, which continued to accrue under the Silaner Credit Facility as though it were principal) of the Silaner Credit Facility
and the Company issued to Firment Shipping Inc., an affiliate of Silaner, 3,115,000 common shares and a warrant to purchase 1,149,437
common shares at a price of $1.60 per share (subject to adjustment). Subsequent to the closing of the February 2017 private placement,
Globus repaid the outstanding amount on the Silaner Credit Facility in its entirety. (These figures do not reflect the 10-1 reverse
stock split which occurred in October 2018.)
Each of the above mentioned
warrants was exercisable for 24 months after their respective issuance. Under the terms of the warrants, all warrant holders (other
than Firment Shipping Inc., which had no such restriction in its warrants) could not exercise their warrants to the extent such
exercise would cause such warrant holder, together with its affiliates and attribution parties, to beneficially own a number of
common shares which would exceed 4.99% (which may be increased, but not to exceed 9.99%) of our then outstanding common shares
immediately following such exercise, excluding for purposes of such determination common shares issuable upon exercise of the warrants
which have not been exercised. This provision, which we call the “Blocker Provision”, did not limit a warrant holder
from acquiring up to 4.99% of our common shares, selling all of their common shares, and re-acquiring up to 4.99% of our common
shares. The warrants that we sold in February and October 2017 each contained a provision whereby the relevant holder has the right
to a cashless exercise if, six months after its issuance, a registration statement covering the resale of the shares issuable thereunder
is not effective. If for any reason we were unable to keep such a registration statement active, we would have been required to
issue shares without receiving cash consideration.
On October 19, 2017, we entered
into a Share and Warrant Purchase Agreement pursuant to which we sold for $2.5 million an aggregate of 2.5 million of our common
shares and a warrant to purchase 12.5 million of our common shares at a price of $1.60 per (subject to adjustment) share to an
investor in a private placement. These securities were issued in transactions exempt from registration under the Securities Act
of 1933, as amended. On that day, we also entered into a registration rights agreement with the purchaser providing it with certain
rights relating to registration under the Securities Act of the 2.5 million common shares issued in connection with the October
2017 Private Placement and the common shares underlying the October 2017 warrant. (These figures do not reflect the 10-1 reverse
stock split which occurred in October 2018.)
Under the terms of the October
2017 warrant, the warrant holder may not exercise its warrant to the extent such exercise would cause the warrant holder, together
with its affiliates and attribution parties, to beneficially own a number of common shares which would exceed 4.99% (which may
be increased upon no less than 61 days’ notice, but not to exceed 9.99%) of our then outstanding common shares immediately
following such exercise, excluding for purposes of such determination common shares issuable upon exercise of the October 2017
warrant which have not been exercised. This provision does not limit the warrant holder from acquiring up to 4.99% of our common
shares, selling all of its common shares, and re-acquiring up to 4.99% of our common shares. This “Blocker Provision”
is identical to the Blocker Provision contained in the warrants purchased in February 2017 (other than in the warrants granted
to Silaner Investments Limited and Firment Trading Limited, which had no such provision). The October 2017 warrant was exercisable
for 24 months after its issuance.
On October 15, 2018, we effected
a ten-for-one reverse stock split which reduced the number of outstanding common shares from 32,065,077 to 3,206,495 shares (adjustments
were made based on fractional shares).
In November 2018, we entered
into a credit facility for up to $15 million with Firment Shipping Inc., a related party to us, for the purpose of financing our
general working capital needs. The Firment Shipping Credit Facility is unsecured and remains available until its final maturity
on April 1, 2021, as amended. We have the right to drawdown any amount up to $15 million or prepay any amount in multiples of $100,000.
Any prepaid amount can be re-borrowed in accordance with the terms of the facility. Interest on drawn and outstanding amounts is
charged at 7% per annum and no commitment fee was charged on the amounts remaining available and undrawn. Interest is payable the
last day of a period of three months after the Drawdown Date, after this period in case of failure to pay any sum due a default
interest of 2% per annum above the regular interest is charged. We have also the right, in our sole option, to convert in whole
or in part the outstanding unpaid principal amount and accrued but unpaid interest under this agreement into common stock. The
conversion price shall equal the higher of (i) the average of the daily dollar volume-weighted average sale price for the common
stock on the principal market on any trading day during the period beginning at 9.30 a.m. New York City time and ending at 4.00
p.m. over the Pricing Period multiplied by 80%, where the “Pricing Period” equals the ten consecutive trading days
immediately preceding the date on which the conversion notice was executed or (ii) $2.80.
On March 13, 2019, the Company signed a securities
purchase agreement with a private investor and on March 13, 2019 issued, for gross proceeds of $5 million, a senior convertible
note (the “Convertible Note”) that is convertible into shares of the Company’s common stock, par value $0.004
per share. If not converted or redeemed beforehand pursuant to the terms of the Convertible Note, the Convertible Note was scheduled
to mature on March 13, 2020, the first anniversary of its issue, but its holder waived the Convertible Note’s maturity until
March 13, 2021. The waiver also provides that the floor price by which the Convertible Note may be converted adjusts for share
splits, share dividends, share combinations, and similar transactions. The Convertible Note was issued in a transaction exempt
from registration under the Securities Act.
The Convertible Note provides for interest to accrue
at 10% annually, which interest shall be paid at maturity unless the Convertible Note is converted or redeemed pursuant to its
terms beforehand. The interest may be paid in common shares of the Company, if certain conditions described within the Convertible
Note are met. As of December 31, 2019, the amount outstanding with respect to the Convertible Note was $3,308,750, and the Company
had issued 867,643 common shares pursuant to the note. For more information, please read “—Item 5. Operating and Financial
Review and Prospects—A. Operating Results.”
As of December 31, 2019, our issued and outstanding
capital stock consisted of 5,227,159 common shares.
Our executive office is located at the office of Globus
Shipmanagement Corp., which we refer to as our Manager, at 128 Vouliagmenis Avenue, 3rd Floor, 166 74 Glyfada, Attica, Greece.
Our telephone number is +30 210 960 8300. Our registered agent in the Marshall Islands is The Trust Company of the Marshall Islands,
Inc. and our registered address in the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall
Islands MH96960. We maintain our website at www.globusmaritime.gr. Information that is available on or accessed through our website
does not constitute part of, and is not incorporated by reference into, this annual report on Form 20-F. The SEC maintains an internet
site that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically
with the SEC at http://www.sec.gov.
As of December 31, 2010, our fleet comprised a total
of five dry bulk vessels, consisting of one Panamax, three Supramaxes and one Kamsarmax, with a weighted average age of approximately
4.0 years and a total carrying capacity of 319,664 dwt.
In March 2011, we purchased a 2007-built Supramax vessel
for $30.3 million. The vessel was delivered in September 2011 and was named Sun Globe. In May 2011, we purchased a 2005-built
Panamax vessel for $31.4 million. The vessel was delivered in June 2011 and was named Moon Globe.
As of December 31, 2014 and 2013 our fleet comprised
a total of seven dry bulk vessels, consisting of two Panamax, four Supramaxes and one Kamsarmax, with a weighted average age of
approximately 8.1 and 7.1 years, respectively, and a total carrying capacity of 452,886 dwt.
In July 2015, we sold “Tiara Globe”,
a 1998-built Panamax. As of December 31, 2015, our fleet comprised a total of six dry bulk vessels, consisting of one Panamax,
four Supramaxes and one Kamsarmax, with an average age of 7.4 years and carrying capacity of 379,958 dwt.
In March 2016, as part of
a settlement of the loan agreement between Kelty Marine Ltd. and Commerzbank, outstanding indebtedness of $15.65 million was released
in exchange for $6.86 million of sale proceeds from the sale of the shares of Kelty Marine Ltd. (the owner of m/v Energy Globe)
plus overdue interest of $40,708. The weighted average age of the vessels we owned as of December 31, 2016 was 8.8 years, and their
carrying capacity was 300,571 dwt.
Our fleet is currently comprised of a total of five
dry bulk vessels consisting of one Panamax and four Supramaxes. The weighted average age of the vessels we owned as of December
31, 2019 was 11.8 years, and their carrying capacity was 300,571 dwt.
Our capital expenditures, which principally consist
of purchasing, operating and maintaining dry bulk vessels, for the years 2019, 2018 and 2017 consisted of drydocking costs of $0.6
million, $2.1 million and $1.0 million, respectively.
B. Business Overview
We are an integrated dry bulk shipping company, providing
marine transportation services on a worldwide basis. We own, operate and manage a fleet of dry bulk vessels that transport iron
ore, coal, grain, steel products, cement, alumina and other dry bulk cargoes internationally. We intend to grow our fleet through
timely and selective acquisitions of modern vessels in a manner that we believe will provide an attractive return on equity and
will be accretive to our earnings and cash flow based on anticipated market rates at the time of purchase. There is no guarantee
however, that we will be able to find suitable vessels to purchase or that such vessels will provide an attractive return on equity
or be accretive to our earnings and cash flow.
Our operations are managed by our Attica, Greece-based
wholly owned subsidiary, Globus Shipmanagement Corp., which we refer to as our Manager, which provides in-house commercial and
technical management for our vessels and provided consulting services for an affiliated ship-management company. Our Manager has
entered into a ship management agreement with each of our wholly owned vessel-owning subsidiaries to provide services that include
managing day-to-day vessel operations, such as supervising the crewing, supplying, maintaining of vessels and other services. In
2016 our Manager entered into a consultancy agreement with an affiliated ship-management company, where our Manager provided consulting
services to the affiliated ship-management company. This agreement also terminated on January 31, 2017.
The following table presents information concerning the vessels we own:
Vessel
|
|
Year
Built
|
|
|
Flag
|
|
Direct
Owner
|
|
Shipyard
|
|
Vessel Type
|
|
Delivery
Date
|
|
Carrying
Capacity
(dwt)
|
|
m/v River Globe
|
|
|
2007
|
|
|
Marshall Islands
|
|
Devocean Maritime Ltd.
|
|
Yangzhou Dayang
|
|
Supramax
|
|
December 2007
|
|
|
53,627
|
|
m/v Sky Globe
|
|
|
2009
|
|
|
Marshall Islands
|
|
Domina Maritime Ltd.
|
|
Taizhou Kouan
|
|
Supramax
|
|
May 2010
|
|
|
56,855
|
|
m/v Star Globe
|
|
|
2010
|
|
|
Marshall Islands
|
|
Dulac Maritime S.A.
|
|
Taizhou Kouan
|
|
Supramax
|
|
May 2010
|
|
|
56,867
|
|
m/v Moon Globe
|
|
|
2005
|
|
|
Marshall Islands
|
|
Artful Shipholding S.A.
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Hudong-Zhonghua
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Panamax
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June 2011
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74,432
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m/v Sun Globe
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2007
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Malta
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Longevity Maritime Limited
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Tsuneishi Cebu
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Supramax
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September 2011
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58,790
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Total:
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300,571
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We own each of our vessels through separate, wholly
owned subsidiaries, four of which are incorporated in the Marshall Islands, and one of which is incorporated in Malta. All of our
Supramax vessels are geared. Geared vessels can operate in ports with minimal shore-side infrastructure. Due to the ability to
switch between various dry bulk cargo types and to service a wider variety of ports, the day rates for geared vessels tend to have
a premium.
We budget 20 days per year in drydocking per vessel.
Actual length will vary based on the condition of each vessel, shipyard schedules and other factors.
Employment of our Vessels
Our strategy is to employ our vessels on a mix of all
types of charter contracts, including bareboat charters and time charters. We believe this strategy provides the cash flow stability,
reduced exposure to market downturns and high utilization rates of the charter market, while at the same time enabling us to benefit
from periods of increasing spot market rates. We may, however, seek to employ a greater portion
of our fleet on the spot market or on time charters with longer durations, should we believe it to be in our best interests. In
addition, we generally seek to stagger the expiration dates of our charters to reduce exposure to volatility in the shipping cycle
when our vessels come off of charter. We also continually monitor developments in the dry bulk shipping industry and, subject to
market demand, will adjust the number of vessels on charters and the charter periods for our vessels according to market conditions.
We and our Manager have developed relationships with
a number of international charterers, vessel brokers, financial institutions, insurers and shipbuilders. We have also developed
a network of relationships with vessel brokers who help facilitate vessel charters and acquisitions.
On the date of the filing of this Annual Report on
20-F, all of our vessels were employed on time charters.
Each of our vessels travels across the world and not
on any particular route. The charterers of our vessels, whether time, bareboat or on the spot market, select the locations to which
our vessels travel.
Time Charter
A time charter is a contract for the use of a vessel
for a fixed period of time at a specified daily rate. Under a time charter, the vessel owner provides crewing, insuring, repairing
and maintenance and other services related to the vessel’s operation, the cost of which is included in the daily rate, and
the customer is responsible for substantially all of the vessel voyage costs, including the cost of bunkers (fuel oil) and canal
and port charges. The owner also pays commissions typically ranging from 0% to 6.25% of the total daily charter hire rate of each
charter to unaffiliated ship brokers and to in-house brokers associated with the charterer, depending on the number of brokers
involved with arranging the charter.
Basic Hire Rate and Term
“Basic hire rate” refers to the basic payment
from the customer for the use of the vessel. The hire rate is generally payable semi-monthly or 15 days, in advance, in U.S. dollars
as specified in the charter.
Off-hire
When the vessel is “off-hire,” the charterer
generally is not required to pay the basic hire rate, and we are responsible for all costs. Prolonged off-hire may lead to vessel
substitution or termination of the time charter. A vessel generally will be deemed off-hire if there is a loss of time due to,
among other things, operational deficiencies; drydocking for examination or painting the bottom; equipment breakdowns; damages
to the hull; or similar problems.
Ship Management and Maintenance
We are responsible for the technical management of
the vessel and for maintaining the vessel, periodic drydocking, cleaning and painting and performing work required by regulations.
Globus Shipmanagement provides the technical, commercial and day-to-day operational management of our vessels. Technical management
includes crewing, maintenance, repair and drydockings. During the 2019 year, we paid Globus Shipmanagement $700 per vessel per
day. All fees payable to Globus Shipmanagement for vessels that we own are eliminated upon consolidation of our accounts.
In June 2016, our Manager entered into a consultancy
agreement with an affiliated ship-management company and received a $1,000 per day fee for these services. The agreement was terminated
on January 31, 2017. These fees were not eliminated upon consolidation of our accounts.
Termination
We are generally entitled to suspend performance under
the time charter if the customer defaults in its payment obligations. Either party may terminate the charter in the event of war
in specified countries.
Commissions
During the year ended December 31, 2019, we paid commissions
ranging from 5% to 6.25% relevant to each time charter agreement then in effect.
Bareboat Charter
A bareboat charter is a contract pursuant to which
the vessel owner provides the vessel to the charterer for a fixed period of time at a specified daily rate, and the charterer provides
for all of the vessel’s operating expenses. The charterer undertakes to maintain the vessel in a good state of repair and
efficient operating condition and drydock the vessel during this period as per the classification society requirements.
Redelivery
Upon the expiration of a bareboat charter, typically
the charterer must redeliver the vessel in as good structure, state, condition and class as that in which the vessel was delivered.
Ship Management and Maintenance
Under a bareboat charter, the charterer is responsible
for all of the vessel’s operating expenses, including crewing, insuring, maintaining and repairing the vessel, any drydocking
costs, and the stores, lube oils and communication expenses. Under a bareboat charter, the charterer is also responsible for the
voyage costs, and generally assumes all risk of operation. The charterer covers the costs associated with the vessel’s special
surveys and related drydocking falling within the charter period.
Commissions
Commissions on bareboat charters typically range from
0% to 3.75%.
Our Customers
We seek to charter our vessels to customers who we
perceive as creditworthy thereby minimizing the risk of default by our charterers. We also try to select charterers depending on
the type of product they want to carry and the geographical areas in which they tend to trade.
Our assessment of a charterer’s financial condition
and reliability is an important factor in negotiating employment for our vessels. We generally charter our vessels to operators,
trading houses (including commodities traders), shipping companies and producers and government-owned entities and generally avoid
chartering our vessels to companies we believe to be speculative or undercapitalized entities. Since our operations began in September
2006, our customers have included Hyundai Glovis Co. Ltd., Dampskibsselskabet NORDEN A/S, ED & F Man Shipping Limited, Transgrain
and Far Eastern Silo and Shipping (Panama) S.A. In addition, during the periods when some of our vessels were trading on the spot
market, they have been chartered to charterers such as Cargill International SA, Oldendorff GmbH & Co KG, Western Bulk Pte.
Ltd., Ausca Shipping HK Limited and others, thus expanding our customer base.
Competition
Our business fluctuates in line with the main patterns
of trade of the major dry bulk cargoes and varies according to changes in the supply and demand for these items. We operate in
markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel
location, size, age and condition of the vessel, as well as on our reputation as an owner and operator. We compete with other owners
of dry bulk vessels in the Panamax, Supramax and Kamsarmax dry bulk vessels, but we also compete with owners for the purchase and
sale of vessels of all sizes. Those competitors may be better capitalized or have more liquidity than we do. In this period of
significantly depressed pricing and over capacity, better liquidity may be a major competitive advantage, and we believe that some
of our competitors may be better capitalized than we are.
Ownership of dry bulk vessels is highly fragmented.
It is likely that we will face substantial competition for long-term charter business from a number of experienced companies. Many
of these competitors will have larger dry bulk vessel fleets and greater financial resources than us, which may make them more
competitive. It is also likely that we will face increased numbers of competitors entering into our transportation sectors, including
in the dry bulk sector. Many of these competitors have strong reputations and extensive resources and experience. Increased competition
may cause greater price competition, especially for long-term charters. We believe that no single competitor has a dominant position
in the markets in which we compete.
The process for obtaining longer term time charters
generally involves a lengthy and intensive screening and vetting process and the submission of competitive bids. In addition to
the quality and suitability of the vessel, longer term shipping contracts may be awarded based upon a variety of other factors
relating to the vessel operator, including:
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environmental, health and safety record;
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compliance with regulatory industry standards;
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reputation for customer service, technical and operating expertise;
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shipping experience and quality of vessel operations, including cost-effectiveness;
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quality, experience and technical capability of crews;
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the ability to finance vessels at competitive rates and overall financial stability;
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environmental, social, and governance criteria;
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relationships with shipyards and the ability to obtain suitable berths;
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construction management experience, including the ability to procure on-time delivery of new vessels according to customer specifications;
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willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
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competitiveness of the bid in terms of overall price.
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As a result of these factors, we may be unable to
expand our relationships with existing customers or obtain new customers for long-term time charters on a profitable basis, if
at all. However, even if we are successful in employing our vessels under longer term charters, our vessels will not be available
for trading on the spot market during an upturn in the market cycle, when spot trading may be more profitable. If we cannot successfully
employ our vessels in profitable charters, our results of operations and operating cash flow could be materially adversely affected.
The Dry Bulk Shipping Industry
The world dry bulk fleet is generally divided into
six major categories, based on a vessel’s cargo carrying capacity. These categories consist of: Handysize, Handymax/Supramax,
Panamax, Kamsarmax, Capesize and Very Large Ore Carrier.
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Handysize. Handysize vessels have a carrying capacity of up to 39,999 dwt. These vessels are primarily involved
in carrying minor bulk cargoes. Increasingly, vessels of this type operate on regional trading routes, and may serve as trans-shipment
feeders for larger vessels. Handysize vessels are well suited for small ports with length and draft restrictions. Their cargo gear
enables them to service ports lacking the infrastructure for cargo loading and unloading.
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Handymax/Supramax. Handymax vessels have a carrying capacity of between 40,000 and 59,999 dwt. These vessels operate on
a large number of geographically dispersed global trade routes, carrying primarily iron ore, coal, grains and minor bulks. Within
the Handymax category there is also a sub-sector known as Supramax. Supramax bulk vessels are vessels between 50,000 to
59,999 dwt, normally offering cargo loading and unloading flexibility with on-board cranes, while at the same time possessing the
cargo carrying capability approaching conventional Panamax bulk vessels. Hence, the earnings potential of a Supramax dry bulk vessel,
when compared to a conventional Handymax vessel of 45,000 dwt, is greater.
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Panamax. Panamax vessels have a carrying capacity of between 60,000 and 79,999 dwt. These vessels carry coal, grains, and,
to a lesser extent, minor bulks, including steel products, forest products and fertilizers. The term “Panamax” refers
to vessels that were able to pass through the Panama Canal before the Panama Canal was expanded in June 2016 (to allow vessels
of up to 120,000 dwt). Panamax vessels are more versatile than larger vessels.
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Kamsarmax. Kamsarmax vessels typically have a carrying capacity of between 80,000 and 109,999 dwt. These vessels tend to
be shallower and have a larger beam than a standard Panamax vessel with a higher cubic capacity. They have been designed specifically
for loading high cubic cargoes from draught restricted ports. The term Kamsarmax stems from Port Kamsar in Guinea, where large
quantities of bauxite are exported from a port with only 13.5 meter draught and a 229 meter length overall restriction, but no
beam restriction.
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Capesize. Capesize vessels have carrying capacities of between 110,000 and 199,999 dwt. Only the largest ports around the
world possess the infrastructure to accommodate vessels of this size. Capesize vessels are mainly used to transport iron ore or
coal and, to a lesser extent, grains, primarily on long-haul routes.
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VLOC. Very large ore carriers are in excess of 200,000 dwt. VLOCs are built to exploit economies of scale on long-haul iron
ore routes.
The supply of dry bulk shipping capacity, measured
by the amount of suitable vessel tonnage available to carry cargo, is determined by the size of the existing worldwide dry bulk
fleet, the number of new vessels on order, the scrapping of older vessels and the number of vessels out of active service (i.e.,
laid up or otherwise not available for hire). In addition to prevailing and anticipated freight rates, factors that affect the
rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices,
costs of bunkers and other voyage expenses, costs associated with classification society surveys, normal maintenance and insurance
coverage, the efficiency and age profile of the existing fleets in the market and government and industry regulation of marine
transportation practices. The supply of dry bulk vessels is not only a result of the number of vessels in service, but also the
operating efficiency of the fleet. Dry bulk trade is influenced by the underlying demand for the dry bulk commodities which, in
turn, is influenced by the level of worldwide economic activity. Generally, growth in gross domestic product and industrial production
correlate with peaks in demand for marine dry bulk transportation services.
Dry bulk vessels are one of the most versatile elements
of the global shipping fleet in terms of employment alternatives. They seldom operate on round trip voyages with high ballasting
times. Rather, they often participate in triangular or multi-leg voyages.
Charter Rates
In the time charter market, rates vary depending on
the length of the charter period and vessel specific factors such as age, speed, size and fuel consumption. In the voyage charter
market, rates are influenced by cargo size, commodity, port dues and canal transit fees, as well as delivery and redelivery regions.
In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals
generally command higher rates. Voyages loading from a port where vessels usually discharge cargo, or discharging from a port where
vessels usually load cargo, are generally quoted at lower rates. This is because such voyages generally increase vessel efficiency
by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area.
Within the dry bulk shipping industry, the freight
rate indices issued by the Baltic Exchange in London are the references most likely to be monitored. These references are based
on actual charter hire rates under charters entered into by market participants as well as daily assessments provided to the Baltic
Exchange by a panel of major shipbrokers. The Baltic Exchange, an independent organization comprised of shipbrokers, shipping companies
and other shipping players, provides daily independent shipping market information and has created freight rate indices reflecting
the average freight rates (that incorporate actual business concluded as well as daily assessments provided to the exchange by
a panel of independent shipbrokers) for the major bulk vessel trading routes. These indices include the Baltic Panamax Index, the
index with the longest history and, more recently, the Baltic Capesize Index.
Charter (or hire) rates paid for dry bulk vessels are
generally a function of the underlying balance between vessel supply and demand. Over the past 25 years, dry bulk cargo charter
rates have passed through cyclical phases and changes in vessel supply and demand have created a pattern of rate “peaks”
and “troughs.” Generally, spot/voyage charter rates will be more volatile than time charter rates, as they reflect
short term movements in demand and market sentiment. The BDI remained significantly depressed from 2008-2018. In 2019 the BDI was
volatile and ranged from 595 on February 11, 2019 to as high as 2,518 on September 3, 2019. The BDI had a decreasing trend during
the first three months of 2020 reaching as low as 411 on February 10, 2020.
Vessel Prices
New-building vessel prices generally fell as part of
the sudden and steep decline in freight rates after August 2008, and have continued to gradually decline.
In broad terms, the secondhand market is affected by
both the newbuilding prices as well as the overall freight expectations and sentiment observed at any given time. As with newbuild
prices, secondhand vessel values have continued to gradually decline since August 2008.
Seasonality
Our fleet consists of dry bulk vessels that operate
in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. The dry bulk sector
is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in
the northern hemisphere during the winter months. Such seasonality will affect the rates we obtain on the vessels in our fleet
that operate on the spot market.
Permits and Authorizations
We are required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates
required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality
of the vessel’s crew and the age of a vessel. We have been able to obtain all permits, licenses and certificates currently
required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could
limit our ability to do business or increase our cost of doing business.
Disclosure of Activities pursuant to Section 13(r)
of the U.S. Securities Exchange Act of 1934
Section 219 of the Iran
Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an
issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating
to Iran. Disclosure is required even where the activities, transactions or dealings are conducted in compliance with applicable
law. Provided in this section is information concerning the activities of us and our affiliates that occurred in 2019 and which
we believe may be required to be disclosed pursuant to Section 13(r) of the Exchange Act.
In 2019, our vessels
did not call on any port call in Iran.
Our charter party agreements
for our vessels restrict the charterers from calling in Iran in violation of U.S. sanctions, or carrying any cargo to Iran which
is subject to U.S. sanctions. However, there can be no assurance that our vessels will not, from time to time in the future on
charterer's instructions, perform voyages which would require disclosure pursuant to Exchange Act Section 13(r).
January 16, 2016 was “implementation day”
under the Joint Comprehensive Plan of Action (“JCPOA”) among the P5+1 (China, France, Germany, Russia, the United Kingdom,
and the United States), the E.U., and Iran to ensure that Iran’s nuclear program will be exclusively peaceful, and the United
States and the E.U. lifted nuclear-related sanctions on Iran. However, in 2018, President Trump withdrew the United States from
the JCPOA, resulting in the complete reimposition of U.S. sanctions. As of now, the EU and other parties to the JCPOA have not
withdrawn, and the EU and United Nations sanctions that were lifted have not been reimposed. We intend to continue to charter our
vessels to charterers and sub-charterers, including, as the case may be, Iran-related parties, who may make, or may sub-let the
vessels to sub-charterers who may make, port calls to Iran, so long as the activities continue to be permissible and not sanctionable
under applicable U.S. and E.U. and other applicable laws (including U.S. “secondary sanctions”).
Inspection by Classification Societies
Every oceangoing vessel must be “classed”
by a classification society. The classification society certifies that the vessel is “in class,” signifying that the
vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules
and regulations of the vessel’s country of registry and the international conventions of which that country is a member.
In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes on request
other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements
made in each individual case and/or to the regulations of the country concerned. For maintenance of the class certification, regular
and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to
be performed as follows:
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Annual Surveys. For seagoing vessels, annual surveys are conducted for the hull and the machinery, including the electrical plant and where applicable for special equipment classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate.
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Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
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Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the vessel’s hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special survey the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one-year grace period for completion of the special survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period was granted, a shipowner has the option of arranging with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. At an owner’s application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.
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All areas subject to survey as defined by the classification
society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere.
The period between two subsequent surveys of each area must not exceed five years.
Most insurance underwriters make it a condition for
insurance coverage that a vessel be certified as “in class” by a classification society that is a member of the International
Association of Classification Societies. All the vessels that we own and operate are certified as being “in class”
by Nippon Kaiji Kyokai (Class NK), DNV GL or Bureau Veritas. Typically, all new and secondhand vessels that we purchase must be
certified “in class” prior to their delivery under our standard purchase contracts and memoranda of agreement. Under
our standard purchase contracts, unless negotiated otherwise, if the vessel is not certified on the date of closing, we would have
no obligation to take delivery of the vessel. Although we may not have an obligation to accept any vessel that is not certified
on the date of closing, we may determine nonetheless to purchase the vessel, should we determine it to be in our best interests.
If we do so, we may be unable to charter such vessel after we purchase it until it obtains such certification, which could increase
our costs and affect the earnings we anticipate from the employment of the vessel.
Vessels are drydocked during intermediate and special
surveys for repairs of their underwater parts. If “in water survey” notation is assigned, the vessel owner has the
option of carrying out an underwater inspection of the vessel in lieu of drydocking, subject to certain conditions. In the event
that an “in water survey” notation is assigned as part of a particular intermediate survey, drydocking would be required
for the following special survey thereby generally achieving a higher utilization for the relevant vessel. Drydocking can be undertaken
as part of a special survey if the drydocking occurs within 15 months prior to the special survey deadline.
The following table lists the dates by which we expect
to carry out the next drydockings and special surveys for the vessels in our fleet:
Vessel
Name
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Drydocking
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Special
Survey
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Classification
Society
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m/v River Globe
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January 2021
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December 2022
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Class NK
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m/v Sky Globe
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January 2023
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November 2024
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Class NK
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m/v Star Globe
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May 2020
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May 2020
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DNV GL
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m/v Moon Globe
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August 2020
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November 2020
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Class NK
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m/v Sun Globe
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August 2022
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August 2022
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Bureau Veritas
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Following an incident or a scheduled survey, if any
defects are found, the classification surveyor will issue a “recommendation or condition of class” which must be rectified
by the vessel owner within the prescribed time limits.
Risk Management and Insurance
General
The operation of any cargo vessel embraces a wide variety
of risks, including the following:
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mechanical failure or damage, for example by reason of the seizure of a main engine crankshaft;
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cargo loss, for example arising from hull damage;
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personal injury, for example arising from collision or piracy;
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losses due to piracy, terrorist or war-like action between countries;
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environmental damage, for example arising from marine disasters such as oil spills and other environmental mishaps;
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physical damage to the vessel, for example by reason of collision;
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damage to other property, for example by reason of cargo damage or oil pollution; and
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business interruption, for example arising from strikes and political or regulatory change.
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The value of such losses or damages may vary from modest
sums, for example for a small cargo shortage damage claim, to catastrophic liabilities, for example arising out of a marine disaster,
such as a serious oil or chemical spill, which may be virtually unlimited. While we maintain the traditional range of marine and
liability insurance coverage for our fleet (hull and machinery insurance, war risks insurance and protection and indemnity coverage)
in amounts and to extents that we believe are prudent to cover normal risks in our operations, we cannot insure against all risks,
and we cannot be assured that all covered risks are adequately insured against. Furthermore, there can be no guarantee that any
specific claim will be paid by the insurer or that it will always be possible to obtain insurance coverage at reasonable rates.
Any uninsured or under-insured loss could harm our business and financial condition.
Hull and Machinery and War Risks
The principal coverages for marine risks (covering
loss or damage to the vessels, rather than liabilities to third parties) are hull and machinery insurance and war risk insurance.
These address the risks of the actual or constructive total loss of a vessel and accidental damage to a vessel’s hull and
machinery, for example from running aground or colliding with another ship. These insurances provide coverage which is limited
to an agreed “insured value” which, as a matter of policy, is never less than the particular vessel’s fair market
value. Reimbursement of loss under such coverage is subject to policy deductibles that vary according to the vessel and the nature
of the coverage. Hull and machinery deductibles may, for example, be between $75,000 and $150,000 per incident whereas the war
risks insurance has a more modest incident deductible of, for example, $30,000.
Protection and Indemnity Insurance
Protection and indemnity insurance is a form of mutual
indemnity insurance provided by mutual marine protection and indemnity associations, or “P&I Clubs,” formed by
vessel owners to provide protection from large financial loss to one club member by contribution towards that loss by all members.
Each of the vessels that we operate is entered in the
Gard P&I (Bermuda) Ltd. which we refer to as the Club, for third party liability marine insurance coverage. The Club is
a mutual insurance vehicle. As a member of the Club, we are insured, subject to agreed deductibles and our terms of entry,
for our legal liabilities and expenses arising out of our interest in an entered ship, out of events occurring during the period
of entry of the ship in the Club and in connection with the operation of the ship, against specified risks. These risks include
liabilities arising from death of crew and passengers, loss or damage to cargo, collisions, property damage, oil pollution and
wreck removal.
The Club benefits from its membership in the International
Group of P&I Clubs, or the International Group, for its main reinsurance program, and maintains a separate complementary insurance
program for additional risks.
The Club’s policy year commences each February. The
mutual calls are levied by way of Estimated Total Premiums, or ETP, and the amount of the final installment of the ETP varies in
accordance with the actual total premium ultimately required by the Club for a particular policy year. Members have a liability
to pay supplementary calls which may be levied by the Club if the ETP is insufficient to cover the Club’s outgoings in a
policy year.
Cover per claim is generally limited to an unspecified
sum, being the amount available from reinsurance plus the maximum amount collectable from members of the International Group by
way of overspill calls. Certain exceptions apply, including a $1.0 billion limit on claims in respect of oil pollution, a
$3.0 billion limit on cover for passenger and crew claims and a sub-limit of $2.0 billion for passenger claims.
To the extent that we experience either a supplementary
or an overspill call, our policy is to expense such amounts. To the extent that the Club depends on funds paid in calls from other
members in our industry, if there were an industry-wide slow-down, other members might not be able to meet the call and we might
not receive a payout in the event we made a claim on a policy.
Uninsured Risks
Not all risks are insured and not all risks are insurable.
The principal insurable risks which nevertheless remain uninsured across our fleet are “loss of hire” and “strikes.”
We will not insure these risks because we regard the costs as disproportionate. These insurances provide, subject to a deductible,
a limited indemnity for hire that is not receivable by the shipowner for reasons set forth in the policy. For example, loss of
hire risk may be covered on a 14/90/90 basis, with a 14 days deductible, 90 days cover per incident and a 90-day overall limit
per vessel per year. Should a vessel on time charter, where the vessel is paid a fixed hire day by day, suffer a serious mechanical
breakdown, the daily hire will no longer be payable by the charterer. The purpose of the loss of hire insurance is to secure the
loss of hire during such periods.
Environmental and Other Regulations
Sources of Applicable Rules
and Standards
Shipping is one of the world’s most heavily regulated
industries, and it is subject to many industry standards. Government regulation significantly affects the ownership and operation
of vessels. These regulations consist mainly of rules and standards established by international conventions, but they also include
national, state and local laws and regulations in force in jurisdictions where vessels may operate or are registered, and which
may be more stringent than international rules and standards. This is the case particularly in the United States and, increasingly,
in Europe.
A variety of governmental and private entities subject
vessels to both scheduled and unscheduled inspections. These entities include local port authorities (the U.S. Coast Guard, harbor
masters or equivalent entities), classification societies, flag state administration (country vessel of registry), and charterers,
particularly terminal operators. Certain of these entities require vessel owners to obtain permits, licenses and certificates for
the operation of their vessels. Failure to maintain necessary permits or approvals could require a vessel owner to incur substantial
costs or temporarily suspend operation of one or more of its vessels.
Heightened levels of environmental and quality concerns
among insurance underwriters, regulators and charterers continue to lead to greater inspection and safety requirements on all vessels
and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand
for vessels that conform to stricter environmental standards. Vessel owners are required to maintain operating standards for all
vessels that will emphasize operational safety, quality maintenance, continuous training of officers and crews and compliance with
U.S. and international regulations. Because laws and regulations are frequently changed and may impose increasingly stricter requirements,
we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value
or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact
could result in additional legislation or regulation that could negatively affect our profitability.
The following is a non-exhaustive overview of certain
material conventions, laws and regulations that affect our business and the operation of our vessels. It is not a comprehensive
summary of all the conventions, laws and regulations to which we are subject.
The International Maritime Organization, or IMO, is
a United Nations agency setting standards and creating a regulatory framework for the shipping industry and has negotiated and
adopted a number of international conventions. These fall into two main categories, consisting firstly of those concerned generally
with vessel safety and security standards, and secondly of those specifically concerned with measures to prevent pollution from
vessels.
Ship Safety Regulation
A primary international safety convention is the Safety
of Life at Sea Convention of 1974, as amended, or SOLAS, including the regulations and codes of practice that form part of its
regime. Much of SOLAS is not directly concerned with preventing pollution, but some of its safety provisions are intended to prevent
pollution as well as promote safety of life and preservation of property. These regulations have been and continue to be regularly
amended as new and higher safety standards are introduced with which we are required to comply.
An amendment of SOLAS introduced in 1993 the International
Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, which has been mandatory since July
1998. The purpose of the ISM Code is to provide an international standard for the safe management and operation of vessels and
for pollution prevention. Under the ISM Code, the party with operational control of a vessel is required to develop, implement
and maintain 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 protecting the environment and
describing procedures for responding to emergencies. The ISM Code requires that vessel operators obtain a Safety Management Certificate
for each vessel they operate. This certificate issued after verification that the vessel’s operator and its shipboard management
operate in accordance with the approved safety management system and evidences that the vessel complies with the requirements of
the ISM Code. No vessel can obtain a Safety Management Certificate unless its operator has been awarded a document of compliance,
issued by the respective flag state for the vessel, under the ISM Code.
Another amendment of SOLAS, made after the terrorist
attacks in the United States on September 11, 2001, introduced special measures to enhance maritime security, including the International
Ship and Port Facility Security Code, or ISPS Code, which sets out measures for the enhancement of security of vessels and port
facilities.
The vessels that we operate maintain ISM and ISPS certifications
for safety and security of operations.
Regulations to Prevent Pollution from
Ships
In the second main category of international regulation
which deals with prevention of pollution, the primary convention is the International Convention for the Prevention of Pollution
from Ships 1973 as amended by the 1978 Protocol, or MARPOL, which imposes environmental standards on the shipping industry set
out in its Annexes I-VI. These contain regulations for the prevention of pollution by oil (Annex I), by noxious liquid substances
in bulk (Annex II), by harmful substances in packaged forms within the scope of the International Maritime Dangerous Goods Code
(Annex III), by sewage (Annex IV), by garbage (Annex V) and by air emissions (Annex VI).
These regulations have been and continue to be regularly
amended and supplemented as new and higher standards of pollution prevention are introduced with which we are required to comply.
For example, MARPOL Annex VI sets limits on Sulphur
Oxides (SOx) and Nitrogen Oxides (NOx) and particulate matter emissions from vessel exhausts and prohibits deliberate emissions
of ozone depleting substances. It also regulates the emission of volatile organic compounds (VOC) from cargo tankers and certain
gas carriers, as well as shipboard incineration of specific substances. Annex VI also includes a global cap on the sulphur content
of fuel oil with a lower cap on the sulphur content applicable inside special areas, the “Emission Control Areas” or
ECAs. Already established ECAs include the Baltic Sea, the North Sea, including the English Channel, the North American area and
the US Caribbean Sea area. The global cap on the sulphur content of fuel oil was reduced to 0.5% as of January 1, 2020, regardless
of whether a ship is operating outside a designated ECA. From January 1, 2015 the cap on the sulphur content of fuel oil for vessels
operating in ECAs has been 0.1%. Annex VI also provides for progressive reductions in NOx emissions from marine diesel engines
installed in vessels. Limiting NOx emissions is set on a three tier reduction, the final tier (“Tier III”) applying
to engines installed on vessels constructed on or after January 1, 2016 and which operate in the North American ECA or the US Caribbean
Sea ECA. The Tier III requirements would also apply to engines of vessels operating in other ECAs as may be designated in the future
by the IMO’s Marine Environment Protection Committee (or MEPC) for Tier III NOx control. In October 2016, the MEPC approved
the designation of the North Sea and the Baltic Sea as ECAs for NOx emissions. These two new NOx ECAs and the related amendments
to Annex VI were adopted by IMO’s MEPC in 2017 and the two new ECAs and the related amendments (with some exceptions) entered
into effect on January 1, 2019. The Tier III requirements do not apply to engines installed on vessels constructed prior to January
1, 2021, if they are of less than 500 gross tons, of 24 meters or over in length, and have been designed and used solely for recreational
purposes. We anticipate incurring costs at each stage of implementation on all these areas. Currently we are compliant in all our
vessels.
Greenhouse Gas Emissions
In February 2005, the Kyoto Protocol to the United
Nations Framework Convention on Climate Change entered into force. Pursuant to the Kyoto Protocol, adopting countries are required
to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected
of contributing to global warming. Currently, the greenhouse gas emissions from international shipping do not come under the Kyoto
Protocol. In December 2009, more than 27 nations, including the United States, entered into the Copenhagen Accord. The Copenhagen
Accord is non-binding, but is intended to pave the way for a comprehensive, international treaty on climate change. On December
12, 2015 the Paris Agreement was adopted by 195 countries. The Paris Agreement deals with greenhouse gas emission reduction measures
and targets from 2020 in order to limit the global temperature increases above pre-industrial levels to well below 2˚ Celsius.
Although shipping was ultimately not included in the Paris Agreement, it is expected that the adoption of the Paris Agreement may
lead to regulatory changes in relation to curbing greenhouse gas emissions from shipping. The Paris Agreement has been ratified
by a large number of countries and entered into force on November 4, 2016. On November 4, 2019, the United States began the process
of withdrawing from the Paris Agreement.
In July 2011 the IMO adopted regulations imposing technical
and operational measures for the reduction of greenhouse gas emissions. These new regulations formed a new chapter in Annex VI
of MARPOL and became effective on January 1, 2013. The new technical and operational measures include the “Energy Efficiency
Design Index,” which is mandatory for newbuilding vessels, and the “Ship Energy Efficiency Management Plan,”
which is mandatory for all vessels. In October 2016 the MEPC adopted updated guidelines for the calculation of the Energy-Efficiency
Design Index. In addition, the IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international
shipping, which may include market-based instruments or a carbon tax. In October 2016, the IMO adopted a mandatory data collection
system under which vessels of 5,000 gross tonnage and above are to collect fuel consumption data and to report the aggregated data
to their flag state at the end of each calendar year. The new requirements entered into force on March 1, 2018. In April 2018,
the MEPC adopted an initial strategy on the reduction of greenhouse gas emissions from ships , which envisages a reduction in total
greenhouse gas emissions from international shipping by at least 50% by 2050 compared to 2008.
The EU adopted Regulation (EU) 2015/757 on the monitoring,
reporting and verification of carbon dioxide emissions from vessels (or the MRV Regulation), which was published in the Official
Journal on May 19, 2015 and entered into force on July 1, 2015 (as amended by Regulation (EU) 2016/2071). The MRV Regulation applies
to all vessels over 5,000 gross tonnage (except for a few types, such as, amongst others, warships and fish catching or fish processing
vessels), irrespective of flag, in respect of carbon dioxide emissions released during intra-EU voyages and EU incoming and outgoing
voyages. The first reporting period commenced on January 1, 2018. The monitoring, reporting and verification system adopted by
the MRV Regulation may be the precursor to a market-based mechanism to be adopted in the future. The EU continues to consider proposals
for the inclusion of shipping in the EU Emissions Trading System in the absence of a comparable system operating under the IMO.
Individual EU Member States may impose additional requirements. In the United States, the U.S. Environmental Protection Agency,
or EPA, issued an “endangerment finding” regarding greenhouse gases under the Clean Air Act. While this finding in
itself does not impose any requirements on our industry, it authorizes the EPA to regulate directly greenhouse gas emissions through
a rule-making process. Any passage of new climate control legislation or other regulatory initiatives by the IMO, EU, the United
States or other countries or states where we operate that restrict emissions of greenhouse gases could have a significant financial
and operational impact on our business through increased compliance costs or additional operational restrictions that we cannot
predict with certainty at this time.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention
on the Control of Harmful Anti-fouling Systems on Ships, or the Anti-fouling Convention. The Anti-fouling Convention, which entered
into force in September 2008, prohibits and/or restricts 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 must obtain an International
Anti-Fouling System Certificate and undergo a survey before the vessel is put into service or before the Anti-fouling System Certificate
is issued for the first time and when the anti-fouling systems are altered or replaced.
Other International Regulations
to Prevent Pollution
In addition to MARPOL, other more specialized international
instruments have been adopted to prevent different types of pollution or environmental harm from vessels.
In February 2004, the IMO adopted an International
Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention. The BWM Convention,
which entered into force on September 8, 2017, aims to prevent the spread of harmful aquatic organisms from one region to another,
by establishing standards and procedures for the management and control of vessels’ ballast water and sediments. The BWM
Convention’s implementing regulations require vessels to conduct ballast water management in accordance with the standards
set out in the convention, which include performance of ballast water exchange in accordance with the requirements set out in the
relevant regulation and the gradual phasing in of a ballast water performance standard which requires ballast water treatment and
the installation of ballast water treatment systems on board the vessels. Under the BWM Convention, vessels are required to implement
a Ballast Water and Sediments Management Plan, carry a Ballast Water Record Book and an International Ballast Water Management
Certificate. Pursuant to the BWM Convention amendments that entered into force in October 2019, ballast water management systems
(“BWMSs”) installed on or after October 28, 2020 shall be approved in accordance with BWMS Code, while BWMSs installed
before October 23, 2020 must be approved taking into account guidelines developed by the IMO or the BWMS Code. Ships sailing in
U.S. waters are required to employ a type-approved BWMS which is compliant with USCG regulations. The U.S. Coast Guard has approved
a number of BWMS.
The Hong Kong International Convention for the Safe
and Environmentally Sound Recycling of Ships adopted by the IMO in 2009, or the Recycling Convention, deals with issues relating
to ship recycling and aims to address the occupational health and safety, as well as environmental risks relating to ship recycling.
It contains regulations regarding the design, construction, operation, maintenance and recycling of vessels, as well as regarding
their survey and certification to verify compliance with the requirements of the Recycling Convention. The Recycling Convention,
amongst other things, prohibits and/or restricts the installation or use of hazardous materials on vessels and requires vessels
to have on board an inventory of hazardous materials specific to each vessel. It also requires ship recycling facilities to develop
a ship-recycling plan for each vessel prior to its recycling. Parties to the Recycling Convention are to ensure that ship-recycling
facilities are designed, constructed and operated in a safe and environmentally sound manner and that they are authorized by competent
authorities after verification of compliance with the requirements of the Recycling Convention. The Recycling Convention (which
is not effective yet) is to enter into force 24 months after a specified minimum number of states with a combined gross tonnage
and maximum annual recycling volume during the preceding 10 years have ratified it.
A MARPOL regulation and the International Convention
on Oil Pollution Preparedness, Response and Co-operation, 1990 also require owners and operators of vessels to adopt Shipboard
Oil Pollution Emergency Plans. Another MARPOL regulation sets out similar requirements for the adoption of shipboard marine pollution
emergency plans for noxious liquid substances with respect to vessels carrying such substances in bulk. Periodic training and drills
for response personnel and for vessels and their crews are required.
European Regulations
European regulations in the maritime sector are in
general based on international law most of which were promulgated by the IMO and then adopted by the Member States. However, since
the Erika incident in 1999, when the Erika broke in two off the coast of France while carrying heavy fuel oil, the
European Union (or EU) has become increasingly active in the field of regulation of maritime safety and protection of the environment.
It has been the driving force behind a number of amendments of MARPOL (including, for example, changes to accelerate the timetable
for the phase-out of single hull tankers, and prohibiting the carriage in such tankers of heavy grades of oil), and if dissatisfied
either with the extent of such amendments or with the timetable for their introduction it has been prepared to legislate on a unilateral
basis. In some instances where it has done so, international regulations have subsequently been amended to the same level of stringency
as that introduced in the EU, but the risk is well established that EU regulations (and other jurisdictions) may from time to time
impose burdens and costs on shipowners and operators which are additional to those involved in complying with international rules
and standards.
In some areas of regulation the EU has introduced new
laws without attempting to procure a corresponding amendment of international law. Notably, it adopted in 2005 a directive on ship-source
pollution (which has been amended in 2009), imposing criminal sanctions for discharges of oil and other noxious substances from
vessels sailing in its waters, irrespective of their flag not only where such pollution is caused by intent or recklessness (which
would be an offense under MARPOL), but also where it is caused by “serious negligence.” The directive could therefore
result in criminal liability being incurred in circumstances where it would not be incurred under international law. Experience
has shown that in the emotive atmosphere often associated with pollution incidents, retributive attitudes towards vessel interests
have found expression in negligence being alleged by prosecutors and found by courts on grounds which the international maritime
community has found hard to understand. Moreover, there is skepticism that the notion of “serious negligence” is likely
to prove any narrower in practice than ordinary negligence. Criminal liability for a pollution incident could not only result in
us incurring substantial penalties or fines but may also, in some jurisdictions, facilitate civil liability claims for greater
compensation than would otherwise have been payable.
The EU has also adopted legislation requiring the use
of low sulphur fuel. Under Council Directive 1999/32/EC as subsequently amended, from January 1, 2015, vessels have been required
to burn fuel with a sulphur content not exceeding 0.1% while within EU member states’ territorial seas, exclusive economic
zones and pollution control zones falling within sulphur oxide (SOx) Emission Control Areas (or SECAs), such as the Baltic Sea
and the North Sea, including the English Channel. Further sea areas may be designated as SECAs in the future by the IMO in accordance
with MARPOL Annex VI. Directive 1999/32/EC was repealed and codified by 2016/802/EU to align with the revised Annex VI.
The EU has also adopted legislation (Directive 2009/16/EC
on Port State Control, as subsequently amended) which requires the Member States to refuse access to their ports to certain sub-standard
vessels according to various factors, such as the vessel’s condition, flag and number of previous detentions within certain
preceding periods; creates obligations on the part of EU member port states to inspect minimum percentages of vessels using their
ports annually; and provides for increased surveillance of vessels posing a high risk to maritime safety or the marine environment.
If deficiencies are found that are clearly hazardous to safety, health or the environment, the state is required to detain the
vessel or stop loading or unloading until the deficiencies are addressed. Member states are also required to implement their own
separate systems of proportionate penalties for breaches of these standards. Further, another EU directive (Directive 2000/59/EC)
requires all ships (except for warships, naval auxiliary or other state-owned or state-operated ships on non-commercial service),
irrespective of flag, calling at, or operating within, ports of Member States to deliver all ship-generated waste and cargo residues
to port reception facilities. Under this directive, a fee is payable by the ships for the use of the port reception facilities,
including the treatment and disposal of the waste. The ships may be subject to an inspection for verification of their compliance
with the requirements of the directive and penalties may be imposed for their breach.
Commission Regulation (EU) No 802/2010, which was adopted
by the European Commission in September 2010, as part of the implementation of the Port State Control Directive and came into force
on January 1, 2011, as subsequently amended by Regulation 1205/2012 of December 14, 2012, introduced a ranking system (published
on a public website and updated daily) displaying shipping companies operating in the EU with the worst safety records. The ranking
is judged upon the results of the technical inspections carried out on the vessels owned by a particular shipping company. Those
shipping companies that have the most positive safety records are rewarded by being subjected to fewer inspections, whilst those
with the most safety shortcomings or technical failings recorded upon inspection are to be subjected to a greater frequency of
official inspections of their vessels.
By Directive 2009/15/EC of April 23, 2009 (on common
rules and standards for ship inspection and survey organizations and for the relevant activities of maritime administrations) as
amended by Directive 2014/111/EU of December 17, 2014, the European Union has established measures to be followed by the Member
States for the exercise of authority and control over classification societies, including the ability to seek to suspend or revoke
the authority of classification societies that are negligent in their duties.
The EU has also adopted Regulation (EU) No 1257/2013
which lays down rules in relation to ship recycling and management of hazardous materials on vessels. The Regulation lays down
requirements for the recycling of vessels in an environmentally sound manner at approved recycling facilities which meet certain
requirements, so as to minimize the adverse effects of recycling on human health and the environment. The Regulation also lays
down rules for the control and proper management of hazardous materials on vessels and prohibits or restricts the installation
or use of certain hazardous materials on vessels. The Regulation aims at facilitating the ratification of the Recycling Convention.
It applies to vessels flying the flag of a Member State and certain of its provisions apply to vessels flying the flag of a third
country calling at a port or anchorage of a Member State. For example, when calling at a port or anchorage of a Member State, the
vessels flying the flag of a third country will be required, amongst other things, to have on board an inventory of hazardous materials
which complies with the requirements of the Regulation and to be able to submit to the relevant authorities of that Member State
a copy of a statement of compliance issued by the relevant authorities of the country of their flag and verifying the inventory.
The Regulation generally entered into force on December 31, 2018, although certain of its provisions are to apply at different
stages, with certain of them applicable from December 31, 2020. Pursuant to the Regulation, the EU Commission publishes from time
to time a European List of approved ship recycling facilities meeting the requirements of the Regulation. On January 22, 2020 the
EU Commission published an implementing decision which included an updated version of the European List.
Compliance Enforcement
The flag state, as defined by the United Nations Convention
on the Law of the Sea, has overall responsibility for the implementation and enforcement of international maritime regulations
for all vessels granted the right to fly its flag. The “Shipping Industry Guidelines on Flag State Performance” issued
by the International Chamber of Shipping in cooperation with other international shipping associations evaluates flag states based
on factors such as port state control record, ratification of major international maritime treaties, use of recognized organizations
conducting survey work on their behalf which comply with the IMO guidelines, age of fleet, compliance with reporting requirements
and participation at IMO meetings. The vessels that we operate are flagged in the Marshall Islands and Malta. Marshall Islands-
and Malta-flagged vessels have historically received a good assessment in the shipping industry.
Noncompliance with the ISM Code or other IMO regulations
may subject the shipowner or bareboat charterer to increased liability and, if the implementing legislation so provides, to criminal
sanctions, may lead to decreases in available insurance coverage for affected vessels or may invalidate or result in the loss of
existing insurance cover and may result in the denial of access to, or detention in, some ports. The U.S. Coast Guard and European
Union authorities have, for example, indicated that vessels not in compliance with the ISM Code will be prohibited from trading
in U.S. and European Union ports, respectively. As of the date of this annual report on Form 20-F, each of our vessels is ISM Code
certified. However, there can be no assurance that such certificate will be maintained.
The IMO, the EU and other regulatory authorities continue
to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the
IMO, the EU and/or other regulatory authorities and what effect, if any, such regulations may have on our operations.
United States Environmental Regulations
and Laws Governing Civil Liability for Pollution
Environmental legislation in the United States merits
particular mention as it is in many respects more onerous than international laws, representing a high-water mark of regulation
with which shipowners and operators must comply, and of liability likely to be incurred in the event of non-compliance or an incident
causing pollution.
U.S. federal legislation, including notably the OPA,
establishes an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills, including
bunker oil spills from dry bulk vessels as well as cargo or bunker oil spills from tankers. The OPA affects all owners and operators
whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which
includes the United States’ territorial sea and its 200 nautical mile exclusive economic zone. Under the OPA, vessel owners,
operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable without
regard to fault (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 substantial threats of discharges of oil from their
vessels. The OPA expressly allows the individual states of the United States to impose their own liability regimes for the discharge
of petroleum products. In addition to potential liability under the OPA as the relevant federal legislation, vessel owners may
in some instances incur liability on an even more stringent basis under state law in the particular state where the spillage occurred.
The OPA requires the owner or operator of any non-tank
vessel of 400 gross tons or more that carries oil of any kind as a fuel for main propulsion, including bunkers, to prepare and
submit a response plan for each vessel. The vessel response plans must include detailed information on actions to be taken by vessel
personnel to prevent or mitigate any discharge or substantial threat of such a discharge of oil from the vessel.
The OPA limits the liability of responsible parties
to the greater of $1,200 per gross ton or $997,100 per non-tank vessel (subject to possible adjustment for inflation). However,
these limits of liability do not apply if an incident was proximately caused by violation of applicable United States federal safety,
construction or operating regulations or by a responsible party’s gross negligence or willful misconduct, or if the responsible
party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
In addition, the Comprehensive Environmental Response,
Compensation, and Liability Act, or CERCLA, which applies to the discharge of hazardous substances (other than oil) whether on
land or at sea, contains a similar liability regime and provides for cleanup, removal and natural resource damages. Liability under
CERCLA is limited to the greater of $300 per gross ton or $0.5 million for vessels not carrying hazardous substances as cargo or
residue (or the greater of $300 per gross ton or $5.0 million for vessels carrying hazardous substances) unless the incident is
caused by gross negligence, willful misconduct or a violation of certain regulations, in which case liability is unlimited.
We maintain, for each of our vessels, protection and
indemnity coverage against pollution liability risks in the amount of $1.0 billion per event. This insurance coverage is subject
to exclusions, deductibles and other terms and conditions. If any liabilities or expenses fall within an exclusion from coverage,
or if damages from a catastrophic incident exceed the $1.0 billion limitation of coverage per event, our cash flow, profitability
and financial position could be adversely impacted.
We believe our insurance and protection and indemnity
coverage as described above meets the requirements of the OPA.
The OPA requires owners and operators of all vessels
over 300 gross tons, even those that do not carry petroleum or hazardous substances as cargo, to establish and maintain with the
U.S. Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under the OPA. Under the regulations,
vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance
or guaranty.
Under the OPA, an owner or operator of a fleet of vessels
is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessel in the fleet having
the greatest limited liability under the OPA.
The U.S. Coast Guard’s regulations concerning
certificates of financial responsibility provide, in accordance with the OPA, that claimants may bring suit directly against an
insurer or guarantor that furnishes the guaranty that supports the certificates of financial responsibility. In the event that
such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against
the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party.
The OPA specifically permits individual states to impose
their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted
legislation providing for unlimited liability for oil spills. In some cases, states that have enacted such legislation have not
yet issued implementing regulations defining vessels owners’ responsibilities under these laws. We intend to comply with
all applicable state regulations in the ports where our vessels call.
The United States Clean Water Act, or CWA, prohibits
the discharge of oil or hazardous substances in U.S. navigable waters and imposes strict liability in the form of penalties for
unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements
the remedies available under CERCLA.
The EPA enacted rules governing the regulation of ballast
water discharges and other discharges incidental to the normal operation of vessels within U.S. waters. Under the rules, commercial
vessels 79 feet in length or longer (other than commercial fishing vessels), or Regulated Vessels, are required to obtain a CWA
permit regulating and authorizing such normal discharges. This permit, which the EPA had designated as the Vessel General Permit
for Discharges Incidental to the Normal Operation of Vessels, or VGP, incorporated the then current U.S. Coast Guard requirements
for ballast water management as well as supplemental ballast water requirements, and included limits applicable to specific discharge
streams, such as deck runoff, bilge water and gray water. The VGP was effective December 18, 2018.
The Vessel Incidental Discharge Act (or VIDA) was signed
into law on December 4, 2018, and establishes a new framework for the regulation of vessel incidental discharges under the CWA.
VIDA requires the EPA to develop performance standards for incidental discharges, and requires the U.S. Coast Guard to develop
regulations within two years of the EPA’s promulgation of standards. Under VIDA, all provisions of the Vessel General Permit
remain in force and effect as currently written until the U.S. Coast Guard regulations are published.
Vessels that are constructed after December 1, 2013
are subject to the ballast water numeric effluent limitations. Several U.S. states have added specific requirements to the VGP
and, in some cases, may require vessels to install ballast water treatment technology to meet biological performance standards.
Security Regulations
Since the terrorist attacks of September 11, 2001,
there have been a variety of initiatives intended to enhance vessel security. In November 2002, the MTSA came into effect. To implement
certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002,
amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new chapter went into
effect on July 1, 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained
in the newly created ISPS Code. Among the various requirements are:
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on-board installation of automatic information systems to enhance vessel-to-vessel and vessel-to-shore communications;
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on-board installation of ship security alert systems;
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the development of vessel security plans; and
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compliance with flag state security certification requirements.
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The U.S. Coast Guard regulations, intended to be aligned
with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels
have on board a valid International Ship Security Certificate that attests to the vessel’s compliance with SOLAS security
requirements and the ISPS Code. The vessels in our fleet that we operate have on board valid International Ship Security Certificates
and, therefore, will comply with the requirements of the MTSA.
International Laws Governing
Civil Liability to Pay Compensation or Damages
Although the United States is not a party to the International
Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by the 1992 Protocol and further amended in 2000, or
the CLC (which has been adopted by the IMO and sets out a liability regime in relation to oil pollution damage), many countries
are parties and have ratified either the original CLC or its 1992 Protocol. Under the CLC, a vessel’s registered owner is
strictly liable for pollution damage caused in the territorial waters or, under the 1992 Protocol, in the exclusive economic zone
or equivalent area, of a contracting state by discharge of persistent oil, subject to certain defenses and subject to the right
to limit liability. The original CLC applies to vessels carrying oil as cargo and not in ballast, whereas the CLC as amended by
the 1992 Protocol applies to tanker vessels and combination carriers (i.e., vessels which sometimes carry oil in bulk and sometimes
other cargoes) but only when the latter carry oil in bulk as cargo and during any voyage following such carriage (to the extent
they have oil residues on board). The limits on liability are based on the use of the International Monetary Fund currency unit
of Special Drawing Rights, or SDR. The value of the SDR is based on a basket of five major currencies – the U.S. dollar,
the Euro, the Chinese renminbi, the Japanese yen, and the Great British pound sterling. Under the 2000 amendment to the 1992 Protocol
that became effective on November 1, 2003, for vessels between 5,000 and 140,000 gross tons (a unit of measurement for the total
enclosed spaces within a vessel), liability is limited to approximately 4.51 million SDR plus 631 SDR for each additional gross
ton over 5,000. For vessels of over 140,000 gross tons, liability is limited to 89.77 million SDR.. Under the original CLC, the
right to limit liability is forfeited where the incident causing the damage is caused by the owner’s actual fault or privity
and under the 1992 Protocol where the relevant incident is caused by the owner’s personal act or omission, committed with
the intent to cause such damage, or recklessly and with knowledge that such damage would probably result. Vessels trading with
states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions
where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis
of fault or in a manner similar to that of the convention. We believe that our protection and indemnity insurance will cover the
liability under the regime adopted by the IMO.
The CLC is supplemented by the International Convention
on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971, as amended (or the Fund Convention).
The purpose of the Fund Convention was the creation of a supplementary compensation fund (the International Oil Pollution Compensation
Fund, or IOPC Fund) which provides additional compensation to victims of a pollution incident who are unable to obtain adequate
or any compensation under the CLC.
In 2001, the IMO adopted the International Convention
on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, which covers liability and compensation for pollution
damage caused in the territorial waters or the exclusive economic zone or equivalent area of ratifying states by discharges of
“bunker oil.” The Bunker Convention defines “bunker oil” as “any hydrocarbon mineral oil, including
lubricating oil, used or intended to be used for the operation or propulsion of the ship, and any residues of such oil.”
The Bunker Convention imposes strict liability (subject to certain defenses) on the shipowner (which term includes the registered
owner, bareboat charterer, manager and operator of the vessel). It also requires registered owners of vessels over a certain size
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 Convention on Limitation of Liability for Maritime
Claims of 1976, as amended by the 1996 Protocol to it, or the 1976 Convention). The Bunker Convention entered into force in November
2008. In other jurisdictions, liability for spills or releases of oil from vessels’ bunkers continues to be determined by
the national or other domestic laws in the jurisdiction where the events or damages occur.
The IMO’s International Convention on Liability
and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea 1996, as superseded by the
2010 Protocol, or the HNS Convention, sets out a liability regime for loss or damage caused by hazardous or noxious substances
carried on board a vessel. These substances are listed in the convention itself or defined by reference to lists of substances
included in various IMO conventions and codes. The HNS Convention covers loss or damage by contamination to the environment, costs
of preventive measures and further damage caused by such measures, loss or damage to property outside the ship and loss of life
or personal injury caused by such substances on board or outside the ship. It imposes strict liability (subject to certain defenses)
on the registered owner of the vessel and provides for limitation of liability and compulsory insurance. The owner’s right
to limit liability is lost if it is proved that the damage resulted from the owner’s personal act or omission, committed
with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result. The HNS Convention
has not entered into force yet.
Outside the United States, national laws generally
provide for the owner to bear strict liability for pollution, subject to a right to limit liability under applicable national or
international regimes for limitation of liability. The most widely applicable international regime limiting maritime pollution
liability is the 1976 Convention. However, claims for oil pollution damage within the meaning of the CLC or any Protocol or amendment
to it are expressly excepted from the limitation regime set out in the 1976 Convention. Rights to limit liability under the 1976
Convention are forfeited where it is proved that the loss resulted from the shipowner’s personal act or omissions, committed
with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result. Some states have ratified
the 1996 Protocol to the 1976 Convention, which provides for liability limits substantially higher than those set forth in the
original 1976 Convention to apply in such states. Finally, some jurisdictions are not a party to either the 1976 Convention or
the 1996 Protocol, and some are parties to other earlier limitation of liability conventions and, therefore, shipowners’
rights to limit liability for maritime pollution in such jurisdictions may be different or uncertain.
The Maritime Labour Convention
The International Labour Organization’s Maritime
Labour Convention was adopted in 2006 (“MLC 2006”). The basic aims of the MLC 2006 are to ensure comprehensive worldwide
protection of the rights of seafarers and to establish a level playing field for countries and ship owners committed to providing
decent working and living conditions for seafarers, protecting them from unfair competition on the part of substandard ships. The
Convention was ratified on August 20, 2012, and all our vessels have been certified, as required. The MLC 2006 requirements have
not had a material effect on our operations.
C. Organizational
Structure
Globus Maritime Limited is a holding company. As of
the date of this annual report, Globus wholly owns six operational subsidiaries, five of which are Marshall Islands corporations
and one of which is incorporated in Malta. Five of our operational subsidiaries each own one vessel and our sixth operational subsidiary,
our Manager, provides the technical and day-to-day commercial management of our fleet and also previously provided consultancy
services to an affiliated ship-management company. Our Manager maintains ship management agreements with each of our vessel-owning
subsidiaries.
D. Property, Plants
and Equipment
In August 2006, our Manager entered into a rental agreement
for 350 square meters of office space for our operations within a building owned by Cyberonica S.A., a related party to us. Rental
expense was €14,578 per month until December 31, 2015. The rental agreement provided for an annual increase in rent of 2%
above the rate of inflation as set by the Bank of Greece. The contract ran for nine years and could have been terminated by us
with six months’ notice, and terminated at the end of 2015. In 2016 we renewed the rental agreement at a monthly rate of
€10,360 ($11,900) with a lease period ending January 2, 2025. We do not presently own any real estate. As of December 31,
2019, we owed Cyberonica approximately $91,000 of back rent.
For information about our vessels and how we account
for them, see “Item 5. Operating and Financial Review and Prospects. A. Operating Results – Results of Operations –
Critical Accounting Policies – Impairment of Long-Lived Assets.” Other than our vessels, we do not have any material
property. Our vessels are subject to priority mortgages, which secure our obligations under our various loan and credit facilities.
For further details regarding our loan agreements and
credit facilities, please see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources
— Indebtedness.”
We have no manufacturing capacity, nor do we produce
any products.
We believe that our existing facilities are adequate
to meet our needs for the foreseeable future.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review
and Prospects
The following discussion should be read in conjunction
with our consolidated financial statements and the accompanying notes thereto included elsewhere in this annual report on Form
20-F. We believe that the following discussion contains forward-looking statements that involve risks and uncertainties. Actual
results or plan of operations could differ materially from those anticipated by forward-looking information due to factors discussed
under “Item 3.D. Risk Factors” and elsewhere in this annual report on Form 20-F. Please see the section
“Cautionary Note Regarding Forward-Looking Statements” at the beginning of this annual report on Form 20-F.
A. Operating Results
Overview
We are an integrated dry bulk shipping company, which
began operations in September 2006, providing marine transportation services on a worldwide basis. We own, operate and manage a
fleet of dry bulk vessels that transport iron ore, coal, grain, steel products, cement, alumina and other dry bulk cargoes internationally.
Following the conclusion of our initial public offering on June 1, 2007, our common shares were listed on the AIM under the ticker
“GLBS.L.” On July 29, 2010, we effected a one-for-four reverse stock split, with our issued share capital resulting
in 7,240,852 common shares of $0.004 each. On November 24, 2010, we redomiciled into the Marshall Islands pursuant to the BCA and
a resale registration statement for our common shares was declared effective by the SEC. Once the resale registration statement
was declared effective by the SEC, our common shares began trading on the Nasdaq Global Market under the ticker “GLBS.”
We delisted our common shares from the AIM on November 26, 2010.
On June 30, 2011, we completed a follow-on public offering
in the United States under the Securities Act, of 2,750,000 common shares at a price of $8.00 per share, the net proceeds of which
amounted to approximately $20 million. (These figures do not reflect the 4-1 reverse stock split which occurred in October 2016
or the 10-1 reverse stock split which occurred in October 2018.)
As of December 31, 2010, our fleet consisted of five
dry bulk vessels (three Supramaxes, one Panamax and one Kamsarmax) with an aggregate carrying capacity of 319,664 dwt. In March
2011, we purchased from an unaffiliated third party a 2007-built Supramax vessel for $30.3 million. The vessel was delivered in
September 2011 and was named Sun Globe. In May 2011, we purchased from an unaffiliated third party a 2005-built Panamax
vessel for $31.4 million. The vessel was delivered in June 2011 and was named Moon Globe.
In July 2015, we sold m/v Tiara Globe, a 1998-built
Panamax.
In March 2016, we reached a settlement agreement with
Commerzbank relating to the loan agreement between Kelty Marine Ltd. and Commerzbank. Commerzbank agreed to settle the outstanding
indebtedness of $15.65 million in return for the sale of the shares of Kelty Marine Ltd. for $6.86 million plus overdue interest
of $40,708, to an unrelated third party.
On April 11, 2016 our common shares began trading on
the Nasdaq Capital Market and ceased trading on the Nasdaq Global Market, without a change in our ticker.
On October 20, 2016, we effected
a four-for-one reverse stock split which reduced the number of outstanding common shares from 10,510,741 to 2,627,674 shares (adjustments
were made based on fractional shares).
In July 2016, we redeemed the remaining
2,567 of our Series A Preferred Shares that were issued and outstanding.
We conducted a private placement on February 8, 2017,
in which we issued, for gross proceeds of $5 million, an aggregate of 5 million common shares and warrants to purchase 25 million
common shares at a price of $1.60 per share (subject to adjustment; these figures do not reflect a 10-1 reverse stock split which
occurred in October 2018), in a private placement to a group of private investors. The Company has used the proceeds from the sale
of common shares and warrants for general corporate purposes and working capital including repayment of debt. In connection with
the February, 2017 private placement, we terminated an aggregate of $20 million of the outstanding principal and interest of the
Firment Credit Facility and the Silaner Credit Facility in exchange for issuing 20 million shares and warrants exercisable for
7,380,017 common shares at a price of $1.60 per share (subject to adjustment; these figures do not reflect a 10-1 reverse stock
split which occurred in October 2018) to nominees of the lenders. In each instance, the outstanding amounts were paid in their
entirety subsequent to the close of the February 2017 private placement, but the Facilities remained available to the Company.
Both lenders are related parties to the Company.
On October 19, 2017, we entered into a Share and Warrant
Purchase Agreement pursuant to which we sold for $2.5 million an aggregate of 2.5 million of our common shares and a warrant to
purchase 12.5 million of our common shares at a price of $1.60 per share (subject to adjustment; these figures do not reflect a
10-1 reverse stock split which occurred in October 2018) to an investor in a private placement.
On October 15, 2018, we effected a ten-for-one reverse
stock split which reduced the number of outstanding common shares from 32,065,077 to 3,206,495 shares (adjustments were made based
on fractional shares).
In November 2018, we entered into a credit facility
for up to $15 million with Firment Shipping Inc., a related party to us, for the purpose of financing our general working capital
needs. The Firment Shipping Credit Facility is unsecured and remains available until its final maturity on April 1, 2021, as amended.
We have the right to drawdown any amount up to $15 million or prepay any amount in multiples of $100,000. Any prepaid amount can
be re-borrowed in accordance with the terms of the facility. Interest on drawn and outstanding amounts is charged at 7% per annum
and no commitment fee was charged on the amounts remaining available and undrawn. Interest is payable the last day of a period
of three months after the drawdown date, after this period in case of failure to pay any sum due a default interest of 2% per annum
above the regular interest is charged. We have also the right, in our sole option, to convert in whole or in part the outstanding
unpaid principal amount and accrued but unpaid interest under this agreement into common stock. The conversion price shall equal
the higher of (i) the average of the daily dollar volume-weighted average sale price for the common stock on the principal market
on any trading day during the period beginning at 9.30 a.m. New York City time and ending at 4.00 p.m. over the Pricing Period
multiplied by 80%, where the “Pricing Period” equals the ten consecutive trading days immediately preceding the date
on which the conversion notice was executed or (ii) $2.80.
On April 23, 2019, the Company converted the outstanding
principal amount of $3.1 million plus the accrued interest of approximately $0.1 million with a conversion price of $2.80 per share
and issued 1,132,191 new common shares on behalf of Firment Shipping Inc. in accordance with the provisions of the Firment Shipping
Credit Facility. This conversion resulted in a gain of approximately $0.1 million. As of December 31, 2019, there was an amount
of $11.1 million available to be drawn under the Firment Shipping Credit Facility.
In December 2018, through our wholly owned subsidiaries,
Artful Shipholding S.A. (“Artful”) and Longevity Maritime Limited (“Longevity”), we entered into a loan
agreement with Macquarie Bank International Limited, which we refer to as our Macquarie Loan Agreement, for an amount up to $13.5
million and used funds borrowed thereunder to refinance part of the repayment of the then existing loan agreement with DVB, which
we refer to as the DVB Loan Agreement, for the m/v Moon Globe and m/v Sun Globe. Globus guaranteed this loan.
On March 13, 2019, the Company signed a securities
purchase agreement with a private investor and on March 13, 2019 issued, for gross proceeds of $5 million, a senior convertible
note (the “Convertible Note”) that is convertible into shares of the Company’s common stock, par value $0.004
per share. If not converted or redeemed beforehand pursuant to the terms of the Convertible Note, the Convertible Note was scheduled
to mature on March 13, 2020, the first anniversary of its issue, but its holder waived the Convertible Note’s maturity until
March 13, 2021. The waiver also provides that the floor price by which the Convertible Note may be converted adjusts for share
splits, share dividends, share combinations, and similar transactions. The Convertible Note was issued in a transaction exempt
from registration under the Securities Act of 1933, as amended (the “Securities Act”).
The Convertible Note provides for interest to accrue
at 10% annually and paid at maturity, unless the Convertible Note is converted or redeemed pursuant to its terms beforehand. The
interest may be paid in common shares of the Company, if certain conditions described within the Convertible Note are met. The
following summaries of the conversion and redemption provisions of the Convertible Note are qualified in their entirety to the
terms of the Convertible Note itself:
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The Convertible Note may be converted, in whole or in part, into the Company’s common stock
at any time by its holder, in which case all principal, interest, and other amounts owed pursuant to the Convertible Note shall
convert at a price per share which differs based upon the performance of the Company’s stock price. The price per share for
conversion purposes is the lowest of (a) the Conversion Price and (b) the highest of (i) $1.00 (the “Floor Price”)
and (ii) 87.5% of the average of the high and low bid price from any day chosen by the holder during the ten (10) consecutive trading
day period ending on and including the trading day immediately prior to the applicable conversion date (the “Alternate Conversion
Price”) regardless of the subsequent stock price.
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The Convertible Note may be redeemed, in whole or in part, by request of its holder upon:
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(a) an Event of Default (as defined within the Convertible Note), in exchange for the higher of
(a) 120% of all amounts owed under the Convertible Note, and (b) the value of the stock to which the Convertible Note could be
converted (as calculated within Section 4(b) of the Convertible Note);
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(b) a Change in Control (as defined within the Convertible Note) of the Company, in exchange for
the higher of (a) 120% of all amounts owed under the Convertible Note and (b) the value of the stock to which the Convertible Note
could be converted (as calculated within Section 5(c) of the Convertible Note); or
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(c) any time after an uninterrupted ten Trading Day period in which the common shares trade below
the Floor Price, in exchange for 100% of all amounts owed under the Convertible Note.
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The Convertible Note may be redeemed, in whole or in part, at any time by the Company. If the Company
elects to redeem the Convertible Note, the Company shall immediately be obligated to pay the holder the greater of (a) 120% of
all amounts owed under the Convertible Note and (b) the value of the stock to which the Convertible Note could be converted (as
calculated within Section 8(a) of the Convertible Note). If the Company elects to redeem the Convertible Note, the Company (as
a procedural matter) must first provide the holder notice, which could allow the holder to convert prior to payment by the Company
of the redemption amount.
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If any portion of the Convertible Note is not redeemed or converted prior to its maturity date,
on the maturity date, the Company shall pay all outstanding principal in cash and may elect whether to pay the interest (and any
other amounts owed) in cash or shares of the Company’s common stock. If interest is paid in common stock, the Alternate Conversion
Price per share shall apply.
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The Convertible Note includes anti-dilution protections
to its holder. The Convertible Note initially contained a Floor Price of $2.25 and allowed the Company, with the holder’s
consent, to reduce the Floor Price or the then current conversion price, as to any amount and for any period of time deemed appropriate
by the Company’s board of directors, but to a price no less than $1.00 per share, which subsequently was so reduced to $1.00.
Although it was originally agreed that the floor price would not adjust upon share splits, share dividends, share combinations,
and similar transactions, we and the holder subsequently agreed that the floor price would adjust proportionately under these circumstances.
Under the terms of the Convertible Note, the Company
may not issue shares to the extent such issuance would cause the Holder, together with its affiliates and attribution parties,
to beneficially own a number of common shares which would exceed 4.99% (which may be increased upon no less than 61 days’
notice, but not to exceed 9.99%) of our then outstanding common shares immediately following such issuance, excluding for purposes
of such determination common shares issuable upon subsequent conversion of principal or interest on the Convertible Note. This
provision does not limit a Holder from acquiring up to 4.99% of our common shares, selling all of their common shares, and immediately
thereafter re-acquiring up to 4.99% of our common shares. The Convertible Note further entitles its holder to any options, convertible
securities or rights to purchase shares, warrants, securities or other property if the Company should issue such pro rata to all
or substantially all of the record holders of any class of common shares, in each instance as though the Convertible Note had converted
in full at the Alternate Conversion Price and as though the aforementioned limitation on conversion and issuance did not exist.
The Company also signed a registration rights agreement
with the private investor pursuant to which we agreed to register for resale the shares that could be issued pursuant to the Convertible
Note, and subsequently filed a registration statement registering the resale of the maximum number of common shares issuable pursuant
to the Convertible Note, including payment of interest on the notes through its maturity date, determined as if the Convertible
Note (including interest) was converted in full at the lowest price at which the note may convert pursuant to its terms. The registration
rights agreement contains liquidated damages if we are unable to register for resale the shares into which the convertible note
may convert, and maintain such registration. The Convertible Note was scheduled to mature on March 13, 2020, the first anniversary
of its issue, but its holder waived the Convertible Note’s maturity until March 13, 2021.
During the year ended December 31, 2019 the total of
approximately $1.8 million (principal plus interest) was converted and a total of 867,643 common shares were issued. As of December
31, 2019, the amount outstanding with respect to the Convertible Note was approximately $3.3 million. Further to the conversion
clause included in the Convertible Note, up to March 2020 a total amount of approximately $1.2 million (principal and accrued interest),
was converted at a conversion price of $1.00 per share and a total number of 1,167,767 new common shares were issued in name of
the holder of the Convertible Note.
We intend to stabilize and then try to grow our fleet
through timely and selective acquisitions of modern vessels in a manner that we believe will provide an attractive return on equity
and will be accretive to our earnings and cash flow based on anticipated market rates at the time of purchase. There is no guarantee
however, that we will be able to find suitable vessels to purchase or that such vessels will provide an attractive return on equity
or be accretive to our earnings and cash flow.
Our strategy is to generally employ our vessels on
a mix of all types of charter contracts, including bareboat charters, time charters and spot charters although all of our vessels
are currently on the spot market. We may, from time to time, enter into charters with longer durations depending on our assessment
of market conditions.
We seek to manage our fleet in a manner that allows
us to maintain profitability across the shipping cycle and thus maximize returns for our shareholders. To accomplish this objective
we have historically deployed our vessels primarily on a mix of bareboat and time charters (with terms of between one month and
five years). According to our assessment of market conditions, we have historically adjusted the mix of these charters to take
advantage of the relatively stable cash flow and high utilization rates associated with time charters or to profit from attractive
spot charter rates during periods of strong charter market conditions.
The average number of vessels in our fleet for the
years ended December 31, 2019, 2018 and 2017 was 5.0.
Our operations are managed by our Attica, Greece-based
wholly owned subsidiary, Globus Shipmanagement Corp., our Manager, who provides in-house commercial and technical management services
to our vessels and consultancy services to an affiliated ship-management company. Our Manager enters into a ship management agreement
with each of our wholly owned vessel-owning subsidiaries to provide such services and previously entered into a consultancy agreement
with an affiliated ship-management company, which agreement terminated.
Lack of Historical Operating Data for Vessels Before
their Acquisition
Consistent with shipping industry practice, we were
not and have not been able obtain the historical operating data for the secondhand vessels we purchase, in part because that information
is not material to our decision to acquire such vessels, nor do we believe such information would be helpful to potential investors
in our common shares in assessing our business or profitability. We purchased our vessels under a standardized
agreement commonly used in shipping practice, which, among other things, provides us with the right to inspect the vessel and the
vessel’s classification society records. The standard agreement does not provide us the right to inspect, or receive copies
of, the historical operating data of the vessel. Accordingly, such information was not available to us. Prior to the delivery of
a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related
to the vessel. Typically, the technical management agreement between a seller’s technical manager and the seller is automatically
terminated and the vessel’s trading certificates are revoked by its flag state following a change in ownership.
In addition, and consistent with shipping industry
practice, we treat the acquisition of vessels from unaffiliated third parties as the acquisition of an asset rather than a business.
We believe that, under the applicable provisions of Rule 11-01(d) of Regulation S-X under the Securities Act, the acquisition of
our vessels does not constitute the acquisition of a “business” for which historical or pro forma financial information
would be provided pursuant to Rules 3-05 and 11-01 of Regulation S-X.
Although vessels are generally acquired free of charter,
we may in the future acquire some vessels with charters. Where a vessel has been under a voyage charter, the vessel is usually
delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of
the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time
charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer’s consent and the
buyer entering into a separate direct agreement, called a novation agreement, with the charterer to assume the charter. The purchase
of a vessel itself does not transfer the charter because it is a separate service agreement between the vessel owner and the charterer.
If the Company acquires a vessel subject to a time
charter, it amortizes the amount of the component that is attributable to favorable or unfavorable terms relative to market terms
and is included in the cost of that vessel, over the remaining term of the lease. The amortization is included in line “amortization
of fair value of time charter attached to vessels” in the income statement component of the consolidated statement of comprehensive
(loss)/income.
If we purchase a vessel and assume or renegotiate a
related time charter, we must take the following steps before the vessel will be ready to commence operations:
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obtain the charterer’s consent to us as the new owner;
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obtain the charterer’s consent to a new technical manager;
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in some cases, obtain the charterer’s consent to a new flag for the vessel;
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arrange for a new crew for the vessel, and where the vessel is on charter, in some cases, the crew must be approved by the charterer;
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replace all hired equipment on board, such as gas cylinders and communication equipment;
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negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
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register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;
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implement a new planned maintenance program for the vessel; and
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ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.
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The following discussion is intended to help you understand
how acquisitions of vessels affect our business and results of operations.
Our business is comprised of the following main elements:
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employment and operation of our dry bulk vessels and
management of a vessel owned by a third party; and
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management of the financial, general and administrative elements involved in the conduct of our business and ownership of our dry bulk vessels.
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The employment and operation of our vessels and the
vessel we manage require the following main components:
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vessel maintenance and repair;
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crew selection and training;
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vessel spares and stores supply;
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contingency response planning;
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onboard safety procedures auditing;
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vessel insurance arrangement;
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vessel security training and security response plans (ISPS);
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obtaining ISM certification and audit for each vessel within the six months of taking over a vessel;
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vessel hire management;
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vessel performance monitoring.
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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:
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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;
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administration of the legal and regulatory requirements affecting our business and assets; and
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management of the relationships with our service providers and customers.
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The principal factors that affect our profitability,
cash flows and shareholders’ return on investment include:
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rates and periods of hire;
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levels of vessel operating expenses, including repairs and drydocking;
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purchase and sale of vessels;
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management fees for any third party ships that we manage;
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financing costs; and
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fluctuations in foreign exchange rates.
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Revenue
Overview
We generate revenues by charging our customers for
the use of our vessels to transport their dry bulk commodities. Under a time charter, the charterer 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. Under a bareboat charter,
the charterer pays us a fixed daily charter hire rate and bears all voyage expenses, as well as the vessel’s operating expenses.
Spot charters can be spot voyage charters or spot time
charters. Spot voyage charters involve the carriage of a specific amount and type of cargo on a load-port to discharge-port basis,
subject to various cargo handling terms, and the vessel owner is paid on a per-ton basis. Under a spot voyage charter, the vessel
owner is responsible for the payment of all expenses including capital costs, voyage expenses, such as port, canal and bunker costs.
A spot time charter is a contract to charter a vessel for an agreed period of time at a set daily rate. Under spot time charters,
the charterer pays the voyage expenses.
Voyage revenues and management
& consulting fee income
Our voyage revenues are driven primarily by the number
of vessels in our fleet, the number of days during which our vessels operate and the amount of daily hire rates that our vessels
earn under charters or on the spot market, which, in turn, are affected by a number of factors, including:
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the duration of our charters;
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the number of days our vessels are hired to operate on the spot market;
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our decisions relating to vessel acquisitions and disposals;
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the amount of time that we spend positioning our vessels for employment;
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the amount of time that our vessels spend in drydocking undergoing repairs;
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maintenance and upgrade work;
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the age, condition and specifications of our vessels;
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levels of supply and demand in the dry bulk shipping industry; and
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other factors affecting spot market charter rates for dry bulk vessels.
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In 2019, our voyage revenues decreased when compared
to 2018, mainly due to lower daily time charter and spot rates earned on average from our vessels on a year over year basis. Our
voyage revenues in 2018 and 2017 increased compared to their respective prior year mainly due to greater daily time charter and
spot rates earned on average from our vessels on a year over year basis.
In January 2017, we provided consultancy services to
an affiliated ship-management company, something we did not do in 2018 or 2019.
Employment of our Vessels
As of the date of this annual report on Form 20-F,
we employed our vessels as follows:
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m/v Star Globe – seeking for next employment.
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m/v River Globe – on a time charter that began in March 2020 and is expected to expire
in April 2020, at a gross rate of $4,300 per day.
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m/v Sky Globe – on a time charter that began in March 2020 and is expected to expire
in April 2020, at a gross rate of $10,250 per day.
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m/v Moon Globe – seeking for next employment.
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m/v Sun Globe – on a time charter that began in March 2020 and is expected to expire
in April 2020, at a gross rate of $10,000 per day.
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Our charter agreements subject us to counterparty risk.
In depressed market conditions, charterers may seek to renegotiate the terms of their existing charter parties or avoid their obligations
under those contracts. Should counterparties to one or more of our charters fail to honor their obligations under their agreements
with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results
of operations, cash flows and ability to pay dividends.
Voyage Expenses
We charter our vessels primarily through time charters
under which the charterer is responsible for most voyage expenses, such as the cost of bunkers (fuel oil), port expenses, agents’
fees, canal dues, extra war risks insurance and any other expenses related to the cargo.
Whenever we employ our vessels on a voyage basis (such
as trips for the purpose of geographically repositioning a vessel or trip(s) after the end of one time charter and up to the beginning
of the next time charter), we incur voyage expenses that include port expenses and canal charges and bunker (fuel oil) expenses.
If we charter our vessels on bareboat charters, the
charterer will pay for most of the voyage expenses and operating expenses.
As is common in the shipping industry, we have historically
paid commissions ranging from 1.25% to 2.50% of the total daily charter hire rate of each charter to unaffiliated ship brokers
and in-house brokers associated with the charterers, depending on the number of brokers involved with arranging the charter.
For the year ended December 31, 2019, commissions amounted
to $0.2 million. For the year ended December 31, 2018, commissions amounted to $0.3 million, and for the year ended December 31,
2017, commissions amounted to $0.2 million.
We believe that the amounts and the structures of our
commissions are consistent with industry practices.
These commissions are directly related to our revenues.
We therefore expect that the amount of total commissions will increase if the size of our fleet grows as a result of additional
vessel acquisitions and employment of those vessels or if charter rates increase.
Vessel Operating Expenses
Vessel operating expenses include costs for crewing,
insurance, repairs and maintenance, lubricants, spare parts and consumable stores, statutory and classification tonnage taxes and
other miscellaneous expenses. We calculate daily vessel operating expenses by dividing vessel operating expenses by ownership days
for the relevant time period excluding bareboat charter days.
Our vessel operating expenses have historically fluctuated
as a result of changes in the size of our fleet. In addition, a portion of our vessel operating expenses is in currencies other
than the U.S. dollar, such as costs related to repairs, spare parts and consumables. These expenses may increase or decrease as
a result of fluctuation of the U.S. dollar against these currencies.
We expect that crewing costs will increase in the future
due to the shortage in the supply of qualified sea-going personnel. In addition, we expect that maintenance costs will increase
as our vessels age. Other factors that may affect the shipping industry in general, such as the cost of insurance, may also cause
our expenses to increase. To the extent that we purchase additional vessels, we expect our vessel operating expenses to increase
accordingly.
Depreciation
The cost of each of the Company’s vessels is
depreciated on a straight-line basis over each vessel’s remaining useful economic life, after considering the estimated residual
value of each vessel, beginning when the vessel is ready for its intended use. Management estimates that the useful life of new
vessels is 25 years, which is consistent with industry practice. The residual value of a vessel is the product of its lightweight
tonnage and estimated scrap value per lightweight ton. The residual values and useful lives are reviewed at each reporting date
and adjusted prospectively, if appropriate. During the third quarter of 2017, we adjusted the scrap rate from $200/ton to $250/ton
due to the increased scrap rates worldwide. This resulted to a reduced depreciation expense of approximately $86,000 included in
the consolidated statement of comprehensive (loss)/income for 2017. During the first quarter of 2018, the Company adjusted the
scrap rate from $250/ton to $300/ton due to the increased scrap rates worldwide. This resulted to a decrease of approximately $178,000
of the depreciation charge included in the consolidated statement of comprehensive loss for 2018. For the year 2019, we maintained
the scrap rate at the same level of $300/ton.
We do not expect these assumptions to change significantly
in the near future. We expect that these charges will increase if we acquire additional vessels.
Depreciation of Drydocking Costs
Approximately every 2.5 years, our vessels are required
to be taken out of service and removed from water (known as “drydocking”) for major repairs and maintenance that cannot
be performed while the vessels are operating. The costs associated with the drydockings are capitalized and depreciated on a straight-line
basis over the period between drydockings, to a maximum of 2.5 years. At the date of acquisition of a vessel, we estimate the component
of the cost that corresponds to the economic benefit to be derived until the first scheduled drydocking of the vessel under our
ownership and this component is depreciated on a straight-line basis over the remaining period through the estimated drydocking
date. We expect that drydocking costs will increase as our vessels age and if we acquire additional vessels.
Amortization of Fair Value of Time Charter Attached
to Vessels
If the Company acquires a vessel subject to a time
charter, it amortizes the amount of the component that is attributable to favorable or unfavorable terms relative to market terms
and is included in the cost of that vessel, over the remaining term of the lease. The amortization is included in line “amortization
of fair value of time charter attached to vessels” in the income statement component of the consolidated statement of comprehensive
(loss)/income.
Administrative Expenses
Our administrative expenses include payroll expenses,
traveling, promotional and other expenses associated with us being a public company, which include the preparation of disclosure
documents, legal and accounting costs, director and officer liability insurance costs and costs related to compliance. We expect
that our administrative expenses will increase as we enlarge our fleet.
Administrative Expenses Payable to Related Parties
Our administrative expenses payable to related parties
include cash remuneration of our executive officers and directors.
Share Based Payments
We operate an equity-settled, share based compensation
plan. The value of the service received in exchange of the grant of shares is recognized as an expense. The total amount to be
expensed over the vesting period, if any, is determined by reference to the fair value of the share awards at the grant date. The
relevant expense is recognized in the income statement component of the consolidated statement of comprehensive (loss)/income,
with a corresponding impact in equity.
Impairment Loss
We assess at each reporting date whether there is an
indication that a vessel that we own may be impaired. The vessel’s recoverable amount is estimated when events or changes
in circumstances indicate the carrying value may not be recoverable. If such indication exists and where the carrying value exceeds
the estimated recoverable amounts, the vessel is written down to its recoverable amount. The recoverable amount is the greater
of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to
their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific
to the vessel. Impairment losses are recognized in the consolidated statement of comprehensive (loss)/income. A previously recognized
impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount
since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable
amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of comprehensive (loss)/income.
After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount,
less any residual value, on a systematic basis over its remaining useful life. As of December 31, 2019, the Company concluded that
the recoverable amounts of the vessels were lower than their carrying amounts and recognized an impairment loss of approximately
$29.9 million.
Gain/ (Loss) on Sale of Vessels
Gain or loss on the sale of vessels is the residual
value remaining after deducting from the vessels’ sale proceeds, the carrying value of the vessels at the respective date
of delivery to their new owners and the total expenses associated with the sale.
Other (Expenses)/ Income, Net
We include other operating expenses or income that
is not classified otherwise. It mainly consists of provisions for insurance claims deductibles and refunds from insurance claims.
Interest Income from Bank Balances & Bank Deposits
We earn interest on the funds we have deposited with
banks as well as from short-term certificates of deposit.
Interest Expense and Finance Costs
We incur interest expense and financing costs in connection
with the indebtedness under our credit arrangements, including the loan agreement between Kelty Marine Ltd. and Commerzbank (prior
to its termination), the DVB Loan Agreement (prior to its termination), our loan agreement with Hamburg Commercial Bank AG (formerly
known as HSH Nordbank AG), which we refer to as the Hamburg Commercial Loan Agreement (prior to its termination), the Macquarie
Loan Agreement (prior to its termination), the Firment Credit Facility (prior to its termination), the Silaner Credit Facility
(prior to its termination), the Firment Shipping Credit Facility that we entered into in November 2018, the Convertible Note that
we entered in March 2019 and the EnTrust Loan Facility that we entered in June 2019. We also incurred financing costs in connection
with establishing those arrangements, which is included in our finance costs and amortization and write-off of deferred finance
charges. As of December 31, 2019, 2018 and 2017, we had $41.1 million, $37.9 million and $41.7 million of indebtedness outstanding
under our then existing credit arrangements, respectively. We incurred interest expense and financing costs relating to our outstanding
debt as well as our available but undrawn credit facilities, if any. We will incur additional interest expense in the future on
our outstanding borrowings and under future borrowings to finance future acquisitions. Please see “Item 5.B. Liquidity and
Capital Resources—Indebtedness” for further information.
Gain/ (Loss) on Sale of Subsidiary
Gain or loss on disposal of subsidiary is the difference
between (a) the carrying amount of the net assets and (b) the proceeds of sale.
Gain/ (Loss) on Derivative Financial Instruments
Derivative financial instruments, including embedded
derivative financial instruments, are initially recognized at fair value on the date a derivative contract is entered into and
are subsequently remeasured at fair value. Changes in the fair value of these derivative instruments are recognized immediately
in the income statement component of the consolidated statement of comprehensive (loss)/income.
Foreign Exchange Gains/ (Losses), Net
We generate substantially all of our revenues from
the trading of our vessels in U.S. dollars but incur a portion of our expenses in currencies other than the U.S. dollar. We convert
U.S. dollars into foreign currencies to pay for our non-U.S. dollar expenses, which we then hold on deposit until the date of each
transaction. Fluctuations in foreign exchange rates create foreign exchange gains or losses when we mark-to-market these non-U.S.
dollar deposits. Because a portion of our expenses is payable in currencies other than the U.S. dollar, our expenses may from time
to time increase relative to our revenues as a result of fluctuations in exchange rates, which could affect the amount of net income
that we report in future periods.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing
trends in our results of operations consist of the following:
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Ownership days. We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
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Available days. We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues.
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Operating days. Operating days are the number of available days in a period less the aggregate number of days that the vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels generate revenues.
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Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades and special surveys.
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Average number of vessels. We measure average number of vessels by the sum of the number of days each vessel was part of our fleet during a relevant period divided by the number of calendar days in such period.
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TCE rates. We define TCE rates as our revenue less net revenue from our bareboat charters less voyage expenses during a period divided by the number of our available days during the period excluding bareboat charter days, which is consistent with industry standards. TCE is a non-GAAP measure. TCE rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts.
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The following table reflects our ownership days, available
days, operating days, average number of vessels and fleet utilization for the periods indicated.
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Year Ended December 31,
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2019
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2018
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2017
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2016
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2015
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|
Ownership
days
|
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1,825
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|
|
|
1,825
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|
|
|
1,825
|
|
|
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1,908
|
|
|
|
2,380
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Available
days
|
|
|
1,788
|
|
|
|
1,755
|
|
|
|
1,787
|
|
|
|
1,885
|
|
|
|
2,336
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Operating
days
|
|
|
1,756
|
|
|
|
1,723
|
|
|
|
1,745
|
|
|
|
1,830
|
|
|
|
2,252
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Bareboat
charter days
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
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Fleet utilization
|
|
|
98.2%
|
|
|
|
98.2%
|
|
|
|
97.6%
|
|
|
|
97.1%
|
|
|
|
96.4%
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Average number of vessels
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|
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5.0
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|
|
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5.0
|
|
|
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5.0
|
|
|
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5.2
|
|
|
|
6.5
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Daily time
charter equivalent (TCE) rate*
|
|
$
|
7,564
|
|
|
$
|
9,213
|
|
|
$
|
6,993
|
|
|
$
|
3,962
|
|
|
$
|
4,333
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*Amounts subject to rounding.
We utilize TCE because we believe it is a meaningful
measure to compare period-to-period changes in our performance despite changes in the mix of charter types (i.e., voyage charters,
spot charters and time charters) under which our vessels may be employed between the periods. Our management also utilizes TCE
to assist them in making decisions regarding employment of our vessels. We believe that our method of calculating TCE is consistent
with industry standards and is determined by dividing revenue after deducting voyage expenses, and net revenue from our bareboat
charters, by available days for the relevant period excluding bareboat charter days. Voyage expenses primarily consist of brokerage
commissions and port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charter
under a time charter contract.
The following table reflects the Voyage Revenues to
Daily Time Charter Equivalent (“TCE”) Reconciliation for the periods presented.
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Year Ended December 31,
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(Expressed in Thousands of U.S. Dollars,
except number of days and daily
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TCE rates)
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2019
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|
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2018
|
|
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2017
|
|
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2016
|
|
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2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Voyage
revenues
|
|
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15,623
|
|
|
|
17,354
|
|
|
|
13,852
|
|
|
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8,423
|
|
|
|
12,252
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Less: Voyage
expenses
|
|
|
2,098
|
|
|
|
1,188
|
|
|
|
1,352
|
|
|
|
954
|
|
|
|
1,921
|
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Less:
bareboat charter net revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
304
|
|
Net revenue
excluding bareboat charter net revenue
|
|
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13,525
|
|
|
|
16,166
|
|
|
|
12,500
|
|
|
|
7,469
|
|
|
|
10,027
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Available
days net of bareboat charter days
|
|
|
1,788
|
|
|
|
1,755
|
|
|
|
1,787
|
|
|
|
1,885
|
|
|
|
2,314
|
|
Daily TCE
rate*
|
|
|
7,564
|
|
|
|
9,213
|
|
|
|
6,993
|
|
|
|
3,962
|
|
|
|
4,333
|
|
*Amounts subject to rounding.
Results of Operations
The following is a discussion of our operating results
for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared
to the year ended December 31, 2017. Variances are calculated on the numbers presented in the discussion over operating results.
Year ended December 31, 2019
compared to the year ended December 31, 2018
As of December 31, 2019 and 2018, our fleet consisted
of five dry bulk vessels (four Supramaxes and one Panamax) with an aggregate carrying capacity of 300,571 dwt. During the years
ended December 31, 2019 and 2018 we had an average of 5.0 dry bulk vessels in our fleet.
During the year ended December 31, 2019, we had an
operating loss of $33.6 million, while during the year ended December 31, 2018, we had an operating loss of $1.4 million.
Voyage revenues. Voyage revenues decreased by
$1.8 million, or 10%, to $15.6 million in 2019, compared to $17.4 million in 2018. The decrease is primarily attributable to a
decrease in average TCE rates. In 2019, we had total operating days of 1,756 and fleet utilization of 98.2%, compared to 1,723
operating days and a fleet utilization of 98.2% in 2018. The foregoing fleet utilization percentage are based upon the available
days of each vessel, being the number of our ownership days less the aggregate number of days that our vessels are off-hire due
to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys. We also had 1,825 ownership days both in 2019
and 2018.
Voyage expenses. Voyage expenses increased by
$0.9 million, or 75%, to $2.1 million in 2019, compared to $1.2 million in 2018. The increase is mainly attributed to the increase
in bunkers expenses.
Vessel operating expenses.
Vessel operating expenses decreased by $1 million, or 10%, to $8.9 million in 2019, compared to $9.9 million in 2018. The breakdown
of our operating expenses for the year 2019 was as follows:
Crew expenses
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|
|
53%
|
|
Repairs and spares
|
|
|
21%
|
|
Insurance
|
|
|
7%
|
|
Stores
|
|
|
9%
|
|
Lubricants
|
|
|
6%
|
|
Other
|
|
|
4%
|
|
The decrease is mainly attributed to the decrease of
the daily operating expenses of the vessels. Daily vessel operating expenses were $4,867 in 2019 compared to $5,438 in 2018, representing
a decrease of 11%. The decrease is mainly attributed to our continuing efforts to keep our operating expenses low.
Depreciation of dry-docking costs. Depreciation
of dry-docking costs increased by $0.5 million, or 42%, to $1.7 million in 2019, compared to $1.2 million in 2018. This is due
to the increased cost of dry-dockings that 3 of our vessels underwent during 2018 and subsequently resulted to a higher depreciation
charge in 2019.
Administrative expenses payable to related parties.
Administrative expenses payable to related parties decreased by $157,000, or 30%, to $371,000 in 2019 compared to $528,000 in 2018.
This is attributed to the adoption of IFRS 16 as of January 1, 2019. Due to the adoption of IFRS 16, we identified the rental agreement
with Cyberonica S.A., a related party to the Company, to give rise to a right of use asset and a corresponding liability. The depreciation
charge for right-of-use asset for the year ended December 31, 2019, was approximately $112,000 and the interest expense on lease
liabilities for the same period was approximately $51,000 and recognised in the income statement component of the consolidated
statement of comprehensive loss under depreciation and interest expense and finance costs, respectively.
Administrative expenses. Administrative expenses
increased by $200,000 or 14% to $1.6 million in 2019 from $1.4 million in 2018 mainly due to the increase of consulting fees by
approximately $223,000, from approximately $234,000 in 2018 to approximately $457,000 in 2019.
Share-based payments. Share-based payments for
2019 and 2018 amounted to $40,000.
Impairment Loss. As of December 31, 2019, the
Company concluded that the recoverable amounts of the vessels were lower than their carrying amounts and recognized an impairment
loss of $29.9 million. As of December 31, 2018, no impairment loss was recognized as the vessels’ recoverable amounts exceeded
their carrying amounts.
Interest expense and finance costs. Interest
expense and finance costs increased by $2.6 million, or 124%, to $4.7 million in 2019, compared to $2.1 million in 2018. This increase
is mainly attributed to the higher weighted average interest rate in 2019 compared to 2018, the prepayment fees and the write off
of unamortized loan fees for the early termination of Macquarie Loan Agreement. Our weighted average interest rate for 2019 was
8.66% compared to 4.97% during 2018. Total borrowings outstanding as of December 31, 2019 amounted to $41.1million compared to
$37.9 million as of December 31, 2018. All of our credit and loan facilities are denominated in U.S. dollars.
Gain / (Loss) on derivative financial instruments.
The gain on the derivative financial instruments is mainly attributed to the valuation of the “Convertible Note”.
As per the conversion clause included in this agreement, we have recognized it as a hybrid instrument which includes an embedded
derivative. This hybrid instrument was separated to the derivative component and the non-derivative host. The derivative component
is shown separately from the non-derivative host at fair value. The changes in the fair value of the derivative financial instrument
are recognized in the consolidated statement of comprehensive loss. As of December 31, 2019 we recognized a gain on this derivative
financial instrument amounting to $1.8 million.
Year ended December 31, 2018
compared to the year ended December 31, 2017
As of December 31, 2018 and 2017, our fleet consisted
of five dry bulk vessels (four Supramaxes and one Panamax) with an aggregate carrying capacity of 300,571 dwt. During the years
ended December 31, 2018 and 2017, we had an average of 5.0 dry bulk vessels in our fleet.
During the year ended December 31, 2018, we had an
operating loss of $1.4 million while during the year ended December 31, 2017, we had an operating loss of $4.0 million.
Voyage revenues. Voyage revenues increased by
$3.5 million, or 25%, to $17.4 million in 2018, compared to $13.9 million in 2017. The increase is primarily attributable to an
increase in average TCE rates. In 2018, we had total operating days of 1,723 and fleet utilization of 98.2%, compared to 1,745
operating days and a fleet utilization of 97.6% in 2017. We also had 1,825 ownership days both in 2018 and 2017.
Management & consulting fee income. During
2018 we did not earn any income from management and consulting fees compared to $31,000 in 2017. In June 2016, Globus Shipmangement
Corp., our ship management subsidiary, entered into a consultancy agreement with Eolos Shipmanagement S.A., a related party, for
the purpose of providing consultancy services to Eolos Shipmanagement S.A., which was terminated on January 31, 2017. For these
services we received a daily fee of $1,000.
Voyage expenses. Voyage expenses decreased by
$200,000, or 14%, to $1.2 million in 2018, compared to $1.4 million in 2017. The decrease is mainly attributed to the decrease
in bunkers expenses.
Vessel operating expenses.
Vessel operating expenses increased by $800,000, or 9%, to $9.9 million in 2018, compared to $9.1 million in 2017. The breakdown
of our operating expenses for the year 2018 was as follows:
Crew expenses
|
48%
|
Repairs and spares
|
28%
|
Insurance
|
6%
|
Stores
|
10%
|
Lubricants
|
5%
|
Other
|
3%
|
The increase is mainly attributed to the increase of
the daily operating expenses of the vessels. Daily vessel operating expenses were $5,438 in 2018 compared to $5,005 in 2017, representing
an increase of 9%. The increase is mainly attributed to the increase of the weighted average age of the vessels in our fleet from
9.8 years as of December 31, 2017 to 10.8 years as of December 31, 2018.
Depreciation. Depreciation decreased by $300,000,
or 6%, to $4.6 million in 2018, compared to $4.9 million in 2017 due to the increase of the scrap rate from $250/ton to $300/ton
during the first quarter of 2018 due to the increased scrap rates worldwide. This resulted to a reduced depreciation expense of
approximately $178,000.
Administrative expenses payable to related parties.
Administrative expenses payable to related parties increased by $14,000, or 3%, to $528,000 in 2018 compared to $514,000 in 2017.
This was attributed mainly to unfavorable exchange rates.
Administrative expenses. Administrative expenses
increased by $200,000 or 17% to $1.4 million in 2018 from $1.2 million in 2017 mainly due to the increase in personnel expenses
by $200,000, from $600,000 in 2017 to $800,000 in 2018.
Share-based payments. Share-based payments for
2018 and 2017 amounted to $40,000.
Interest expense and finance costs. Interest
expense and finance costs decreased by $100,000, or 5%, to $2.1 million in 2018, compared to $2.2 million in 2017. Our weighted
average interest rate for 2018 was 4.97% compared to 3.8% during 2017. Total borrowings outstanding as of December 31, 2018 amounted
to $37.9 million compared to $41.7 million as of December 31, 2017. All of our credit and loan facilities are denominated in U.S.
dollars.
Inflation
Inflation has only a moderate effect on our expenses
given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase
our operating, voyage, administrative and financing costs.
Critical Accounting Policies
The discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with IFRS
as issued by the IASB. The preparation of those consolidated financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities
at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions
and conditions.
Critical accounting policies are those that reflect
significant judgments of uncertainties and potentially result in material different results under different assumptions and conditions.
We have described below what we believe are our most critical accounting policies, because they generally involve a comparatively
higher degree of judgment in their application. For a description of all our significant accounting policies, see Note 2 to our
consolidated financial statements included in this annual report on Form 20-F.
Our ability to continue as a going concern
When assessing our ability to continue as a going concern,
our management must make judgments and estimates about various aspects of our business, including the following:
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plans to raise new funds, restructure our debt and reorganize our capital structure;
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the timing and amount of cash flows from operating activities;
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the marketability of assets to be disposed of and the timing and amount of related cash proceeds to be used to repay our indebtedness;
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plans to reduce and delay our expenditures;
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our ability to comply with the various debt covenants; and
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the present and future regulatory, business, credit and competitive environment in which we operate.
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These factors individually and collectively will have
a significant effect on our financial condition and results of operations and on our ability to generate sufficient cash to repay
our indebtedness as it becomes due. All of our vessels are pledged as collateral to the banks, and therefore if we were to sell
one or more vessels, the net proceeds of such sale would be used first to repay the outstanding debt to which the vessel is collateralized
with, and the remainder, if any, would be for our use, subject to the terms of our remaining loan and credit arrangements. However,
the doubts raised relating to our ability to continue as a going concern may make our securities an unattractive investment for
potential investors.
As of December 31, 2019, we were in compliance with
the loan covenants.
As of December 31, 2019, we reported a working capital
deficit of $3.2 million and accumulated deficit of $135.6 million.
The current low charter rates for drybulk vessels as
a result of the coronavirus outbreak and its effects on world trade and financial markets have been adversely affecting us. Our
cash flow projections indicated that cash on hand and cash to be generated by operating activities might not be sufficient to cover
the liquidity needs, including the debt obligations that become due in the twelve-month period ending following the issuance of
these consolidated financial statements and we might not be able to meet the minimum liquidity requirements included in the loan
agreement with EnTrust at certain measurement dates falling due within the 12 month period from the issuance of these financial
statements.
The above conditions raise substantial doubt about
our ability to continue as a going concern. We are exploring several alternatives aiming to manage our working capital requirements
and other commitments, including drawdown of additional funds available of $11.1 million under the facility with Firment Shipping
Inc, raising additional debt and discussions with other financial institutions and private funds to provide us with refinancing
for our existing loans. We expect that the lenders will not demand payment in full of our loans before their maturity, provided
that we pay scheduled loan instalments and accumulated interest as they fall due under the existing loan agreements. With respect
to the Convertible Note that matures during March 2021, we anticipate that it will be converted to equity and no cash will be required
for its repayment. As of December 31, 2019, the balance of the Convertible Note was approximately $3.6 million, principal and accrued
interest. Within the first quarter of 2020, an amount of approximately $1.17 million, principal and accrued interest, has already
been converted to equity. We plan to settle loan interest and scheduled loan repayments with cash on hand and cash that we expect
to generate from our operations and from financing activities. If for any reason we are unable to continue as a going concern,
this could have an impact on our ability to realize our assets at their recognized values and to extinguish liabilities in the
normal course of business at the amounts stated in these consolidated financial statements.
Impairment of Long-Lived Assets: We assess at
each reporting date whether there is an indication that a vessel may be impaired. The vessel’s recoverable amount is estimated
when events or changes in circumstances indicate the carrying value may not be recoverable.
If such indication exists and where the carrying value
exceeds the estimated recoverable amounts, the vessel is written down to its recoverable amount. The recoverable amount is the
greater of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted
to their present value using a discount rate that reflects current market assessments of the time value of money and the risks
specific to the vessel. This assessment is made at the individual vessel level as separately identifiable cash flow information
for each vessel is available. We determine the fair value of our assets based on management estimates and assumptions and by making
use of available market data and taking into consideration third party valuations.
Discounted future cash flows for each vessel were determined
and compared to the vessel’s carrying value. For the discount factor, we applied the Weighted Average Cost of Capital rate
that was calculated to be 9.42% as at December 31, 2019. The projected net discounted future cash flows for the first year were
determined by considering an estimate daily time charter equivalent based on the most recent blended (for modern and older vessels)
FFA (i.e., Forward Freight Agreements) time charter rate for the remaining year of 2020 for each type of vessel. For the remaining
useful life of the vessels, we used the historical ten-year blended average one-year time charter rates substituting for the year
2016 that was considered as extreme value, with the year 2009. Expected outflows for scheduled vessels maintenance were taken into
consideration as well as vessel operating expenses assuming an average annual increase rate of approximately 1% based on the historical
trend deriving from actual results for the Company’s vessels since their delivery under Company’s technical management.
The average time charter rates used were in line with the overall chartering strategy, especially in periods/years of depressed
charter rates; reflecting the full operating history of vessels of the same type and particulars with the Company’s operating
fleet (Supramax and Panamax vessels with a deadweight tonnage of more than 50,000 and 70,000, respectively) and they covered at
least one full business cycle. Effective fleet utilization was assumed at 87% and 90% (including ballast days) for the Supramaxes
and the Panamaxes, respectively, taking into account the period(s) each vessel is expected to undergo her scheduled maintenance
(drydocking and special surveys), as well as an estimate of the period(s) needed for finding suitable employment and off-hire for
reasons other than scheduled maintenance, assumptions in line with the Company’s expectations for future fleet utilization
under the current fleet deployment strategy.
In addition, in terms of our estimates for the charter
rates for the unfixed period, we consider that the FFA for the remaining year of 2020, which is applied in our model for the first
year which is not fixed, approximates historical low levels and fully reflects the conceivable downside scenario.
Impairment losses are recognized in the consolidated
statement of comprehensive (loss)/income. A previously recognized impairment loss is reversed only if there has been a change in
the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is
the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying
amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.
Such reversal is recognized in the consolidated statement of comprehensive (loss)/income. After such a reversal, the depreciation
charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic
basis over its remaining useful life.
For the year ended December 31, 2019 we recognized
an impairment loss of $29.9 million for the vessels of our fleet.
The carrying value of each of our vessels does not
necessarily represent its fair market value or the amount that could be obtained if the vessel were sold. Our estimates of the
market values assume that the vessels are in good and seaworthy condition without need for repair and, if inspected, would be certified
as being in class without any recommendations of any kind. Because vessel values are highly volatile, these estimates may not be
indicative of either current or future prices that we could achieve if we were to sell any of the vessels. We would not record
impairment for any of the vessels for which the fair market value is below its carrying value unless and until we either determine
to sell the vessel for a loss or determine that the vessel’s carrying amount is not recoverable.
During the years ended December 31, 2018 and 2017,
we did not recognize an impairment loss.
Although we believe that the assumptions used to evaluate
impairment are reasonable and appropriate, these assumptions are highly subjective and we are not able to estimate the variability
between the assumptions used and actual results that is reasonably likely to result in the future.
As of December 31, 2019 and 2018 we owned and
operated a fleet of five vessels, with an aggregate carrying value of $48.2 and $83.8 million, respectively.
A vessel-by-vessel carrying value summary as of December 31,
2019 and 2018 follows:
Dry bulk Vessels
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Dwt
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Year
Built
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Month and Year
of
Acquisition
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Purchase Price
(in
millions of U.S.
Dollars)
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Carrying Value
as of December 31,
2019 (in millions of
U.S. Dollars)
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Carrying Value
as of December 31,
2018 (in millions of
U.S. Dollars)
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m/v River Globe
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53,627
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2007
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December 2007
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57.5
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7.7
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15.8
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*
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m/v Sky Globe
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56,855
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2009
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May 2010
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32.8
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9.0
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17.9
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*
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m/v Star Globe
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56,867
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2010
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May 2010
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32.8
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9.4
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18.2
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*
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m/v Sun Globe
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58,790
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2007
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September 2011
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30.3
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11.2
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16.9
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*
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m/v Moon Globe
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74,432
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2005
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June 2011
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31.4
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10.9
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*
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15.0
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*
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48.2
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83.8
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* Indicates vessels which we believe, as of December 31, 2019 and 2018,
may have fair values below their carrying values. As of December 31, 2019 and 2018, we believe that the aggregate carrying value
of these five vessels exceeded their market value by $2.9 and $27.5 million, respectively.
Vessels, net: Vessels are stated at cost, less
accumulated depreciation (including depreciation of drydocking costs and component attributable to favorable or unfavorable lease
terms relative to market terms) and accumulated impairment losses. Vessel cost consists of the contract price for the vessel and
any material expenses incurred upon acquisition (initial repairs, improvements and delivery expenses, interest and on-site supervision
costs incurred during the construction periods). Any seller’s credit, which is the amounts received from the seller of the
vessels until date of delivery, is deducted from the cost of the vessel. Subsequent expenditures for conversions and major improvements
are also capitalized when the recognition criteria are met. Otherwise, these amounts are charged to expenses as incurred.
Vessels Depreciation: The cost of each of the
Company’s vessels is depreciated on a straight-line basis over each vessel’s remaining useful economic life, after
considering the estimated residual value of each vessel, beginning when the vessel is ready for its intended use. Management estimates
that the useful life of new vessels is 25 years, which is consistent with industry practice. The residual value of a vessel is
the product of its lightweight tonnage and estimated scrap value per lightweight ton. The residual values and useful lives are
reviewed at each reporting date and adjusted prospectively, if appropriate. Depreciation is based on the cost of the vessel less
its estimated residual value. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated
useful lives. A decrease in the useful life of a vessel or in its residual value would have the effect of increasing the annual
depreciation charge. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its useful
life is adjusted to end at the date such regulations become effective. During the third quarter of 2017, we adjusted the scrap
rate from $200/ton to $250/ton due to the increased scrap rates worldwide. This resulted to a reduced depreciation expense of approximately
$86,000 included in the consolidated statement of comprehensive (loss)/income for 2017. During the first quarter of 2018, the Company
adjusted the scrap rate from $250/ton to $300/ton due to the increased scrap rates worldwide. This resulted to a decrease of approximately
$178,000 of the depreciation charge included in the consolidated statement of comprehensive (loss)/income for 2018. For the year
ended December 31, 2019 we maintained the same scrap rate of $300/ton.
Drydocking costs: Approximately every 2.5 years,
our vessels are required to be taken out of service and removed from water (known as “drydocking”) for major repairs
and maintenance that cannot be performed while the vessels are operating. The costs associated with the drydockings are capitalized
and depreciated on a straight-line basis over the period between drydockings, to a maximum of 2.5 years. At the date of acquisition
of a vessel, management estimates the component of the cost that corresponds to the economic benefit to be derived until the first
scheduled drydocking of the vessel under our ownership and this component is depreciated on a straight-line basis over the remaining
period through the estimated drydocking date. Costs capitalized are limited to actual costs incurred, such as shipyard rent, paints
and related works and surveyor fees in relation to obtaining the class certification. If a drydocking is performed prior to the
scheduled date, the remaining unamortized balances of previous drydockings are immediately written off. Unamortized balances of
vessels that are sold are written off and included in the calculation of the resulting gain or loss in the period of the vessel’s
sale.
Trade receivables, net: The amount shown as
trade receivables at each financial position date includes estimated recoveries from charterers for hire, freight and demurrage
billings, net of an allowance for doubtful accounts. Trade accounts receivable without a significant financing component are initially
measured at their transaction price and subsequently measured at amortized cost less impairment losses, which are recognized in
the consolidated statement of comprehensive loss. At each financial position date, all potentially uncollectible accounts are assessed
individually for the purpose of determining the appropriate allowance for doubtful accounts.
Derivative financial instruments: Derivative
financial instruments, including embedded derivative financial instruments, are initially recognized at fair value on the date
a derivative contract is entered into and are subsequently remeasured at fair value. The fair value of these instruments at each
reporting date is derived or corroborated by observable market data or estimated based on inputs from unobservable data. Depending
of the type of derivative financial instrument, inputs include quoted prices for similar assets, liabilities (risk adjusted) and
market-corroborated inputs, such as market comparables, interest rates, risk free rates, yield curves, dividend yields, volatility
of quoted market prices and other items that allow value to be determined. Changes in the fair value of these derivative instruments
are recognized immediately in the income statement component of the consolidated statement of comprehensive (loss)/income.
Share based payments: The Company measures the
cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which
they are granted. Estimating fair value for share-based payment transactions may require determination of the most appropriate
valuation model, which is depended on the terms and conditions of the grant. This estimate also requires determination of the most
appropriate inputs to the valuation model including, expected volatility and dividend yield and making assumptions about them.
B. Liquidity and
Capital Resources
As of December 31, 2019, we had $2.4 million in “restricted
cash”. In addition we had an amount of $11.1 million available to be drawn under a Revolving Credit Facility dated November
21, 2018 with Firment Shipping Inc. as lender (the “Firment Shipping Credit Facility”).
As of December 31, 2019, we had an aggregate debt outstanding
of $37.7 million, net of unamortized debt costs, which included $36.3 million from the EnTrust Loan Facility, and a non-derivative
amount of $0.3 million from the Firment Shipping Credit Facility (for the year ended December 31, 2019, the amount drawn and outstanding
with respect to the Firment Shipping Credit Facility was $0.8 million. The non-derivative host was classified under “current
portion of long-term borrowings” in the consolidated statement of financial position and was approximately $0.3 million and
the fair value of the derivative component amounted to approximately $0.5 million and was classified under “current portion
of fair value of derivative financial instruments” in the consolidated statement of financial position.) and $1.2 million
from the Convertible Note (for the year ended December 31, 2019, the amount drawn and outstanding with respect to the Convertible
Note was $3.3 million. The non-derivative host was classified under “current portion of long-term borrowings” in the
consolidated statement of financial position and was approximately $1.2 million and the fair value of the derivative component
amounted to approximately $0.1 million and was classified under “current portion of fair value of derivative financial instruments”
in the consolidated statement of financial position.)
As of December 31, 2018, we had $1.35 million in “restricted
cash”. In addition we had an amount of $12.8 million available to be drawn under the Firment Shipping Credit Facility.
As of December 31, 2018, we had an aggregate debt outstanding
of $36.9 million net of unamortized debt costs, which included $22.1 million from Hamburg Commercial Facility, $13.3 million from
the Macquarie Loan Agreement and a non-derivative amount of $1.5 million from the Firment Shipping Credit Facility (for the year
ended December 31, 2018, the amount drawn and outstanding with respect to Firment Shipping Credit Facility was $2.2 million). The
non-derivative host was classified under “long-term borrowings” in the consolidated statement of financial position
and was $1.5 million and the derivative component amounted to $0.8 million and was classified under “fair value of derivative
financial instruments” in the consolidated statement of financial position.)
Please see “Item 5.B. Liquidity and Capital Resources—Indebtedness”
for further information about our loan agreements and credit facilities.
Our primary uses of funds have been vessel operating
expenses, general and administrative expenses, expenditures incurred in connection with ensuring that our vessels comply with international
and regulatory standards, financing expenses and repayments of bank loans. We do not have any commitments for newbuilding contracts.
Since our operations began in 2006, we have financed
our capital requirements mainly through equity subscriptions from shareholders, long-term bank debt and cash from operations, including
cash from sales of vessels. To finance further vessel acquisitions of either new or secondhand vessels, we anticipate that our
primary sources of funds will be our current cash, cash from continuing operations, additional indebtedness to be raised and, possibly,
future equity or debt financings.
Working capital, which is current assets, minus current
liabilities, including for 2019 and 2018 the current portion of long-term debt, amounted to a working capital deficit of $3.2 million
as of December 31, 2019 and to a working capital deficit of $40.4 million as of December 31, 2018. If we are unable to satisfy
our liquidity requirements, we may not be able to continue as a going concern. All of our vessels are pledged as collateral to
the banks, and therefore if we were to sell one or more vessels, the net proceeds of such sale would be used first to repay the
outstanding debt to which the vessel collateralized, and the remainder, if any, would be for our use, subject to the terms of our
remaining loan and credit arrangements. The doubts raised relating to our ability to continue as a going concern may make our securities
an unattractive investment for potential investors.
In November 2018, we entered into a credit facility
for up to $15 million with Firment Shipping Inc., a company related to us, for the purpose of financing our general working capital
needs. Any prepaid amount could be re-borrowed in accordance with the terms of the facility. As per the conversion clause included
in the Firment Shipping Credit Facility, we have recognized this agreement as a hybrid financial instrument which includes an embedded
derivative. This embedded derivative component was separated from the non-derivative host. The derivative component is shown separately
from the non-derivative host in the consolidated statement of financial position at fair value. The changes in the fair value of
the derivative financial instrument are recognized in the consolidated statement of comprehensive loss. For the year ended December
31, 2019 and 2018, the amount drawn and outstanding with respect to Firment Shipping Credit Facility was $0.8 and $2.2 million
respectively. The non-derivative host at December 31, 2019 and 2018 amounted to $0.3 and $1.5 million, respectively and was classified
under “current portion of long-term borrowings” and “non-current portion of long-term borrowings”, respectively
in the consolidated statements of financial position. The derivative component at December 31, 2019 and 2018 amounted to $0.5 and
$0.8 million, respectively and was classified under “fair value of derivative financial instruments, current” and “fair
value of derivative financial instruments, non-current”, respectively in the consolidated statements of financial position.
During 2019, the Company converted the outstanding principal amount of $3,1 million plus the accrued interest of approximately
$0.1 million owed pursuant to the Firment Shipping Credit Facility with a conversion price of $2.80 per share and issued 1,132,191
new common shares on behalf of Firment Shipping Inc. This conversion resulted to a gain of approximately $0.1 million, which was
classified under “gain/(loss) on derivative financial instruments” in the consolidated statement of comprehensive loss.
For the year ended December 31, 2019 and 2018, we recognized
a gain on this derivative financial instrument amounting to approximately $0.1 million and for the year ended December 2018 we
recognized a loss on this derivative financial instrument amounting to approximately $0.1 million, which was classified under “gain/(loss)
on derivative financial instruments” in the consolidated statement of comprehensive loss.
On March 13, 2019, the Company signed a securities
purchase agreement with a private investor and on March 13, 2019 issued, for gross proceeds of $5 million, a senior convertible
note (the “Convertible Note”) that is convertible into shares of the Company’s common stock, par value $0.004
per share. If not converted or redeemed beforehand pursuant to the terms of the Convertible Note, the Convertible Note was scheduled
to mature on March 13, 2020, the first anniversary of its issue, but its holder waived the Convertible Note’s maturity until
March 13, 2021. The waiver also provides that the floor price by which the Convertible Note may be converted adjusts for share
splits, share dividends, share combinations, and similar
transactions. We used part of the proceeds from the
Convertible Note for general corporate purposes and working capital including repayment of debt. This embedded derivative was separated
to the derivative component and the non-derivative host. The derivative component is shown separately from the non-derivative host
in the consolidated statement of financial position at fair value. The changes in the fair value of the derivative financial instrument
are recognized in the consolidated statement of comprehensive loss. For the year ended December 31, 2019, the amount drawn and
outstanding with respect to the Convertible Note was $3.3 million. The non-derivative host was classified under “long-term
borrowings” in the consolidated statement of financial position and was $1,179,610 for the year ended 2019. The derivative
component that was initially recognized amounted to approximately $3.2 million. During 2019, pursuant to the Convertible Note,
the Company converted to common shares the principal amount of approximately $1.7 million plus the accrued interest of approximately
$0.1 million and issued 867,643 new common shares.
For the year ended December 31, 2019, we recognized
a gain on this derivative financial instrument amounting to approximately $1.8 million which was classified under “gain/(loss)
on derivative financial instruments” in the consolidated statement of comprehensive loss.
Because of the global economic downturn that has affected
the international dry bulk industry and based on our cash flow projections for the period ending March 31, 2021, cash on hand and
cash generated from operating activities will not be sufficient for us to be in compliance with the minimum liquidity requirements
contained in certain of our loan and credit facilities or to cover scheduled debt payments due in this period. The period of time
that we will be able to continue to operate as a going concern will depend on our ability to restructure our loan and credit arrangements
and/or to finance our operations through the sale of vessels, drawdown of additional funds available of $11.1 million under the
facility with Firment Shipping Inc, selling securities through one or more private placement or public offerings, through incurring
debt, or other financing alternatives. All of our vessels are pledged as collateral to the banks, and therefore if we were to sell
one or more vessels, the net proceeds of such sale would be used first to repay the outstanding debt to which the vessel is collateralized,
and the remainder, if any, would be for our use, subject to the terms of our remaining loan and credit arrangements. We acknowledge
that uncertainty remains over our ability to meet our liabilities as they fall due during the following twelve months.
Cash Flows
Cash and cash equivalents were $2.4 million in unrestricted
bank deposits as of December 31, 2019, $46,000 in unrestricted bank deposits as of December 31, 2018 and $2.8 million in unrestricted
bank deposits as of December 31, 2017.
Restricted cash that consist of cash pledged as collateral
was $2.4 million at the end of 2019, $1.4 million at the end of 2018 and $0.2 million at the end of 2017. We consider highly liquid
investments such as bank time deposits with an original maturity of three months or less to be cash equivalents.
Net Cash Generated From / (Used In) Operating
Activities
Net cash generated from operating activities in 2019
amounted to $0.2 million compared to $3.9 million in 2018. The decrease is primarily attributable to a decrease in the general
shipping rates and average TCE rates achieved by the vessels in our fleet.
Net cash generated from operating activities in 2018
amounted to $3.9 million compared to $0.6 million in 2017. The increase is primarily attributable to an increase in the general
shipping rates and average TCE rates achieved by the vessels in our fleet.
Net Cash Used In Investing Activities
Net cash used in investing activities was $20,000 during
the year ended December 31, 2019, which was mainly attributable to the purchase of new equipment for the vessels.
Net cash used in investing activities was $126,000
during the year ended December 31, 2018, which was mainly attributable to the purchase of new equipment for the office.
Net cash used in investing activities was $263,000
during the year ended December 31, 2017, which was mainly attributable to the purchase of new equipment for the vessels.
Net Cash Generated From / (Used in) Financing
Activities
Net cash generated from financing activities during
the year ended December 31, 2019 amounted to $2.1 million and consisted of $1.7 million in proceeds drawn from the Firment Shipping
Credit Facility entered into for financing general working capital needs, $37 million drawn from EnTrust Loan Facility and $5 million
proceeds from the Convertible Note, reduced by $13.5 million of indebtedness that we repaid on the Macquarie Loan Agreement and
$22.2 million of indebtedness that we repaid on the Hamburg Commercial Loan Facility, a $1.1 million increase of pledged bank deposits,
a $0.9 million payment of financing costs for EnTrust Loan Facility, a $30,000 repayment of lease liability and $3.9 million of
interest paid.
Net cash used in financing activities during the year
ended December 31, 2018 amounted to $6.4 million and consisted of $2.2 million in proceeds drawn from the Firment Shipping Credit
Facility entered into for financing general working capital needs, $13.5 million drawn from the Macquarie Loan Agreement and $0.6
million proceeds drawn from the issuance of share capital due to exercise of warrants, reduced by $16.7 million of indebtedness
that we repaid on the DVB Loan Facility and $2.8 million that we repaid to Hamburg Commercial Loan Facility, a $1.1 million increase
of pledged bank deposits, a $203,000 payment of financing costs on the Macquarie Loan Agreement and $1.9 million of interest paid.
Net cash generated from financing activities during
the year ended December 31, 2017 amounted to $2.2 million and consisted of $280,000 in proceeds drawn from the Silaner Credit Facility
entered into for financing general working capital needs and $9.6 million proceeds drawn from the issuance of share capital, reduced
by $4.4 million of indebtedness that we repaid under our existing credit and loan facilities and $3.3 million of interest paid.
Indebtedness
We operate in a capital intensive industry which requires
significant amounts of investment, and we fund a portion of this investment through long-term bank debt.
As of December 31, 2019, 2018 and 2017, we and our
vessel-owning subsidiaries had outstanding borrowings under the DVB Loan Agreement, the Hamburg Commercial Loan Agreement, the
Firment Credit Facility, the Silaner Credit Facility, the Firment Shipping Credit Facility, the Macquarie Loan Agreement, the Convertible
Note and the EnTrust Loan Facility of an aggregate of $41.1 million, $37.9 million and $41.7 million, respectively.
DVB Loan Agreement
In June 2011, Globus through its wholly owned subsidiaries,
Artful Shipholding S.A. and Longevity Maritime Limited, entered into the DVB Loan Agreement for an amount up to $40.0 million with
DVB Bank SE and used funds borrowed thereunder to finance part of the purchase price for the m/v Moon Globe and m/v Sun
Globe. Globus acted as guarantor for this loan. Interest on outstanding loan balances were payable at LIBOR plus 2.5% per annum
and any outstanding amount under the DVB Loan Agreement could have been prepaid in a multiple of $500,000 with five days business
prior written notice. A variable prepayment fee applied in case of refinancing of the DVB loan agreement by another lender within
the first three years of a new loan, but was not applicable in case of the sale of a vessel or repayment of such facility by equity.
The DVB Loan Agreement contained a standard security package, and financial and other covenants. As at December 13, 2018, the balance
of both tranches of approximately $15 million was fully repaid using the proceeds from the Macquarie Loan Agreement and the Firment
Shipping Credit Facility.
Firment Credit Facility
In December 2013, Globus Maritime Limited entered into
a credit facility for up to $4.0 million with Firment Trading Limited, a related party to us, for the purpose of financing our
general working capital needs. The Firment Credit Facility was unsecured and remained available until it expired on April 12, 2017.
During December 2014 the credit limit of the facility increased from $4.0 million to $8.0 million and its final maturity date was
extended from December 12, 2015 to April 29, 2016. During December 2015 the credit limit of the facility increased from $8.0 million
to $20.0 million and its final maturity date was extended to April 12, 2017. In December 2015, the Firment Credit Facility was
assigned from Firment Trading Limited, a Cypriot company, to Firment Trading Limited, a Marshall Islands corporation, each of which
is a related party to us. We had the right to drawdown any amount up to $20.0 million or prepay any amount, during the availability
period in multiples of $100,000. Any prepaid amount could have been re-borrowed in accordance with the terms of the facility. Interest
on drawn and outstanding amounts was charged at 5% per annum and no commitment fee was charged on the amounts remaining available
and undrawn.
As of December 31, 2016, the amount drawn and outstanding
with respect to the facility was $17.4 million. As of December 31, 2016, there was an amount of $2.6 million available to be drawn
under the Firment Credit Facility. As of December 31, 2016 we were in compliance with the loan covenants of the Firment Credit
Facility.
In connection with the February 2017 private placement,
on February 8, 2017 Firment released an amount equal to $16,885,000 (but left an amount equal to $1,638,787 outstanding, which
continued to accrue under the Firment Credit Facility as though it were principal) of the Firment Credit Facility and the Company
issued to Firment Shipping Inc., an affiliate of Firment, 16,885,000 common shares and a warrant to purchase 6,230,580 common shares
at a price of $1.60 per share (subject to adjustment). Subsequent to the closing of the February 2017 private placement, Globus
repaid the outstanding amount on the Firment Credit Facility in its entirety. (These figures do not reflect the 10-1 reverse stock
split which occurred in October 2018.)
Silaner Credit Facility
In January 2016, Globus Maritime Limited entered into
a credit facility for up to $3.0 million with Silaner Investments Limited, a related party to us, for the purpose of financing
our general working capital needs. The Silaner Credit Facility was unsecured and remained available until its final maturity date
on January 12, 2018. We had the right to drawdown any amount up to $3.0 million or prepay any amount in multiples of $100,000.
Any prepaid amount could have been re-borrowed in accordance with the terms of the facility. Interest on drawn and outstanding
amounts was charged at 5% per annum and no commitment fee is charged on the amounts remaining available and undrawn. As of December
31, 2016, the amount drawn and outstanding with respect to the facility was $3.1 million, which amount was approved by our board.
As of December 31, 2017, the amount drawn and outstanding with respect to the facility was $0. As of December 31, 2017 and 2016
we were in compliance with the loan covenants of the Silaner Credit Facility.
In connection with the February 2017 private placement,
on February 8, 2017 Silaner released an amount equal to the outstanding principal of $3,115,000 (but left an amount equal to $74,048
outstanding, which continued to accrue under the Silaner Credit Facility as though it were principal) of the Silaner Credit Facility
and the Company issued to Firment Shipping Inc., an affiliate of Silaner, 3,115,000 common shares and a warrant to purchase 1,149,437
common shares at a price of $1.60 per share (subject to adjustment). Subsequent to the closing of the February 2017 private placement,
Globus repaid the outstanding amount on the Silaner Credit Facility in its entirety. (These figures do not reflect the 10-1 reverse
stock split which occurred in October 2018.)
Hamburg Commercial Loan Agreement
In February 2015, through our wholly owned subsidiaries,
Devocean Maritime Ltd. Domina Maritime Ltd. and Dulac Maritime S.A., we entered into the Hamburg Commercial Loan Agreement for
an amount up to $30.0 million with Hamburg Commercial Bank Ag (formerly known as HSH Nordbank AG) and used funds borrowed thereunder
with the purpose to part refinance our then existing credit facility with Credit Suisse. On March 3, 2015, $29.4 million was drawn.
As at June 27, 2019, the balances of all tranches of $20.8 million were fully repaid using the proceedings from the EnTrust Loan
Facility.
Firment Shipping Credit Facility
In November 2018, we entered into a credit facility
for up to $15 million with Firment Shipping Inc., a related party to us, for the purpose of financing our general working capital
needs. The Firment Shipping Credit Facility is unsecured and remains available until its final maturity date at April 1, 2021,
as amended. We have the right to drawdown any amount up to $15 million or prepay any amount in multiples of $100,000. Any prepaid
amount can be re-borrowed in accordance with the terms of the facility. Interest on drawn and outstanding amounts is charged at
7% per annum and no commitment fee was charged on the amounts remaining available and undrawn. Interest is payable the last day
of a period of three months after the drawdown date, after this period in case of failure to pay any sum due a default interest
of 2% per annum above the regular interest is charged. We have also the right, in our sole option, to convert in whole or in part
the outstanding unpaid principal amount and accrued but unpaid interest under this Agreement into common stock. The conversion
price shall equal the higher of (i) the average of the daily dollar volume-weighted average sale price for the common stock on
the Principal Market on any trading day during the period beginning at 9.30 a.m. New York City time and ending at 4.00 p.m. over
the Pricing Period multiplied by 80%, where the “Pricing Period” equals the ten consecutive trading days immediately
preceding the date on which the conversion notice was executed or (ii) $2.80.
The Firment Shipping Credit Facility requires that
Athanasios Feidakis remain our Chief Executive Officer and that Firment Shipping maintains at least a 40% shareholding in us, other
than due to actions taken by Firment Shipping, such as sales of shares.
As of December 31, 2019 we were in compliance with
the loan covenants of the Firment Shipping Credit Facility.
Macquarie Loan Agreement
In December 2018, through our wholly owned subsidiaries,
Artful Shipholding S.A. (“Artful”) and Longevity Maritime Limited (“Longevity”), we entered into the Macquarie
Loan Agreement for an amount up to $13.5 million with Macquarie Bank International Limited and used funds borrowed thereunder to
refinance part of the repayment of the existing DVB Loan Agreement for the m/v Moon Globe and m/v Sun Globe. Globus acted as guarantor
for this loan. In December 2018, $6 million (Artful Advance) and $7.5 million (Longevity Advance) were drawn down for the purpose
of partly refinancing the existing DVB Loan Agreement for m/v Moon Globe and m/v Sun Globe, respectively. As at June
28, 2019, the balance of all tranches of $13 million was fully repaid using the proceedings from the EnTrust Loan Facility.
Convertible Note
On March 13, 2019, we signed a securities purchase
agreement with a private investor and on the same date issued, for gross proceeds of $5 million, a senior convertible note (the
“Convertible Note”) that is convertible into shares of the Company’s common stock, par value $0.004 per share.
If not converted or redeemed beforehand pursuant to the terms of the Convertible Note, the Convertible Note was scheduled to mature
on March 13, 2020, the first anniversary of its issue, but its holder waived the Convertible Note’s maturity until March
13, 2021. The waiver also provides that the floor price by which the Convertible Note may be converted adjusts for share splits,
share dividends, share combinations, and similar transactions. The Convertible Note was issued in a transaction exempt from registration
under the Securities Act of 1933, as amended (the “Securities Act”).
The Company signed a registration rights agreement
with the private investor pursuant to which we agreed to register for resale the shares that could be issued pursuant to the Convertible
Note, and subsequently filed a registration statement registering the resale of the maximum number of common shares issuable pursuant
to the Convertible Note, including payment of interest on the notes through its maturity date, determined as if the Convertible
Note (including interest) was converted in full at the lowest price at which the note may convert pursuant to its terms. The registration
rights agreement contains liquidated damages if we are unable to register for resale the shares into which the convertible note
may convert, and maintain such registration.
As of December 31, 2019, the amount outstanding with
respect to the Convertible Note was $3,308,750.
EnTrust Loan Facility
On June 24, 2019, the Company drew down $37,000,000
and fully prepaid the existing loan facilities with Hamburg Commercial Bank AG (formerly known as HSH Nordbank AG) and Macquarie
Bank International Limited. The EnTrust Loan Facility consists of five Tranches:
Tranche (A) of $6,375,000 for the purpose of prepaying
to Hamburg Commercial Bank AG the amount outstanding with respect to the m/v River Globe. The balance outstanding of tranche (A)
at December 31, 2019, was $6,375,000 payable in 6 equal quarterly instalments of $265,625 starting, March 2021, as well as a balloon
payment of $4,781,250 due together with the 6th and final instalment due in June 2022. This repayment schedule is subject to alterations
depending on the amount of “Excess cash”, as described in the loan agreement, which could have already decreased the
balloon amount.
Tranche (B) of $7,375,000 for the purpose of prepaying
to Hamburg Commercial Bank AG the amount outstanding with respect to the m/v Sky Globe. The balance outstanding of tranche (B)
at December 31, 2019, was $7,375,000 payable in 6 equal quarterly instalments of $230,469 starting, March 2021, as well as a balloon
payment of $5,992,186 due together with the 6th and final instalment due in June 2022. This repayment schedule is subject to alterations
depending on the amount of “Excess cash”, as described in the loan agreement, which could have already decreased the
balloon amount.
Tranche (C) of $7,750,000 for the purpose of prepaying
to Hamburg Commercial Bank AG the amount outstanding with respect to the m/v Star Globe. The balance outstanding of tranche (C)
at December 31, 2019, was $7,750,000 payable in 6 equal quarterly instalments of $215,278 starting, March 2021, as well as a balloon
payment of $6,458,332 due together with the 6th and final instalment due in June 2022. This repayment schedule is subject to alterations
depending on the amount of “Excess cash”, as described in the loan agreement, which could have already decreased the
balloon amount.
Tranche (D) of $6,500,000 for the purpose of prepaying
to Macquarie Bank International Limited the amount outstanding with respect to the m/v Moon Globe. The balance outstanding of tranche
(D) at December 31, 2019, was $6,500,000 payable in 6 equal quarterly instalments of $406,250 starting, March 2021, as well as
a balloon payment of $4,062,500 due together with the 6th and final instalment due in June 2022. This repayment schedule is subject
to alterations depending on the amount of “Excess cash”, as described in the loan agreement, which could have already
decreased the balloon amount.
Tranche (E) of $9,000,000 for the purpose of prepaying
to Macquarie Bank International Limited the amount outstanding with respect to the m/v Sun Globe. The balance outstanding of tranche
(E) at December 31, 2019, was $9,000,000 payable in 6 equal quarterly instalments of $375,000 starting, March 2021, as well as
a balloon payment of $6,750,000 due together with the 6th and final instalment due in June 2022. This repayment schedule is subject
to alterations depending on the amount of “Excess cash”, as described in the loan agreement, which could have already
decreased the balloon amount.
The EnTrust Loan
Facility bears interest at LIBOR plus 8.5% (or 10.5% default interest), and is repayable by five consecutive quarterly installments
commencing on December 31, 2019 each in the amount of the earnings of the ships after deducing interest on the EnTrust Loan Facility,
operating expenses and reserves for drydocking, then by six consecutive quarterly installments commencing on March 31, 2021 each
in the amount of $1,492,622, and by a final installment on June 30, 2022 in the amount of $1,492,622 together with the remaining
principal amount as a balloon payment.
The loan is secured by, among other things:
|
•
|
First preferred mortgage over m/v River Globe, m/v Sky Globe, m/v Star Globe, m/v Moon Globe and m/v Sun Globe.
|
|
•
|
Guarantee from Globus and joint liability of the vessel owning companies.
|
|
•
|
Shares pledges respecting each borrower.
|
|
•
|
Pledges of bank accounts, charter assignments, and a general assignment over each ship's earnings, insurances and any requisition
compensation in relation to that ship.
|
The EnTrust Loan Facility contains various covenants
requiring the vessels owning companies and/or Globus to, among others things, ensure that:
|
»
|
The borrowers, being Globus Maritime’s five shipowning subsidiaries, must maintain a minimum liquidity at all times of
not less than $250,000 for each mortgaged ship.
|
|
»
|
Globus Maritime must maintain, on a consolidated basis, at the end of each calendar quarter liquid funds in an amount, in aggregate,
of not less than 5% of the consolidated financial indebtedness of the Group as reflected in the most recent financial statements
of Globus Maritime.
|
|
»
|
Each borrower must maintain in its earnings account during a “Cash Sweep Period”, which is the period commencing
on June 24, 2019 and ending on September 30, 2019 and each three-month period thereafter commencing on January 1, April 1, July
1 and October 1 in each financial year of the relevant borrower, with the last such three-month period commencing on June 30, 2020
and ending on September 30, 2020, the applicable “Buffer Amount”, which is in relation to a Borrower for a Cash Sweep
Period, the product of:
|
(a) an amount equal to the lower of:
(i) $1,000; and
(ii) the difference between the daily time
charter equivalent rate of the ship owned by that borrower, as evidenced in the management accounts, and the break-even expenses
of that ship for that Cash Sweep Period; and
(b) the actual number of days lapsed
during that Cash Sweep Period for that borrower.
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»
|
Each of Domina Maritime Ltd, Dulac Maritime S.A. and Artful Shipholding S.A. must create a reserve fund in the reserve account
to meet the anticipated dry docking and special survey fees and expenses for the relevant ship owned by it by maintaining in the
reserve account a minimum credit balance that may not be withdrawn (other than for the purpose of covering the documented and incurred
costs and expenses for the next special survey of that ship), in an amount equal to, at each quarter end date, the product of:
|
(i) $500; and
(ii) the number of
days elapsed from June 24, 2019 until such quarter end date, and that borrower shall ensure that the relevant credit balance of
the reserve account shall be increased to meet the required amount of the reserves by no later than each quarter end date.
Each of Devocean Maritime Ltd. and Longevity
Maritime Limited deposited on June 24, 2019 in the reserve account a minimum credit balance in an amount equal to $450,000 which
may not be withdrawn to meet the anticipated dry docking and special survey fees and expenses for the ship which is owned by it
(other than for the purpose of covering the documented and incurred costs and expenses for the next special survey of that ship).
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»
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No Borrower shall incur or permit to be outstanding any financial indebtedness except “Permitted Financial Indebtedness”.
|
"Permitted Financial Indebtedness"
means:
|
(a)
|
any financial indebtedness incurred under the finance
documents;
|
|
(b)
|
any financial indebtedness that is subordinated to
all financial indebtedness incurred under the finance documents pursuant to a subordination agreement or otherwise and which is,
in the case of any such financial indebtedness of the borrower, the subject of subordinated debt security; and
|
|
(c)
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any trade debt on arm's length commercial terms reasonably
incurred in the ordinary course of owning, operating, trading, chartering, maintaining and repairing a ship which remains unpaid
for over 15 days of its due date and which does not exceeds $400,000 (or the equivalent in any other currency) per ship at any
relevant time.
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As of December 31, 2019, the Company was in compliance
with the covenants of EnTrust Loan Facility.
Financial Instruments
The major trading currency of our business is the U.S.
dollar. Movements in the U.S. dollar relative to other currencies can potentially impact our operating and administrative expenses
and therefore our operating results.
We believe that we have a low risk approach to treasury
management. Cash balances are invested in term deposit accounts, with their maturity dates projected to coincide with our liquidity
requirements. Credit risk is diluted by placing cash on deposit with a variety of institutions in Europe, including a small number
of banks in Greece, which are selected based on their credit ratings. We have policies to limit the amount of credit exposure to
any particular financial institution.
As of December 31, 2019, 2018 and 2017, we did not
use any financial instruments designated in our consolidated financial statements as those with hedging purposes.
Capital Expenditures
We make capital expenditures from time to time in connection
with our vessel acquisitions or vessel improvements. We have no agreements to purchase any additional vessels, but may do so in
the future. We expect that any purchases of vessels will be paid for with cash from operations, with funds from new credit facilities
from banks with whom we currently transact business, with loans from banks with whom we do not have a banking relationship but
will provide us funds at terms acceptable to us, with funds from equity or debt issuances or any combination thereof.
We incur additional capital expenditures when our vessels
undergo surveys. This process of recertification may require us to reposition these vessels from a discharge port to shipyard facilities,
which will reduce our operating days during the period. The loss of earnings associated with the decrease in operating days, together
with the capital needs for repairs and upgrades, is expected to result in increased cash flow needs. We expect to fund these expenditures
with cash on hand.
C. Research and
Development, Patents and Licenses, etc.
We incur, from time to time, expenditures relating
to inspections for acquiring new vessels that meet our standards. Such expenditures are insignificant and they are expensed as
they incur.
D. Trend Information
Please read “Item 4.B. Information
on the Company—Business Overview.”
E. Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements.
F. Tabular Disclosure
of Contractual Obligations
The following table sets forth our contractual obligations
as of December 31, 2019, assuming the lenders will not demand the repayment of the loans before maturity:
|
|
Less
than
One
Year
|
|
|
One
to Three
Years
|
|
|
Three
to
Five Years
|
|
|
More
than
Five years
|
|
|
Total
|
|
|
|
(in thousands
of U.S. Dollars)
|
|
Long term debt
|
|
|
4,109
|
|
|
|
37,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,109
|
|
Interest on long term debt
|
|
|
4,341
|
|
|
|
5,247
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,588
|
|
Lease payments
|
|
|
232
|
|
|
|
425
|
|
|
|
142
|
|
|
|
1
|
|
|
|
800
|
|
Totals
|
|
|
8,682
|
|
|
|
42,672
|
|
|
|
142
|
|
|
|
1
|
|
|
|
51,497
|
|
G. Safe Harbor
See the section entitled “Cautionary Note Regarding
Forward-Looking Statements” at the beginning of this annual report on Form 20-F.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets forth information regarding our executive officers
and our directors. Our articles of incorporation provide for a board of directors serving staggered, three-year terms, other than
any members of our board of directors that may serve at the option of the holders of preferred shares, if any are issued with relevant
appointment powers. The term of our Class I directors expires at our annual general meeting of shareholders in 2020, the term of
our Class II directors expires at our annual general meeting of shareholders in 2021, and the term of our Class III directors expires
at our annual general meeting of shareholders in 2022. Officers are appointed from time to time by our board of directors and hold
office until a successor is appointed or their employment is terminated. The business address of each of the directors and officers
is c/o Globus Shipmanagement Corp., 128 Vouliagmenis Avenue, 3rd Floor, 166 74 Glyfada, Attica, Greece.
Name
|
|
Position
|
|
Age
|
|
Georgios Feidakis
|
|
Director, Chairman of the Board of Directors
|
|
|
69
|
|
Ioannis Kazantzidis
|
|
Director
|
|
|
69
|
|
Jeffrey O. Parry
|
|
Director
|
|
|
60
|
|
Athanasios Feidakis
|
|
Director, President, Chief Executive Officer, Chief Financial Officer
|
|
|
33
|
|
Olga Lambrianidou
|
|
Secretary
|
|
|
64
|
|
Georgios (“George”) Feidakis,
a Class III director, is our founder and principal shareholder and has served as our non-executive chairman of the board of directors
since inception. Mr. George Feidakis is also the major shareholder and Chairman of F.G. Europe S.A., a company Mr. George Feidakis
has been involved with since 1994, and acts as a director and executive for several of its subsidiaries. FG Europe is active in
four lines of business and distributes well-known brands in Greece, the Balkans, Turkey, Italy and UK. FG Europe is also active
in the air-conditioning and white/brown electric goods market in Greece and ten other countries in Europe as well as in the production
of renewal energy. Mr. George Feidakis is also the director and chief executive officer of R.F. Energy S.A., a company that plans,
develops and controls the operation of energy projects, and acts as a director and executive for several of its subsidiaries. As
of January 31, 2018, Mr. Feidakis was the majority shareholder of Eolos Shipmanagement SA.
Athanasios (“Thanos”) Feidakis,*
a Class I director was appointed to our board of directors in July 2013 to fill a vacancy in our board of directors. As of
December 28, 2015, Mr. Athanasios Feidakis was also appointed our President, CEO and CFO. From October 2011 through June 2013,
Mr. Athanasios Feidakis worked for our operations and chartering department as an operator. Prior to that and from September 2010
to May 2011, Mr. Athanasios Feidakis worked for ACM, a shipbroking firm, as an S&P broker, and from October 2007 to April 2008,
he worked for Clarksons, a shipbroking firm, as a chartering trainee on the dry cargo commodities chartering
and on the sale and purchase of vessels. From April 2011 to April 2016, Mr. Athanasios Feidakis was a director of F.G. Europe S.A.,
a company controlled by his family, specializing in the distribution of well-known brands in Greece, the Balkans, Turkey, Italy
and UK. From December 2008 to December 2015, Mr. Athanasios Feidakis was the President of Cyberonica S.A., a family owned company
specializing in real estate development. Mr. Athanasios Feidakis holds a B.Sc. in Business Studies and a M.Sc. in Shipping Trade
and Finance from the Cass Business School (City University London) and an MBA from London School of Economics. In addition, Mr.
Athanasios Feidakis has professional qualifications in dry cargo chartering and operations from the Institute of Chartered Shipbrokers.
Jeffrey O. Parry, a Class II director,
has served as our director since July 2010. Mr. Parry is currently the president of Mystic Marine Advisors LLC, a Connecticut based
advisory firm specializing in turnaround and emerging shipping companies which he founded in 1998. Mr. Parry was chairman of the
board of directors of TBS Shipping Limited from April 2012 until March 2018. From July 2008 to October 2009, he was
president and chief executive officer of Nasdaq-listed Aries Maritime Transport Limited. Mr. Parry holds a B.A. from Brown University
and an MBA from Columbia University.
Ioannis Kazantzidis, a Class I director, was
appointed to our board in November, 2016 to fill a vacancy in our board of directors. Mr. Kazantzidis has been the principal of
Porto Trans Shipping LLC, a shipping and logistics company based in the United Arab Emirates, since 2007. Between 1987 to 2007,
Mr. Kazantzidis was with HSBC Group, where he served in managerial positions participating in the development and implementation
of financial systems in multiple locations. Mr. Kazantzidis has since 2009 been a Director of Saeed Mohammed Heavy Equipment Trading
LLC, a general trading company, and a senior partner in Porto Trans Auto Services Company, both based in Jebel Ali, UAE. Mr. Kazantzidis
has served as the Chairman of Nazaki Corporation, a private investment company based in the British Virgin Islands, since 1988.
Mr. Kazantzidis has served, from 2015, to 2018 as the Chairman of W.M.Mendis Hotel Pvt Ltd in the Republic of Sri Lanka. From
1989 to 2015, he was the Chairman of Fishermans Wharf Pvt Ltd, and a director of Dow Corning Lanka Pvt Ltd from 2000 to 2013 and
Propasax Pvt Ltd from 2010 to 2015.
Olga Lambrianidou, our secretary, has been a
corporate consultant to the Company since November 2010, and was appointed as secretary to the Company in December 2012. Prior
to joining Globus, Ms. Lambrianidou was the Corporate Secretary and Investor Relations Officer of NewLead Holdings Ltd., formerly
known as Aries Maritime Limited from 2008 to 2010, and of DryShips Inc., a dry bulk publicly trading shipping company from 2006
to 2008. Ms. Lambrianidou was Corporate Secretary, Investor Relations Officer and Human Resources Manager with OSG Ship Management
(GR) Ltd., formerly known as Stelmar Shipping Ltd. from 2000 to 2006. Prior to 2000, Ms. Lambrianidou worked in the banking and
insurance fields in the United States. She holds a BBA Degree in Marketing/English Literature from Pace University and an MBA Degree
in Banking/Finance from the Lubin School of Business of Pace University in New York.
*Athanasios Feidakis is the son of our Chairman, George
Feidakis. Other than the aforementioned, there are no other family relationships between any of our directors or senior management.
There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person
referred to above was selected as a director or member of senior management. See, however, some of the covenants of our loan facilities.
The Company is not aware of any agreements or arrangements
between any director and any person or entity other than the Company relating to the Compensation or other payments in connection
with such director’s candidacy or service as a director of the Company.
B. Compensation
In August 2016, the Company entered into a consultancy
agreement with an affiliated company of our CEO, Mr. Athanasios Feidakis, for the purpose of providing consulting services to the
Company in connection with the Company’s international shipping and capital raising activities, including but not limited
to assisting and advising the Company’s CEO. The annual fees for the services provided amount to €200,000. The consultant
is eligible to receive bonus compensation (whether in the form of cash and/or equity and/or quasi-equity awards) for the services
provided and such bonus shall be determined by the Remuneration Committee or the Board of the Company. In 2019, the aggregate remuneration
that should have been paid for all executive officers (namely, only our Chief Executive Officer) amounted to approximately $224,000.
The aggregate remuneration that should have been paid for all of our executive officers in 2018 was approximately $235,000, and
was approximately $229,000 in 2017.
The aggregate compensation actually paid to members
of our senior management (namely, only our Chief Executive Officer) or a consulting company for which an executive officer is an
owner was approximately $49,000 within 2019, $100,000 within 2018, and $200,000 within 2017. In addition, our senior management
received no shares in 2019, 2018 and 2017. Information about dividends paid to our shareholders, including to holders of Series
A Preferred Shares, is contained in “Item 8. Financial Information - A. Consolidated Statements and Other Financial
Information - Our Dividends Policy and Restrictions on Dividends.”
The aggregate compensation other than share based compensation
paid to our non-executive directors (including our non-executive Chairman, Mr. George Feidakis) in 2019 was $30,000, in 2018 was
approximately $70,000 and in 2017 was $352,000. In addition, in 2019, 2018 and 2017, non-executive directors (excluding our non-executive
Chairman, Mr. George Feidakis) received an aggregate of 17,998 common shares, 8,797 common shares and 2,094 common shares, respectively.
As of December 31, 2019, we had not yet paid any non-executive directors the cash amounts that we agreed to pay them for their
prior service; such amount in the aggregate is approximately $318,200 ($126,950 for 2019, $105,000 for 2018, $16,250 for 2017 and
$30,000 for 2016 and $40,000 for 2015). As of March 31, 2020, we have not yet paid these outstanding amounts.
Our Greek employees are bound by Greek labor law, which
provides certain payments to these employees upon their dismissal or retirement. We accrued as of December 31, 2019 a non-current
liability of $26,291 for such payments.
We do not have a retirement plan for our officers or
directors.
C. Board Practices
Our board of directors and executive officers oversee
and supervise our operations.
Each director holds office until his successor is elected
or appointed, unless his office is earlier vacated in accordance with the articles of incorporation or with the provisions of the
BCA. In addition to cash compensation, we pay each of Mr. Kazantzidis and Mr. Parry $20,000 in common shares annually. The members
of our senior management are appointed to serve at the discretion of our board of directors. Our board of directors and committees
of our board of directors schedule regular meetings over the course of the year. Under the Nasdaq rules, we believe that Mr. Ioannis
Kazantzidis and Mr. Parry are independent.
We have an Audit Committee, a Remuneration Committee
and a Nomination Committee.
The Audit Committee is comprised of Ioannis Kazantzidis
and Jeffrey O. Parry. It is responsible for ensuring that our financial performance is properly reported on and monitored, for
reviewing internal control systems and the auditors’ reports relating to our accounts and for reviewing and approving all
related party transactions. Our board of directors has determined that Ioannis Kazantzidis is our audit committee financial expert.
Each Audit Committee member has experience in reading and understanding financial statements, including statements of financial
position, statements of comprehensive income and statements of cash flows.
The Remuneration Committee is comprised of Jeffrey
O. Parry, Athanasios Feidakis, and Ioannis Kazantzidis. It is responsible for determining, subject to approval from our board of
directors, the remuneration guidelines to apply to our executive officers, secretary and other members of the executive management
as our board of directors designates the Remuneration Committee to consider. It is also responsible for suggesting the total individual
remuneration packages of each director including, where appropriate, bonuses, incentive payments and share options. The Remuneration
Committee is responsible for declaring dividends on our Series A Preferred Shares, if any. The Remuneration Committee will also
liaise with the Nomination Committee to ensure that the remuneration of newly appointed executives falls within our overall remuneration
policies. While Athanasios Feidakis is not an independent director, we believe that, as our Chief Executive Officer, he has a substantial
vested interest in our success and his particular input will significantly aid and assist us.
The Nomination Committee is comprised of George Feidakis,
Ioannis Kazantzidis and Jeffrey O. Parry. It is responsible for reviewing the structure, size and composition of our board of directors
and identifying and nominating candidates to fill board positions as necessary.
For information about the term of each director, see
“Item 6. Directors, Senior Management and Employees - A. Directors and Senior Management”.
D. Employees
As of December 31, 2019, we had thirteen full-time
employees and two consultants that we hired directly. All of our employees are located in Greece and are engaged in the service
and management of our fleet. None of our employees are covered by collective bargaining agreements, although certain crew members
are parties to collective bargaining agreements. We do not employ a significant number of temporary employees.
E. Share Ownership
With respect to the total number of common shares owned
by all of our officers and directors, individually and as a group, please read “Item 7. Major Shareholders and Related
Party Transactions.”
Incentive program
We maintain an equity incentive program, because we
believe that equity awards are important to align our employees’ interests with those of our shareholders. Our equity incentive
program is administered by our Remuneration Committee or, in certain circumstances, our board of directors. The Remuneration Committee
generally measures our performance in terms of total shareholder return, which is calculated based on changes in our share price
and our dividends paid over a calendar year, which we refer to as TSR.
Our board of directors believe that these awards keep
our employees focused on our growth, as well as dividend growth and its impact on our share price, over an extended time period.
The 2012 Equity Incentive Plan of Globus Maritime Limited,
or the “EIP,” provides for the award of stock options, stock appreciation rights, restricted stock, restricted stock
units and unrestricted stock, for directors, officers and employees (including any prospective officer or employee) of our Company
and our subsidiaries and affiliates and consultants and service providers (including individuals who are employed by or provide
services to any entity that is itself such a consultant or service provider) to our Company and our subsidiaries and affiliates,
with the goal of providing such persons the incentive to enter into and remain in the service of the Company or its affiliates,
acquire a proprietary interest in the success of the Company, maximize their performance and enhance the long-term performance
of the Company. The EIP was amended August 12, 2016 to clarify that the full board of directors may act as plan administrator.
Administration. The EIP is administered
by the Remuneration Committee of our board of directors, or such other committee of the board of directors designated by the board
of directors (which could be the board of directors itself). We refer to the body administering the EIP as the “Administrator.”
The EIP allows the Administrator to delegate its rights to the extent consistent with applicable law and our organizational documents.
The Administrator has the authority to, among other things, designate the persons to receive awards under the EIP; determine the
types of awards granted to a participant under the EIP; determine the number of shares to be covered by, or with respect to which
payments, rights or other matters are to be calculated with respect to, awards; determine the terms and conditions of any awards;
determine whether, and to what extent, and under what circumstances, awards may be settled or exercised in cash, shares, other
securities, other awards or other property, or cancelled, forfeited or suspended, and the methods by which awards may be settled,
exercised, cancelled, forfeited or suspended; determine whether, to what extent, and under what circumstances cash, shares, other
securities, other awards, other property and other amounts payable with respect to an award shall be deferred, either automatically
or at the election of the holder thereof or the Administrator; construe, interpret and implement the EIP and any Award Agreement;
prescribe, amend, rescind or waive rules and regulations relating to the EIP, including rules governing its operation, and appoint
such agents as it shall deem appropriate for the proper administration of the EIP; make all determinations necessary or advisable
in administering the EIP; correct any defect, supply any omission and reconcile any inconsistency in the EIP or any Award Agreement;
and make any other determination and take any other action that the Administrator deems necessary or desirable for the administration
of the EIP. The board of directors has the right to alter or amend the EIP.
Number of Shares. Subject to adjustment
in the event of any distribution, recapitalization, split, merger, consolidation or similar corporate event, 100,000 of our common
shares are available for delivery pursuant to awards granted under the EIP. Awards may not be paid in cash. Shares subject to an
award under the EIP that are cancelled, forfeited, exchanged, settled in cash or otherwise terminated, including withheld to satisfy
exercise prices or tax withholding obligations, are available for delivery pursuant to other awards. Shares issued pursuant to
the EIP may be authorized but unissued common shares or treasury shares.
Award Agreements. Each award granted
under the EIP shall be evidenced by a written certificate, which we refer to as an Award Agreement, which shall contain such provisions
as the Administrator may deem necessary or desirable and which may, but need not, require execution or acknowledgment by a grantee.
Each Award shall be subject to all of the terms and provisions of the EIP and the applicable Award Agreement.
Stock Options. A stock option is a right
to purchase shares at a specified price during a specified time period. The EIP permits the grant of options covering our common
shares. The Administrator may make grants under the EIP to participants containing such terms as the Administrator shall determine.
No option shall be treated as an “incentive stock option” for purposes of the Code. Stock options granted will become
exercisable over a period determined by the Administrator. Each Award Agreement with respect to an option shall set forth the exercise
price of such Award and, unless otherwise specifically provided in the Award Agreement, the exercise price of an option shall equal
the fair market value of a common share on the date of grant; provided that in no event may such exercise price be less than the
greater of the fair market value of a common share on the date of grant and the par value of a common share.
Restricted Shares. A restricted share
grant is an award of common shares that vests over a period of time and is subject to forfeiture until it has vested. The Administrator
may determine to make grants of restricted shares under the EIP to participants containing such terms as the Administrator shall
determine. The Administrator will determine the period over which restricted shares granted to participants will vest and the voting
provisions. The Administrator, in its discretion, may base its determination upon the achievement of specified financial objectives.
Stock Appreciation Rights. A stock appreciation
right is the right, subject to the terms of the EIP and the applicable Award Agreement, to receive from the Company an amount equal
to (i) the excess of the fair market value of a common share on the date of exercise of the stock appreciation right over the exercise
price of the stock appreciation right, multiplied by (ii) the number of shares with respect to which the stock appreciation right
is exercised. Each Award Agreement with respect to a stock appreciation right shall set forth the exercise price of such Award
and, unless otherwise specifically provided in the Award Agreement, the exercise price of a stock appreciation right shall equal
the fair market value of a common share on the date of grant; provided that in no event may such exercise price be less than the
greater of (A) the fair market value of a common share on the date of grant and (B) the par value of a common share. Payment upon
exercise of a stock appreciation right shall be in cash or in common shares (valued at their fair market value on the date of exercise
of the stock appreciation right) or any combination of both, all as the Administrator shall determine. Upon the exercise of a stock
appreciation right granted in connection with an option, the number of shares subject to the option shall be reduced by the number
of shares with respect to which the stock appreciation right is exercised. Upon the exercise of an option in connection with which
a stock appreciation right has been granted, the number of shares subject to the stock appreciation right shall be reduced by the
number of shares with respect to which the option is exercised.
Restricted Stock Unit. A restricted stock
unit is a notional share that entitles the grantee to receive a common share upon the vesting of the restricted stock unit or,
in the discretion of the Administrator, cash equivalent to the value of a common share. The Administrator may determine to make
grants of restricted stock units under the EIP to participants containing such terms as the Administrator shall determine. The
Administrator will determine the period over which restricted stock units granted to participants will vest.
Unrestricted Stock. The Administrator
may grant (or sell at a purchase price at least equal to par value) common shares free of restrictions under the EIP to available
participants and in such amounts and subject to such forfeiture provisions as the Administrator shall determine. Common shares
may be thus granted or sold in respect of past services or other valid consideration.
Tax Withholding. At our discretion, and
subject to conditions that the Administrator may impose, a participant may elect that his minimum statutory tax withholding with
respect to an award may be satisfied by withholding from any payment related to an award or by the withholding of shares issuable
pursuant to the award based on the fair market value of the shares.
Award Adjustments. If the Administrator
determines that any dividend or other distribution (whether in the form of cash, Company shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase
or exchange of Company shares or other securities of the Company, issuance of warrants or other rights to purchase Company shares
or other securities of the Company, or other similar corporate transaction or event affects the Company shares such that an adjustment
is determined by the Administrator to be appropriate or desirable, then the Administrator shall, in such manner as it may deem
equitable or desirable, adjust any or all of the number of shares or other securities of the Company (or number and kind of other
securities or property) with respect to which Awards may be granted under the EIP. The Administrator is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring events (including the events described above in the
first sentence of this paragraph, the occurrence of a Change in Control (as defined in the EIP) affecting the Company, any affiliate,
or the financial statements of the Company or any affiliate, or of changes in applicable rules, rulings, regulations or other requirements
of any governmental body or securities exchange, accounting principles or law, whenever the Administrator determines that such
adjustments are appropriate or desirable, including providing for adjustment to (1) the number of shares or other securities
of the Company (or number and kind of other securities or property) subject to outstanding Awards or to which outstanding Awards
relate and (2) the exercise price with respect to any Award and a substitution or assumption of Awards, accelerating the exercisability
or vesting of, or lapse of restrictions on, Awards, or accelerating the termination of Awards by providing for a period of time
for exercise prior to the occurrence of such event, or, if deemed appropriate or desirable, providing for a cash payment to the
holder of an outstanding Award in consideration for the cancellation of such Award (it being understood that, in such event, any
option or stock appreciation right having a per share exercise price equal to, or in excess of, the fair market value of a share
subject to such option or stock appreciation right may be cancelled and terminated without any payment or consideration therefor).
Change in Control. Upon a “change
of control” (as defined in the EIP), and unless the Administrator decides otherwise:
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Any Award then outstanding shall become fully vested and any restriction and forfeiture provisions
thereon imposed pursuant to the EIP and the Award Agreement shall lapse and any Award in the form of an option or stock appreciation
right shall be immediately exercisable.
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To the extent permitted by law and not otherwise limited by the terms of the EIP, the Administrator
may amend any Award Agreement in such manner as it deems appropriate.
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An award recipient who is terminated or dismissed from their position for any reason other than
“for cause” within one year of the change in control may, for a limited time, exercise any outstanding option or stock
appreciation right, but only to the extent that the grantee was entitled to exercise the Award on the date of his or her termination
of employment or consultancy/service relationship or dismissal from the board of directors.
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Termination of Employment or Service.
The consequences of the termination of a grantee’s employment, consulting arrangement, or membership on the board of directors
will be determined by the Administrator in the terms of the relevant Award Agreement. Generally, the Administrator may modify these
consequences. The Administrator can impose any forfeiture or vesting provisions in any Award Agreement.
2019, 2018, 2017 Grants
No awards were granted pursuant to the equity incentive plan during the
years ended December 31, 2019, 2018 and 2017, but we issued shares directly to our directors, which was not part of the equity
incentive program.
Item 7. Major Shareholders and Related
Party Transactions
A. Major Shareholders
The following table sets forth information concerning
ownership of our common shares as of March 31, 2020 by persons who beneficially own more than 5.0% of our outstanding common shares,
each person who is a director of our company, each executive officer named in this annual report on Form 20-F and all directors
and executive officers as a group.
Beneficial ownership of shares is determined under
rules of the Securities and Exchange Commission (the “SEC”) and generally includes any shares over which a person exercises
sole or shared voting or investment power. Except as indicated in the footnotes to this table and subject to community property
laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares shown as
beneficially owned by them.
The numbers of shares and percentages of beneficial
ownership are based on 6,416,666 common shares outstanding on March 31, 2020. All common shares owned by the shareholders listed
in the table below have the same voting rights as the other of our outstanding common shares.
The address for those individuals for which an address
is not otherwise indicated is: c/o Globus Shipmanagement Corp., 128 Vouliagmenis Avenue, 3rd Floor, 166 74 Glyfada, Attica, Greece.
Name and address
of beneficial owner
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Number
of common
shares beneficially
owned as of March
31, 2020
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Percentage
of
common shares
beneficially owned
as of March 31, 2020
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5% Beneficial Owners
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Officers and Directors
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George Feidakis (1)
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1,420,163
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22.1%
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Ioannis Kazantzidis
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25,292
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*
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Jeffrey O. Parry
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23,431
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*
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Athanasios Feidakis
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11,886
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*
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All executive officers and directors as a group
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23.1%
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*Less than 1.0% of the outstanding shares.
(1) Mr. George Feidakis beneficially owns 1,420,163
common shares through Firment Shipping Inc., a Marshall Islands corporation for which he exercises sole voting and investment power.
Mr. George Feidakis and Firment Shipping Inc., disclaim beneficial ownership over such common shares except to the extent of their
pecuniary interests in such shares. Firment Shipping Inc. is the lender of the Firment Shipping Credit Facility, which facility
provides that debt may be repaid by the Company using the Company’s common shares at the Company’s election. As the
conversion would occur at the Company’s election, and by no act of Mr. Feidakis, these figures do not include shares issuable
upon such conversion. This figure assumes no conversion of the convertible note.
When we filed our annual report for the year ended
2019 and 2018, Mr. George Feidakis beneficially owned 22.1% and 44.3% of our common shares, respectively.
To the best of our knowledge, except as disclosed in
the table above, we are not owned or controlled, directly or indirectly, by another corporation or by any foreign government. To
the best of our knowledge, there are no agreements in place that could result in a change of control of us, other than the convertible
note and Firment Shipping Credit Facility described above.
In the normal course of business, there have been institutional
investors that buy and sell our shares. It is possible that significant changes in the percentage ownership of these investors
will occur.
B. Related Party
Transactions
Lease
During the years ended December 31, 2019, 2018 and
2017 fiscal years, the rent charged amounted to $139,000, $147,000 and $140,000, respectively, to Cyberonica S.A., a company owned
by Mr. George Feidakis, for the rental of 350 square meters of office space for our operations. As of December 31, 2019, we owed
$91,000 in back rent to Cyberonica S.A.
Employment of Relative of Mr. George Feidakis
As of July 1, 2013, Mr. Athanasios Feidakis became
a non-executive director of the Company. Mr. Athanasios Feidakis was previously an employee of the Company and his employment agreement
was terminated when he became a non-executive director. Mr. Athanasios Feidakis was appointed as President, Chief Executive Officer
and Chief Financial Officer as of December 28, 2015, and remains in these positions. He is the son of our chairman of the board
of directors and largest beneficial shareholder, Mr. George Feidakis.
February 2017 Private Placement
On February 8, 2017, we sold for $5 million an aggregate
of 500,000 of our common shares and warrants (which expired in February 2019) to purchase 2.5 million of our common shares at a
price of $16 per share (subject to adjustment) to four investors in a private placement, one of whom was the sister of our CEO
and daughter of our chairman. These securities were issued in transactions exempt from registration under the Securities Act. We
entered into a registration rights agreement providing the purchasers of these shares with certain rights relating to registration
under the Securities Act of the shares and the common shares underlying the warrants. (These figures reflect the 10-1 reverse stock
split which occurred in October 2018.)
Firment Credit Facility
In December 2013, Globus Maritime Limited entered into
a credit facility for up to $4.0 million with Firment Trading Limited, a Cypriot corporation and related party to us, for the purpose
of financing our general working capital needs. The Firment Credit Facility was unsecured and remained available until it terminated
on April 29, 2016. During December 2014 the credit limit of the facility increased from $4.0 million to $8.0 million and its final
maturity date was extended from December 12, 2015 to April 29, 2016. During December 2015 the credit limit of the facility increased
from $8.0 to $20.0 million and its final maturity date was extended to April 12, 2017. In December 2015, the Firment Credit Facility
was assigned from Firment Trading Limited, a Cypriot company, to Firment Trading Limited, a Marshall Islands corporation, each
of which is a related party to us. We had the right to drawdown any amount up to $20.0 million or prepay any amount, during the
availability period in multiples of $100,000. Any prepaid amount could have been re-borrowed in accordance with the terms of the
facility. Interest on drawn and outstanding amounts was charged at 5% per annum and no commitment fee is charged on the amounts
remaining available and undrawn.
In connection with the February 2017 private placement,
on February 8, 2017 Firment released an amount equal to $16,885,000 (but left an amount equal to $1,638,787 outstanding, which
continued to accrue under the Firment Credit Facility as though it were principal) of the Firment Credit Facility and the Company
issued to Firment Shipping Inc., an affiliate of Firment, 16,885,000 common shares and a warrant to purchase 6,230,580 common shares
at a price of $1.60 per share (subject to adjustment). Subsequent to the closing of the February 2017 private placement, Globus
repaid the outstanding amount on the Firment Credit Facility in its entirety. (These figures do not reflect the 10-1 reverse stock
split which occurred in October 2018.)
Silaner Credit Facility
In January 2016, Globus Maritime Limited entered into
a credit facility for up to $3.0 million with Silaner Investments Limited, a related party to us, for the purpose of financing
our general working capital needs. The Silaner Credit Facility was unsecured and remained available until it terminated on January
12, 2018. We had the right to drawdown any amount up to $3.0 million or prepay any amount in multiples of $100,000. Any prepaid
amount could have been be re-borrowed in accordance with the terms of the facility. Interest on drawn and outstanding amounts is
charged at 5% per annum and no commitment fee was charged on the amounts remaining available and undrawn. As of December 31, 2016,
the amount drawn and outstanding with respect to the facility was $3.1 million, which amount has been approved by our board. As
of December 31, 2017 we were in compliance with the loan covenants of the Silaner Credit Facility.
In connection with the February 2017 private placement,
on February 8, 2017 Silaner released an amount equal to the outstanding principal of $3,115,000 (but left an amount equal to $74,048
outstanding, which continued to accrue under the Silaner Credit Facility as though it were principal) of the Silaner Credit Facility
and the Company issued to Firment Shipping Inc., an affiliate of Silaner, 3,115,000 common shares and a warrant to purchase 1,149,437
common shares at a price of $1.60 per share (subject to adjustment). Subsequent to the closing of the February 2017 private placement,
Globus repaid the outstanding amount on the Silaner Credit Facility in its entirety. (These figures do not reflect the 10-1 reverse
stock split which occurred in October 2018.)
Firment Shipping Credit Facility
In November 2018, we entered into a credit facility
for up to $15 million with Firment Shipping Inc., a related party to us, for the purpose of financing our general working capital
needs. The Firment Shipping Credit Facility is unsecured and remains available until its final maturity on April 1, 2021, as amended.
We have the right to drawdown any amount up to $15 million or prepay any amount in multiples of $100,000. Any prepaid amount can
be re-borrowed in accordance with the terms of the facility. Interest on drawn and outstanding amounts is charged at 7% per annum
and no commitment fee was charged on the amounts remaining available and undrawn. Interest is payable the last day of a period
of three months after the drawdown date, after this period in case of failure to pay any sum due a default interest of 2% per annum
above the regular interest is charged. We have also the right, in our sole option, to convert in whole or in part the outstanding
unpaid principal amount and accrued but unpaid interest under this Agreement into common stock. The conversion price shall equal
the higher of (i) the average of the daily dollar volume-weighted average sale price for the common stock on the principal market
on any trading day during the period beginning at 9.30 a.m. New York City time and ending at 4.00 p.m. over the Pricing Period
multiplied by 80%, where the “Pricing Period” equals the ten consecutive Trading Days immediately preceding the date
on which the conversion notice was executed or (ii) $2.80.
As of December 31, 2019 and 2018, the amount drawn
and outstanding with respect to the facility was $0.8 and $2.2 million, respectively, and there was an amount of $11.1 and $12.8
million available to be drawn, respectively, under the Firment Shipping Credit Facility. As of December 31, 2019 and 2018 we were
in compliance with the loan covenants of the Firment Shipping Credit Facility.
Business Opportunities Agreement
In November 2010, we entered into a business opportunities
arrangement with Mr. George Feidakis. Under this agreement, Mr. George Feidakis is required to disclose to us any business opportunities
relating to dry bulk shipping that may arise during his service to us as a member of our board of directors that could reasonably
be expected to be a business opportunity that we may pursue. Mr. George Feidakis agreed to disclose all such opportunities, and
the material facts attendant thereto, to our board of directors for our consideration and if our board of directors fails to adopt
a resolution regarding an opportunity within seven business days of disclosure, we will be deemed to have declined to pursue the
opportunity, in which event Mr. George Feidakis will be free to pursue it. Mr. George Feidakis is also prohibited for six months
after the termination of the agreement to solicit any of our or our subsidiaries’ senior employees or officers. Mr. George
Feidakis’ obligations under the business opportunities agreement terminated in 2019 because he no longer beneficially owned
at least 30% of the combined voting power of all our outstanding equity.
Registration Rights Agreement
In November 2016, we entered into a registration rights
agreement with Firment Trading Limited, pursuant to which we granted to them and their affiliates (including Mr. George Feidakis
and certain of their transferees), the right, under certain circumstances and subject to certain restrictions to require us to
register under the Securities Act our common shares held by them. Under the registration rights agreement, these persons have the
right to request us to register the sale of shares held by them on their behalf and may require us to make available shelf registration
statements permitting sales of shares into the market from time to time over an extended period. In addition, these persons have
the ability to exercise certain piggyback registration rights in connection with registered offerings requested by shareholders
or initiated by us.
Consulting Agreements
On August 18, 2016, the Company entered into a consultancy
agreement with an affiliated company of our CEO, Mr. Athanasios Feidakis, for the purpose of providing consulting services to the
Company in connection with the Company’s international shipping and capital raising activities, including but not limited
to assisting and advising the Company’s CEO.
In June 2016, our Manager, entered into a consultancy
agreement with Eolos Shipmanagement S.A., a related party, for the purpose of providing consultancy services to Eolos Shipmanagement
S.A. For these services our Manager receives a daily fee of $1,000. This agreement terminated on January 31, 2017. For 2017 and
2016 the total income from these fees amounted to $31,000 and $187,000, respectively, and is classified in the income statement
component of the consolidated statement of comprehensive (loss)/income under management & consulting fee income.
C. Interests of Experts
and Counsel
Not Applicable.
Item 8. Financial Information
A. Consolidated Statements and Other
Financial Information
See Item 18.
Legal Proceedings
We have not been involved in any legal proceedings
which may have, or have had, a significant effect on our business, financial position, results of operations or liquidity, nor
are we aware of any other proceedings that are pending or threatened which may have a significant effect on our business, financial
position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary
course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance,
subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial
and managerial resources.
Our Dividend Policy and Restrictions on Dividends
Our dividend policy is to pay to holders of our shares
a variable quarterly dividend in excess of 50% of the net income of the previous quarter subject to any reserves our board of directors
may from time to time determine are required. We believe this policy maintains an appropriate level of dividend cover taking into
account the likely effects of the shipping cycle and the need to retain cash to reinvest in vessel acquisitions.
In calculating our dividend to holders of our shares,
we exclude any gain on the sale of vessels and any unrealized gains or losses on derivatives. Our board of directors, in its discretion,
can determine in the future whether any capital surpluses arising from vessel sales are included in the calculation of a dividend.
Dividends will be paid in U.S. dollars equally on a per-share basis between our common shares and our Class B shares, to the extent
any are issued and outstanding.
Our Remuneration Committee will also determine by unanimous
resolution, in its sole discretion, when and to the extent dividends are paid to the holders of our Series A Preferred Shares,
to the extent any are outstanding.
We are a holding company, with no material assets other
than the shares of our subsidiaries. Therefore, our ability to pay dividends depends on the earnings and cash flow of those subsidiaries
and their ability to pay dividends to us. Additionally, the declaration and payment of any dividend is subject at all times to
the discretion of our board of directors and will depend on, among other things, our earnings, financial condition and anticipated
cash requirements and availability, additional acquisitions of vessels, restrictions in our debt arrangements, the provisions of
Marshall Islands law affecting the payment of dividends to shareholders, required capital and drydocking expenditures, reserves
established by our board of directors, increased or unanticipated expenses, a change in our dividend policy, additional borrowings
and future issuances of securities, many of which are beyond our control.
Marshall Islands law generally prohibits the payment
of dividends other than from surplus (retained earnings and the excess of consideration received from the sale of shares above
the par value of the shares) or while a corporation is insolvent or would be rendered insolvent by the payment of such dividend.
We historically paid dividends to our common shareholders
in amounts ranging from $0.03 per share to $0.50 per share. Historical dividend payments should not provide any promise or indication
of future dividend payments.
No dividends were declared or paid on our common shares
during the years ended December 31, 2019, 2018 and 2017.
No Series A Preferred Shares were outstanding as of
December 31, 2019, 2018 and 2017.
Our loan agreements impose certain restrictions to
us with respect to dividend payments. Please see “Item 5.B. Liquidity and Capital Resources—Indebtedness.”
B. Significant Changes
Not Applicable.
Item 9. The Offer and Listing
Our common shares trade on the Nasdaq Capital Market
under the ticker “GLBS.”
All of our shares are in registered form. Our articles
of incorporation do not permit the issuance of bearer shares.
Item 10. Additional Information
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
Purpose
Our objects and purposes, as provided in Section 1.3
of our articles of incorporation, are to engage in any lawful act or activity for which corporations may now or hereafter be organized
under the BCA.
Common Shares and Class B Shares
Generally, Marshall Islands law provides that the holders
of a class of stock of a Marshall Islands corporation are entitled to a separate class vote on any proposed amendment to the relevant
articles of incorporation that would change the aggregate number of authorized shares or the par value of that class of shares
or alter or change the powers, preferences or special rights of that class so as to affect the class adversely. Except as described
below, holders of our common shares and Class B shares will have equivalent economic rights, but holders of our common shares are
entitled to one vote per share and holders of our Class B shares are entitled to 20 votes per share. Each holder of Class B shares
(not including the Company and the Company’s subsidiaries) may convert, at its option, any or all of the Class B shares held
by such holder into an equal number of common shares.
Except as otherwise provided by the BCA, holders of
our common shares and Class B shares will vote together as a single class on all matters submitted to a vote of shareholders, including
the election of directors.
The rights, preferences and privileges of holders of
our shares are subject to the rights of the holders of any preferred shares that have been issued and which we may issue in the
future.
Holders of our common shares do not have conversion,
redemption or pre-emptive rights to subscribe to any of our securities.
There is no limitation on the right to own securities
or the rights of non-resident shareholders to hold or exercise voting rights on our securities under Marshall Islands law or our
articles of incorporation or bylaws.
Preferred Shares
Our articles of incorporation authorize our board of
directors to establish and issue up to 100 million preferred shares and to determine, with respect to any series of preferred shares,
the rights and preferences of that series, including:
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the designation of the series;
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the number of preferred shares in the series;
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the preferences and relative participating option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and
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the voting rights, if any, of the holders of the series (subject to terms set forth below with regard to the policy of our board of directors regarding preferred shares).
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In April 2012 we issued an aggregate of 3,347 Series
A Preferred Shares to two persons who were then executive officers, but as of December 31, 2016 and as of the date hereof no Series
A Preferred Shares were outstanding. The holders of our Series A Preferred Shares will be entitled to receive, if funds are legally
available, dividends payable in cash in an amount per share to be determined by unanimous resolution of our Remuneration Committee,
in its sole discretion. Our board of directors or Remuneration Committee will determine whether funds are legally available under
the BCA for such dividend. Any accrued but unpaid dividends will not bear interest. Except as may be provided in the BCA, holders
of our Series A Preferred Shares do not have any voting rights. Upon our liquidation, dissolution or winding up, the holders of
our Series A Preferred Shares will be entitled to a preference in the amount of the declared and unpaid dividends, if any, as of
the date of liquidation, dissolution or winding up. Our Series A Preferred Shares are not convertible into any of our other capital
stock.
The Series A Preferred Shares are redeemable at the
written request of the Remuneration Committee, at par value plus all declared and unpaid dividends as of the date of redemption
plus any additional consideration determined by a unanimous resolution of the Remuneration Committee. We redeemed and cancelled
780 Series A Preferred Shares in January 2013 and the remaining 2,567 were redeemed and cancelled in July 2016.
Liquidation
In the event of our dissolution, liquidation or winding
up, whether voluntary or involuntary, after payment in full of the amounts, if any, required to be paid to our creditors and the
holders of preferred shares, our remaining assets and funds shall be distributed pro rata to the holders of our common shares and
Class B shares, and the holders of common shares and the holders of Class B shares shall be entitled to receive the same amount
per share in respect thereof.
Dividends
Declaration and payment of any dividend is subject
to the discretion of our board of directors. The timing and amount of dividend payments to holders of our shares will depend on
a series of factors and risks described under “Item 3.D. Risk Factors,” and includes risks relating to earnings,
financial condition, cash requirements and availability, restrictions in our current and future loan arrangements, the provisions
of the Marshall Islands law affecting the payment of dividends and other factors. The BCA generally prohibits the payment of dividends
other than from surplus or while we are insolvent or if we would be rendered insolvent upon paying the dividend.
Subject to preferences that may apply to any shares
of preferred stock outstanding at the time, the holders of our common shares and Class B shares will be entitled to share equally
(pro rata based on the number of shares held) in any dividends that our board of directors may declare from time to time out of
funds legally available for dividends.
Conversion
Our common shares are not convertible into any other
shares of our capital stock. Each of our Class B shares is convertible at any time at the election of the holder thereof into one
of our common shares. We will not reissue or resell any Class B shares that shall have been converted into common shares.
Directors
Our directors are elected by the vote of the plurality
of the votes cast by holders with voting power of our voting shares. Our articles of incorporation provide that our board of directors
must consist of at least three members. Shareholders may change the number of directors only by the affirmative vote of holders
of a majority of the total voting power of our outstanding capital stock (subject to the rights of any holders of preferred shares).
The board of directors may change the number of directors by a majority vote of the entire board of directors.
No contract or transaction between us and one or more
of our directors or officers will be void or voidable solely for the following reason, or solely because the director or officer
is present at or participates in the meeting of our board of directors or committee thereof which authorizes the contract or transaction,
or solely because his or her or their votes are counted for such purpose, if (1) the material facts as to such director’s
interest in such contract or transaction and as to any such common directorship, officership or financial interest are disclosed
in good faith or known to the board of directors or committee, and the board of directors or committee approves such contract or
transaction by a vote sufficient for such purpose without counting the vote of such interested director, or, if the votes of the
disinterested directors are insufficient to constitute an act of the board, by unanimous vote of the disinterested directors; or
(2) the material facts as to such director’s interest in such contract or transaction and as to any such common directorship,
officership or financial interest are disclosed in good faith or known to the shareholders entitled to vote thereon, and such contract
or transaction is approved by vote of such shareholders.
Our board of directors has the authority to fix the
compensation of directors for their services.
Classified Board of Directors
Our articles of incorporation provide for a board of
directors serving staggered, three-year terms. Approximately one-third of our board of directors will be elected each year.
Removal of Directors; Vacancies
Our articles of incorporation provide that directors
may be removed with or without cause upon the affirmative vote of holders of a majority of the total voting power of our outstanding
capital stock. Our bylaws require parties to provide advance written notice of nominations for the election of directors other
than the board of directors and shareholders holding 30% or more of the voting power of the aggregate number of our shares issued
and outstanding and entitled to vote.
No Cumulative Voting
Our articles of incorporation prohibit cumulative voting.
Shareholder Meetings
Under our bylaws, 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 may be called by the chairman of our board of directors, by resolution of our board of directors or by holders
of 30% or more of the voting power of the aggregate number of our shares issued and outstanding and entitled to vote at such meeting.
Our board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the shareholders
that will be eligible to receive notice and vote at the meeting.
Dissenters’ Right of Appraisal and
Payment
Under the BCA, our shareholders have the right to dissent
from various corporate actions, including certain amendments to our articles of incorporation and certain mergers or consolidations
or the sale or exchange 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 stock, 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 or any sale or exchange of all or substantially all of the property and assets of the corporation
not made in the usual course of its business, 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 our articles of incorporation,
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 to fix the value of the shares.
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 or a beneficial interest therein both at the time the derivative action is commenced and
at the time of the transaction to which the action relates or that the shares devolved upon the shareholder by operation of law.
Amendment to our Articles of Incorporation
Except as otherwise provided by law, any provision
in our articles of incorporation requiring a vote of shareholders may only be amended by such a vote. Further, certain sections
may only be amended by affirmative vote of the holders of at least a majority of the voting power of the voting shares. In October
2016 we amended our articles of incorporation in order to enable us to immediately effect a four-for-one one reverse stock split,
reducing the number of outstanding common shares from 10,510,741 to 2,627,674 shares (adjustments were made based on fractional
shares). In October 2018 we amended our articles of incorporation in order to enable us to immediately effect a ten-for-one one
reverse stock split, reducing the number of outstanding common shares from 32,065,077 to 3,206,495 shares (adjustments were made
based on fractional shares).
Anti-Takeover Effects of Certain Provisions of our
Articles of Incorporation and Bylaws
Mr. George Feidakis, the chairman of our board of directors,
owns beneficially a significant number of our total outstanding common shares, and may be able to block many types of changes in
control. Nonetheless, we note that certain provisions of our articles of incorporation and bylaws, which are summarized in the
following paragraphs, may have an anti-takeover effect and may delay, defer or prevent a takeover attempt or hostile change of
control that a shareholder may consider in its best interest, including those attempts that may result in a premium over the market
price for our common shares held by shareholders.
Multiple Classes of Shares
Should we issue any, our Class B shares have 20 votes
per share, while our common shares, which is the only class of shares listed on an established U.S. securities exchange, will have
one vote per share. Our board of directors also has authority under our articles of incorporation to issue blank check preferred
shares. Because of this share structure, any issuance of Class B shares or preferred shares may cause such holders to be able to
significantly influence matters submitted to our shareholders for approval even if such holders and their affiliates come to own
significantly less than 50% of the aggregate number of outstanding common shares, Class B shares, and preferred shares. This control
over shareholder voting could discourage others from initiating any potential merger, takeover or other change of control transaction
that other shareholders may view as beneficial and which would require shareholder approval.
Blank Check Preferred Shares
Under the terms of our articles of incorporation, our
board of directors has authority, without any further vote or action by our shareholders, to issue up to 100 million shares of
blank check preferred shares. We currently have no outstanding Series A Preferred Shares. Except as may be provided in the BCA,
holders of our Series A Preferred Shares do not have any voting rights.
Classified Board of Directors
Our articles of incorporation provide for a board of
directors serving staggered, three-year terms. Approximately one-third of our board of directors will be elected each year. This
classified board of directors provision could discourage a third party from making a tender offer for our shares or attempting
to obtain control of us. It could also delay shareholders who do not agree with the policies of the board of directors from removing
a majority of the board of directors for two years.
No Cumulative Voting
Our articles of incorporation prohibit cumulative voting.
Calling of Special Meetings
of Shareholders
Our bylaws provide that special meetings of our shareholders
may be called only by the chairman of our board of directors, by resolution of our board of directors or by holders of 30% or more
of the voting power of the aggregate number of our shares issued and outstanding and entitled to vote at such meeting.
Advance Notice Requirements
for Shareholder Proposals and Director Nominations
Our bylaws provide that, with a few exceptions, shareholders
seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide
timely notice of their proposal in writing to the corporate secretary.
Generally, to be timely, a shareholder’s notice
must be received at our principal executive offices not less than 150 days nor more than 180 days prior to the first anniversary
date of the immediately preceding annual meeting of shareholders. Our bylaws also specify requirements as to the form and content
of a shareholder’s notice. These provisions may impede shareholders’ ability to bring matters before an annual meeting
of shareholders or make nominations for directors at an annual meeting of shareholders.
Business Combinations
Although the BCA does not contain specific provisions
regarding “business combinations” between corporations incorporated under or redomiciled pursuant to the laws of the
Marshall Islands and “interested shareholders,” our articles of incorporation prohibit us from engaging in a business
combination with an interested shareholder for a period of three years following the date of the transaction in which the person
became an interested shareholder, unless, in addition to any other approval that may be required by applicable law:
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prior to the date of the transaction that resulted in the shareholder becoming an interested shareholder, our board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder;
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upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85.0% of our voting shares outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (1) persons who are directors and officers and (2) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
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at or after the date of the transaction that resulted in the shareholder becoming an interested shareholder, the business combination is approved by our board of directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least 66-2/3% of the voting power of the voting shares that are not owned by the interested shareholder.
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Among other transactions, a “business combination”
includes any merger or consolidation of us or any directly or indirectly majority-owned subsidiary of ours with (1) the interested
shareholder or any of its affiliates or (2) with any corporation, partnership, unincorporated association or other entity if the
merger or consolidation is caused by the interested shareholder. Generally, an “interested shareholder” is any person
or entity (other than us and any direct or indirect majority-owned subsidiary of ours) that:
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owns 15.0% or more of our outstanding voting shares;
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is an affiliate or associate of ours and was the owner of 15.0% or more of our outstanding voting shares at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested shareholder; or
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is an affiliate or associate of any person listed in the first two bullets, except that any person who owns 15.0% or more of our outstanding voting shares, as a result of action taken solely by us will not be an interested shareholder unless such person acquires additional voting shares, except as a result of further action by us and not caused, directly or indirectly, by such person.
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Additionally, the restrictions regarding business combinations
do not apply to persons that became interested shareholders prior to the effectiveness of our articles of incorporation.
Limitations on Liability and Indemnification of
Directors and Officers
The BCA authorizes corporations to limit or eliminate
the personal liability of directors to corporations and their shareholders for monetary damages for breaches of certain directors’
fiduciary duties. Our articles of incorporation include a provision that eliminates the personal liability of directors for monetary
damages for breach of fiduciary duty as a director to the fullest extent permitted by law (i.e., other than breach of duty of loyalty,
acts not taken in good faith or which involve intentional misconduct or a knowing violation of law or transactions for which the
director derived an improper personal benefit) and provides that we must indemnify our directors and officers to the fullest extent
authorized by law. We are also expressly authorized to advance certain expenses to our directors and officers and expect to carry
directors’ and officers’ insurance providing indemnification for our directors and officers for some liabilities. We
believe that these indemnification provisions and the directors’ and officers’ insurance are useful to attract and
retain qualified directors and executive officers.
The limitation of liability and indemnification provisions
in our articles of incorporation may discourage shareholders from bringing a lawsuit against our directors for breach of their
fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors
and officers, even though such an action, if successful, may otherwise benefit us and our shareholders. In addition, an investor
in our common shares may be adversely affected to the extent we pay the costs of settlement and damage awards against directors
and officers pursuant to these indemnification provisions.
There is no pending material litigation or proceeding
involving any of our directors, officers or employees for which indemnification is sought.
C. Material Contracts
We refer you to “Item 7.B. Related Party Transactions”
for a discussion of our agreements with companies related to us. We also refer you to “Item 4. Information on
the Company,” “Item 5.B. Liquidity and Capital Resources—Indebtedness” and “Item 6.E. Share
Ownership—Incentives Program” for a description of other material contracts.
Other than these agreements, we have no material contracts,
other than contracts entered into in the ordinary course of business, to which the Company or any member of the group is a party.
D. Exchange Controls
We are not aware, under Marshall Islands law, of any
restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance
of dividends, interest or other payments to holders of our common shares that are neither residents nor citizens of the Marshall
Islands.
E. Taxation
Marshall Islands Tax Considerations
The following is applicable only to persons who are
not citizens of and do not reside in, maintain offices in or engage in business, transactions or operations in the Marshall Islands.
Because we do not, and we do not expect that we or
any of our future subsidiaries will, conduct business, transactions or operations in the Marshall Islands, and because we anticipate
that all documentation related to any offerings of our securities will be executed outside of the Marshall Islands, under current
Marshall Islands law our shareholders will not be subject to Marshall Islands taxation or withholding tax on our distributions.
In addition, our shareholders will not be subject to Marshall Islands stamp, capital gains or other taxes on the purchase, ownership
or disposition of our common shares, and our shareholders will not be required by the Marshall Islands to file a tax return related
to our common shares.
Malta Tax Considerations
One of our subsidiaries is incorporated in Malta, which
imposes taxes on us that are immaterial to our operations.
Greek Tax Considerations
In January 2013, a tax law 4110/2013 amended the long-standing
provisions of art. 26 of law 27/1975 by imposing a fixed annual tonnage tax on vessels flying a foreign (i.e., non-Greek) flag
which are managed by a Law 89 company, establishing an identical tonnage tax regime as the one already in force for vessels flying
the Greek flag. This tax varies depending on the size of the vessel, calculated in gross registered tonnage, as well as on the
age of each vessel. Payment of this tonnage tax completely satisfies all income tax obligations of both the shipowning company
and of all its shareholders up to the ultimate beneficial owners. Any tax payable to the state of the flag of each vessel as a
result of its registration with a foreign flag registry (including the Marshall Islands) is subtracted from the amount of tonnage
tax due to the Greek tax authorities.
The tax residents of Greece who receive dividends from
such shipowning or their holding companies, (pursuant to a very recent agreement between the Union of Greek Shipowners and the
Greek State, which is expected to come in force shortly) are taxed at 10% on the dividends which they receive and which they import
into Greece, not being liable to any other taxation for these, which include those dividends which either remain with the holding
company or are paid to the individual Greek tax resident abroad.
United States Tax Considerations
This discussion of United States federal income taxes
is based upon provisions of the Code, existing final, temporary and proposed regulations thereunder and current administrative
rulings and court decisions, all as in effect on the effective date of this annual report on Form 20-F and all of which are subject
to change, possibly with retroactive effect. Changes in these authorities may cause the tax consequences to vary substantially
from the consequences described below. No rulings have been or are expected to be sought from the IRS with respect to any of the
United States federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary
positions.
Further, the following summary does not deal with
all United States federal income tax consequences applicable to any given holder of our common shares, nor does it address the
United States federal income tax considerations applicable to categories of investors subject to special taxing rules, such as
expatriates, banks, real estate investment trusts, regulated investment companies, insurance companies, tax-exempt organizations,
dealers or traders in securities or currencies, partnerships, S corporations, estates and trusts, investors that hold their common
shares as part of a hedge, straddle or an integrated or conversion transaction, investors whose “functional currency”
is not the United States dollar or investors that own, directly or indirectly, 10% or more of our stock by vote or value. Furthermore,
the discussion does not address alternative minimum tax consequences or estate or gift tax consequences, or any state tax consequences,
and is limited to shareholders that will hold their common shares as “capital assets” within the meaning of Section
1221 of the Code. Each shareholder is encouraged to consult, and discuss with his or her own tax advisor the United States federal,
state, local and non-United States tax consequences particular to him or her of the acquisition, ownership or disposition of common
shares. Further, it is the responsibility of each shareholder to file all state, local and non-U.S., as well as U.S. federal,
tax returns that may be required of it.
United States Federal Income Taxation of the
Company
Taxation of Operating Income
Unless exempt from United States federal income taxation
under the rules described below in “—The Section 883 Exemption,” a foreign corporation that earns only transportation
income is generally subject to United States federal income taxation under one of two alternative tax regimes: (1) the 4% gross
basis tax or (2) the net basis tax and branch profits tax. The Company is a Marshall Islands corporation and its subsidiaries are
incorporated in the Marshall Islands or Malta. There is no comprehensive income tax treaty between the Marshall Islands and the
United States, so the Company and its Marshall Islands subsidiaries cannot claim an exemption from this tax under a treaty.
The 4% Gross Basis Tax
The United States imposes a 4% United States federal
income tax (without allowance of any deductions) on a foreign corporation’s United States source gross transportation income
to the extent such income is not treated as effectively connected with the conduct of a United States trade or business. For this
purpose, transportation income includes income from the use, hiring or leasing of a vessel, or the performance of services directly
related to the use of a vessel (and thus includes time charter, spot charter and bareboat charter income). The United States source
portion of transportation income is 50% of the income attributable to voyages that begin or end, but not both begin and end, in
the United States. As a result of this sourcing rule the effective tax rate is 2% of the gross income attributable to U.S. voyages.
Generally, no amount of the income from voyages that begin and end outside the United States is treated as United States source,
and consequently none of the transportation income attributable to such voyages is subject to this 4% tax. (Although the entire
amount of transportation income from voyages that begin and end in the United States would be United States source, neither the
Company nor any of its subsidiaries expects to have any transportation income from voyages that both begin and end in the United
States.)
The Net Basis Tax and Branch Profits Tax
The Company and each of its subsidiaries do not expect
to engage in any activities in the United States (other than port calls of its vessels) or otherwise have a fixed place of business
in the United States. Consequently, the Company and its subsidiaries are not expected to be subject to the net basis or branch
profits taxes. Nonetheless, if this situation were to change or if the Company or a subsidiary of the Company were to be treated
as engaged in a United States trade or business, all or a portion of the Company’s or such subsidiary’s taxable income,
including gain from the sale of vessels, could be treated as effectively connected with the conduct of this United States trade
or business, or effectively connected income. Any effectively connected income, net of allowable deductions, would be subject to
United States federal corporate income tax. In addition, an additional 30% branch profits tax would be imposed on the Company or
such subsidiary at such time as the Company’s or such subsidiary’s after-tax effectively connected income is deemed
to have been repatriated to the Company’s or subsidiary’s offshore office.
The 4% gross basis tax described above is inapplicable
to income that is treated as effectively connected income. A non-United States corporation’s United States source transportation
income would be considered to be effectively connected income only if the non-United States corporation has or is treated as having
a fixed place of business in the United States involved in the earning of the transportation income and substantially all of its
United States source transportation income is attributable to regularly scheduled transportation (such as a published schedule
with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States), or in
the case of leasing income (such as bareboat charter income) is attributable to such fixed place of business. The Company and its
vessel-owning subsidiaries believe that their vessels will not operate to and from the United States on a regularly scheduled basis.
Based on the intended mode of shipping operations and other activities, the Company and its vessel-owning subsidiaries do not expect
to have any effectively connected income.
The Section 883 Exemption
Both the 4% gross basis tax and the net basis and branch
profits taxes described above are inapplicable to transportation income that qualifies for the Section 883 Exemption. To qualify
for the Section 883 Exemption a foreign corporation must, among other things:
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be organized in a jurisdiction outside the United States that grants an equivalent exemption from tax to corporations organized in the United States (an “Equivalent Exemption”);
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satisfy one of the following three ownership tests (discussed in more detail below): (1) the more than 50% ownership test, or 50% Ownership Test, (2) the controlled foreign corporation test, or CFC Test, or (3) the “Publicly Traded Test”; and
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meet certain substantiation, reporting and other requirements (which include the filing of United States income tax returns).
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The Company is a Marshall Islands corporation, and
each of the vessels in its fleet is owned by a separate wholly owned subsidiary organized in the Marshall Islands or Malta. The
U.S. Department of the Treasury recognizes the Marshall Islands and Malta as jurisdictions which grant an Equivalent Exemption;
therefore, the Company and each of its vessel-owning subsidiaries meet the first requirement for the Section 883 Exemption.
The 50 % Ownership Test
In order to satisfy the 50% Ownership Test, a non-United
States 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-United States 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 promulgated
under Section 883 of the Code, or Section 883 Regulations) of countries, other than the United States, that grant an Equivalent
Exemption, (2) non-United States corporations that meet the Publicly Traded Test of the Section 883 Regulations 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 Section 883 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 Section 883 Regulations). The Company does not anticipate that it will be able to satisfy
the substantiation and reporting requirements of the 50% Ownership Test for the taxable year ended December 31, 2019.
The CFC Test
The CFC Test requires that a non-United States corporation
be treated as a controlled foreign corporation, or a CFC, for United States federal income tax purposes for more than half of the
days in the taxable year. A CFC is a foreign corporation, more than 50% of the vote or value of which is owned by significant U.S.
shareholders (meaning U.S. persons who own at least 10% of the vote or value of the foreign corporation). In addition, more than
50% of the value of the shares of the CFC must be owned by qualifying U.S. persons for more than half of the days during the taxable
year concurrent with the period of time that the company qualifies as a CFC. For this purpose, a qualifying U.S. person is defined
as a U.S. citizen or resident alien, a domestic corporation or domestic tax-exempt trust, in each case, if such U.S. person provides
the company claiming the exemption with an ownership statement. The Company does not believe that the requirements of the CFC Test
will be met in the near future with respect to the Company or any of its subsidiaries.
The Publicly Traded Test
The Publicly Traded Test requires that one or more
classes of equity representing more than 50% of the voting power and value in a non-United States corporation be “primarily
and regularly traded” on an established securities market either in the United States or in a foreign country that grants
an Equivalent Exemption. The Section 883 Regulations provide, in relevant part, that the shares of a non-United States corporation
will be considered to be “primarily traded” on an established securities market in a country if the number of shares
of each class of shares 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 Section 883 Regulations also generally provide that shares will be considered to be “regularly traded” on an established
securities market if one or more classes of shares in the corporation representing in the aggregate more than 50% of the total
combined voting power and value of all classes of shares of the corporation are listed on an established securities market. Also,
with respect to each class relied upon to meet this requirement (1) such class of shares must be traded on the market, other than
in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, and (2) the
aggregate number of shares of such class of shares traded on such market during the taxable year is at least 10% of the average
number of shares of such class of shares outstanding during such year or as adjusted for a short taxable year. These two tests
are deemed to be satisfied if such class of shares is traded on an established market in the United States and such shares are
regularly quoted by dealers making a market in such shares.
Notwithstanding the foregoing, the Section 883 Regulations
provide, in relevant part, that a class of shares will not be considered to be “regularly traded” on an established
securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned,
actually or constructively under specified share attribution rules, on more than half the days during the taxable year by persons
who each own 5% or more of the vote and value of such class of outstanding shares, to which we refer as the 5 Percent Override
Rule.
For purposes of being able to determine the person
who actually or constructively own 5% or more of the vote and value of the Company’s common shares, or 5% Shareholders, the
Section 883 Regulations permit a company whose stock is traded on an established securities market in the United States to rely
on those persons that are identified on Schedule 13G and Schedule 13D filings with the SEC, as owning 5% or more of the company’s
common shares.
In the event the 5 Percent Override Rule is triggered,
the Section 883 Regulations provide that such rule will not apply if the Company can establish that within the group of 5% Shareholders,
there are sufficient qualified shareholders within the meaning of Section 883 and the Section 883 Regulations to preclude non-qualified
shareholders in such group from owning 50% or more of the total value of the Company’s common shares for more than half the
number of days during the taxable year.
The Company expects to satisfy the Publicly Traded
Test for the taxable year ended December 31, 2019 . However, if the Company’s common shares are delisted (as described in
“Item 3.D. Risk Factors—Company Specific Risk Factors—Our common shares may be delisted from Nasdaq, which could
affect their market price and liquidity”), the Publicly Traded Test generally would not be met. Furthermore, if, 50% or more
of the vote and value of the outstanding shares of our common shares are owned on more than half the days during the Company’s
taxable year by 5% Shareholders, and the 5 Percent Override Rule does not apply, then the Publicly Traded Test generally would
not be met. The Company anticipates that its historic qualified shareholder who beneficially owned more than 50% of the Company’s
common shares prior to December 2018 will continue to qualify towards the 5 Percent Override Rule, which will help in satisfying
the Publicly Traded Test. However, because the common shares are publicly traded, there can be no guarantee that the shareholding
requirements will be met in 2020 or future years. The stock in the Company’s vessel-owning subsidiaries is not publicly traded,
but if the Company meets the Publicly Traded Test described above, the Company also may be a qualified shareholder for purposes
of applying the 50% Ownership Test as to any subsidiary claiming the Section 883 Exemption. However, if for any period after the
Company issues the Class B shares, the common shares represent less than 50% of the voting power of the Company, the Company would
not be able to satisfy the Publicly Traded Test for such period because less than 50% of the stock of the Company, measured by
voting power, would be listed on an established securities market.
A foreign corporation can only claim the Section 883
Exemption if it receives the ownership statements required under the Section 883 Regulations certifying as to the matters required
to satisfy the relevant ownership test. Each of our vessel-owning subsidiaries has received, or expects to receive, ownership statements,
valid for the year ended December 31, 2019, certifying the qualified shareholder status of Globus Maritime Limited and any intermediary
holding companies required to support a claim by each vessel-owning subsidiary of the Section 883 Exemption.
Each of the Company’s vessel-owning subsidiaries
has claimed the Section 883 Exemption on the basis that it satisfies the 50% Ownership Test and the Company intends to continue
to comply with the substantiation, reporting and other requirements that are applicable under Section 883 of the Code to enable
such subsidiaries to claim the exemption on this basis.
In the future, if the shareholders or the relative
ownership in the Company changes, if the Company believes that it (or its subsidiaries) can qualify for the Section 883 Exemption,
each shareholder who is or may be a qualifying person will be asked to provide to the Company an ownership statement for purposes
of substantiating the relevant company’s entitlement to the exemption. An ownership statement is required to be signed by
the shareholder under penalties of perjury and contains information regarding the residence of the shareholder and its ownership
in the company claiming the Section 883 Exemption. If the Company or a subsidiary needs to obtain additional ownership statements
in order to establish a Section 883 Exemption, there is no guarantee that shareholders representing a sufficient ownership interest
in the Company or any of its subsidiaries will provide ownership statements to the relevant company so that it will satisfy any
of the Section 883 ownership tests and the Section 883 Exemption would not apply to the Company. If in future years the shareholders
fail to update or correct such statements, the Company and its subsidiaries may be unable to continue to qualify for the Section
883 Exemption.
A corporation’s qualification for the Section
883 Exemption is determined for each taxable year. If the Company and/or its subsidiaries were not to qualify for the Section 883
Exemption in any year, the United States income taxes that become payable would have a negative effect on the business of the Company
and its subsidiaries, and would result in decreased earnings available for distribution to the Company’s shareholders.
United States Taxation of Gain
on Sale of Vessels
If the Company’s subsidiaries qualify for the
Section 883 Exemption, then gain from the sale of any vessel would be exempt from tax under Section 883. If, however, the gain
is not exempt from tax under Section 883, the Company will not be subject to United States federal income taxation with respect
to such gain provided that the income from the vessel has never constituted effectively connected income and that the sale is considered
to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be
considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the
vessel, pass to the buyer outside of the United States. To the extent possible, the Company will attempt to structure any sale
of a vessel so that it is considered to occur outside of the United States.
United States Federal Income Taxation of United
States Holders
As used herein, “United States Holder”
means a beneficial owner of the Company’s common shares that is an individual citizen or resident of the United States for
United States federal income tax purposes, a corporation or other entity taxable as a corporation created or organized in or under
the laws of the United States or any state thereof (including the District of Columbia), an estate the income of which is subject
to United States federal income taxation regardless of its source or a trust where a court within the United States is able to
exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code)
have the authority to control all substantial decisions of the trust (or a trust that has made a valid election under U.S. Department
of the Treasury regulations to be treated as a domestic trust). A “Non-United States Holder” generally means any owner
(or beneficial owner) of common shares that is not a United States Holder, other than a partnership. If a partnership holds common
shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership.
Partners of partnerships holding common shares should consult their own tax advisors regarding the tax consequences of an investment
in the common shares (including their status as United States Holders or Non-United States Holders).
Distributions
Subject to the discussion of PFICs below, any distributions
made by the Company with respect to the common shares to a United States Holder will generally constitute dividends, which may
be taxable as ordinary income or qualified dividend income as described in more detail below, to the extent of the Company’s
current or accumulated earnings and profits as determined under United States federal income tax principles. Distributions in excess
of the Company’s earnings and profits will be treated as a nontaxable return of capital to the extent of the United States
Holder’s tax basis in its common shares and, thereafter, as capital gain.
Dividends paid in respect of the Company’s common
shares may qualify for the preferential rate attributable to qualified dividend income if: (1) the common shares are readily tradable
on an established securities market in the United States; (2) the Company is not a PFIC for the taxable year during which the dividend
is paid or in the immediately preceding taxable year; (3) the United States 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 United States
Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property.
The first requirement currently is and has been met, as our common shares are listed on the Nasdaq Capital Market. The Nasdaq Capital
Market is a tier of the Nasdaq Stock Market, which is an established securities market. Further, there is no minimal trading requirement
for shares to be “readily tradable,” so as long as our common shares remain listed on the Nasdaq Capital Market or
any other established securities market in the United States, the first requirement will be satisfied. However, if our common shares
are delisted and are not tradable on an established securities market in the United States (as described in “Item 3.D. Risk
Factors—Company Specific Risk Factors—Our common shares may be delisted from Nasdaq, which could affect their market
price and liquidity”), the first requirement would not be satisfied, and dividends paid in respect of our common shares would
not qualify for the preferential rate attributable to qualified dividend income. The second requirement is expected to be met as
more fully described below under “—Consequences of Possible PFIC Classification.” Satisfaction of the final two
requirements will depend on the particular circumstances of each United States Holder. Consequently, if any of these requirements
are not met, the dividends paid to individual United States Holders in respect of the Company’s common shares would not be
treated as qualified dividend income and would be taxed as ordinary income at ordinary rates.
Amounts taxable as dividends generally will be treated
as income from sources outside the United States and will, depending on your circumstances, be “passive” or “general”
income which, in either case, is treated separately from other types of income for purposes of computing the foreign tax credit
allowable to you. However, if (1) the Company is 50% or more owned, by vote or value, by United States persons and (2) at least
10% of the Company’s earnings and profits are attributable to sources within the United States, then for foreign tax credit
purposes, a portion of our dividends would be treated as derived from sources within the United States. Under such circumstances,
with respect to any dividend paid for any taxable year, the United States source ratio of the Company’s dividends for foreign
tax credit purposes would be equal to the portion of the Company’s earnings and profits from sources within the United States
for such taxable year, divided by the total amount of the Company’s earnings and profits for such taxable year.
Consequences of Possible PFIC Classification
A non-United States entity treated as a corporation
for United States federal income tax purposes will be a PFIC in any taxable year in which, after taking into account the income
and assets of the corporation and certain subsidiaries pursuant to a “look through” rule, either: (1) 75% or more of
its gross income is “passive” income or (2) 50% or more of the average value of its assets is attributable to assets
that produce passive income or are held for the production of passive income. If a corporation is a PFIC in any taxable year that
a person holds shares in the corporation (and was not a qualified electing fund with respect to such year, as discussed below),
the shares held by such person will be treated as shares in a PFIC for all future years (absent an election which, if made, may
require the electing person to pay taxes in the year of the election). A United States Holder of shares in a PFIC would be required
to file an annual information return on IRS Form 8621 containing information regarding the PFIC as required by U.S. Department
of the Treasury regulations.
While there are legal uncertainties involved in this
determination, including as a result of adverse case law described herein, based upon the Company’s and its subsidiaries’
expected operations as described herein and based upon the current and expected future activities and operations of the Company
and its subsidiaries, the income of the Company and such subsidiaries from time charters should not constitute “passive income”
for purposes of applying the PFIC rules, and the assets that the Company owns for the production of this time charter income should
not constitute passive assets for purposes of applying the PFIC rules.
Although there is no legal authority directly on point,
this view is based principally on the position that the gross income that the Company and its subsidiaries derive from time charters
constitutes services income rather than passive rental income. The Fifth Circuit Court of Appeals decided in Tidewater Inc.
v. United States, 565 F.3d 299 (5th Cir., 2009) that a typical time charter is a lease, and not a contract for the provision
of transportation services. In that case, the court was considering a tax issue that turned on whether the taxpayer was a lessor
where a vessel was under a time charter, and the court did not address the definition of passive income or the PFIC rules; however,
the reasoning of the case could have implications as to how the income from a time charter would be classified under such rules.
If the reasoning of the Tidewater case is applied to the Company’s situation and the Company’s or its subsidiaries’
time charters are treated as leases, the Company’s or its subsidiaries’ time charter income could be classified as
rental income and the Company would be a PFIC unless more than 25% of the income of the Company (taking into account the subsidiary
look through rule) is from spot charters plus other active income or an active leasing exception applies. The IRS has announced
that it will not follow the reasoning of the Tidewater case and would have treated the income from the time charters at issue in
that case as services income, including for other purposes of the Code. The Company intends to take the position that all of its
time, voyage and spot chartering activities will generate active services income and not passive leasing income, but in the absence
of direct legal authority specifically relating to the Code provisions governing PFICs, the IRS or a court could disagree with
this position. Although the matter is not free from doubt as described herein, based on the current operations and activities of
the Company and its subsidiaries and on the relative values of the vessels in the Company’s fleet and the charter income
in respect of the vessels, Globus Maritime Limited should not be treated as a PFIC during the taxable year ended December 31, 2019.
Based on the Company’s intention and expectation
that the Company’s subsidiaries’ income from spot, time and voyage chartering activities plus other active operating
income will be greater than 25% of the Company’s total gross income at all relevant times and that the gross value of the
vessels subject to such time, voyage or spot charters will exceed the gross value of all the passive assets the Company owns at
all relevant times, Globus Maritime Limited does not expect that it will constitute a PFIC with respect to a taxable year in the
near future.
The Company will try to manage its vessels and its
business so as to avoid being classified as a PFIC for a future taxable year; however there can be no assurance that the nature
of the Company’s assets, income and operations will remain the same in the future (notwithstanding the Company’s current
expectations). Additionally, no assurance can be given that the IRS or a court of law will accept the Company’s position
that the time charters that the Company’s subsidiaries have entered into or any other time charter that the Company
or a subsidiary may enter into will give rise to active income rather than passive income for purposes of the PFIC rules, or that
future changes of law will not adversely affect this position. The Company has not obtained a ruling from the IRS on its time charters
or its PFIC status and does not intend to seek one. Any contest with the IRS may materially and adversely impact the market for
the common shares and the prices at which they trade. In addition, the costs of any contest on the issue with the IRS will result
in a reduction in cash available for distribution and thus will be borne indirectly by the Company’s shareholders.
If Globus Maritime Limited were to be classified as
a PFIC in any year, each United States Holder of the Company’s shares will be subject (in that year and all subsequent years)
to special rules with respect to: (1) any “excess distribution” (generally defined as any distribution received by
a shareholder in a taxable year that is greater than 125% of the average annual distributions received by the shareholder in the
three preceding taxable years or, if shorter, the shareholder’s holding period for the shares), and (2) any gain realized
upon the sale or other disposition of the common shares. Under these rules:
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the excess distribution or gain will be allocated ratably over the United States Holder’s holding period;
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the amount allocated to the current taxable year and any year prior to the first year in which the Company was a PFIC will be taxed as ordinary income in the current year; and
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the amount allocated to each of the other taxable years in the United States Holder’s holding period will be subject to United States federal income tax at the highest rate in effect for the applicable class of taxpayer for that year, and an interest charge will be added as though the amount of the taxes computed with respect to these other taxable years were overdue.
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In order to avoid the application of the PFIC rules,
United States Holders may make a qualified electing fund, or a QEF, election provided in Section 1295 of the Code in respect of
their common shares. Even if a United States Holder makes a QEF election for a taxable year of the Company, if the Company was
a PFIC for a prior taxable year during which such holder held the common shares and for which such holder did not make a timely
QEF election, the United States Holder would also be subject to the more adverse rules described above. Additionally, to the extent
any of the Company’s subsidiaries is a PFIC, an election by a United States Holder to treat Globus Maritime Limited as a
QEF would not be effective with respect to such holder’s deemed ownership of the stock of such subsidiary and a separate
QEF election with respect to such subsidiary is required. In lieu of the PFIC rules discussed above, a United States Holder that
makes a timely, valid QEF election will, in very general terms, be required to include its pro rata share of the Company’s
ordinary income and net capital gains, unreduced by any prior year losses, in income for each taxable year (as ordinary income
and long-term capital gain, respectively) and to pay tax thereon, even if no actual distributions are received for that year in
respect of the common shares and even if the amount of that income is not the same as the amount of actual distributions paid on
the common shares during the year. If the Company later distributes the income or gain on which the United States Holder has already
paid taxes under the QEF rules, the amounts so distributed will not again be subject to tax in the hands of the United States Holder.
A United States Holder’s tax basis in any common shares as to which a QEF election has been validly made will be increased
by the amount included in such United States Holder’s income as a result of the QEF election and decreased by the amount
of nontaxable distributions received by the United States Holder. On the disposition of a common share, a United States Holder
making the QEF election generally will recognize capital gain or loss equal to the difference, if any, between the amount realized
upon such disposition and its adjusted tax basis in the common share. In general, a QEF election should be made by filing a Form
8621 with the United States Holder’s federal income tax return on or before the due date for filing such United States Holder’s
federal income tax return for the first taxable year for which the Company is a PFIC or, if later, the first taxable year for which
the United States Holder held common shares. In this regard, a QEF election is effective only if certain required information is
made available by the PFIC. Subsequent to the date that the Company first determines that it is a PFIC, the Company will use commercially
reasonable efforts to provide any United States Holder of common shares, upon request, with the information necessary for such
United States Holder to make the QEF election.
In addition to the QEF election, Section 1296 of
the Code permits United States Holders to make a “mark-to-market” election with respect to marketable shares in a
PFIC, generally meaning shares regularly traded on a qualified exchange or market and certain other shares considered
marketable under U.S. Department of the Treasury regulations. For this purpose, a class of shares is regularly traded on a
qualified exchange or market for any calendar year during which such class of shares is traded, other than in de minimis
quantities, on at least 15 days during each calendar quarter of the year. Our common shares are regularly traded on the
Nasdaq Capital Market, which is an established securities market. However, if our common shares were to be delisted, (as
described in “Item 3.D. Risk Factors—Company Specific Risk Factors—Our common shares may be delisted from
Nasdaq, which could affect their market price and liquidity”), then the mark-to-market election generally would be
unavailable to United States Holders. If a United States Holder makes a mark-to-market election in respect of its common shares, such United
States Holder generally would, in each taxable year: (1) include as ordinary income the excess, if any, of the fair market value
of the common shares at the end of the taxable year over such United States Holder’s adjusted tax basis in the common shares,
and (2) be permitted an ordinary loss in respect of the excess, if any, of such United States Holder’s adjusted tax basis
in the 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 (with the United States Holder’s basis in the common shares
being increased and decreased, respectively, by the amount of such ordinary income or ordinary loss). The consequences of this
election may be less favorable than those of a QEF election for United States Holders that are sensitive to the distinction between
ordinary income and capital gain.
United States Holders are urged to consult their tax
advisors as to the consequences of making a mark-to-market or QEF election, as well as other United States federal income tax consequences
of holding shares in a PFIC.
As previously indicated, if the Company were to be
classified as a PFIC for a taxable year in which the Company pays a dividend or the immediately preceding taxable year, dividends
paid by the Company would not constitute “qualified dividend income” and, hence, would not be eligible for the reduced
rate of United States federal income tax.
Sale, Exchange or Other Disposition of Common Shares
A United States Holder generally will recognize taxable
gain or loss upon a sale, exchange or other disposition of common shares in an amount equal to the difference between the amount
realized by the United States Holder from such sale, exchange or other disposition and the United States Holder’s tax basis
in such common shares. Assuming the Company does not constitute a PFIC for any taxable year, this gain or loss will generally be
treated as long-term capital gain or loss if the United States Holder’s holding period is greater than one year at the time
of the sale, exchange or other disposition. Long term capital gains recognized by a United States Holder other than a corporation
are generally taxed at preferential rates. A United States Holder’s ability to deduct capital losses is subject to limitations.
Net Investment Income Tax
A United States Holder that is an individual or estate,
or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% tax on the lesser
of (1) such United States Holder’s “net investment income” (or undistributed “net investment income”
in the case of estates and trusts) for the relevant taxable year and (2) the excess of such United States Holder’s modified
adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000
and $250,000, depending on the individual’s circumstances). A United States Holder’s net investment income will generally
include its gross dividend income and its net gains from the disposition of the common shares, unless such dividends or net gains
are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain
passive or trading activities). Net investment income generally will not include a United States Holder’s pro rata share
of the Company’s income and gain if we are a PFIC and that United States Holder makes a QEF election, as described above
in “—United States Federal Income Taxation of United States Holders—Consequences of Possible PFIC Classification”.
However, a United States Holder may elect to treat inclusions of income and gain from a QEF election as net investment income.
Failure to make this election could result in a mismatch between a United States Holder’s ordinary income and net investment
income. If you are a United States Holder that is an individual, estate or trust, you are urged to consult your tax advisor regarding
the applicability of the net investment income tax to your income and gains in respect of your investment in the common shares.
United States Federal Income
Taxation of Non-United States Holders
A Non-United States Holder will generally not be subject
to United States federal income tax on dividends paid in respect of the common shares or on gains recognized in connection with
the sale or other disposition of the common shares provided that the Non-United States Holder makes certain tax representations
regarding the identity of the beneficial owner of the common shares, that such dividends or gains are not effectively connected
with the Non-United States Holder’s conduct of a United States trade or business and that, with respect to gain recognized
in connection with the sale or other disposition of the common shares by a non-resident alien individual, such individual is not
present in the United States for 183 days or more in the taxable year of the sale or other disposition and other conditions are
met. If the Non-United States Holder is engaged in a United States trade or business for United States federal income tax purposes,
the income from the common shares, including dividends and gain from the sale, exchange or other disposition of the common stock,
that is effectively connected with the conduct of that trade or business will generally be subject to regular United States federal
income tax in the same manner as discussed above relating to the taxation of United States Holders.
Backup Withholding and Information
Reporting
Information reporting to the IRS may be required with
respect to payments on the common shares and with respect to proceeds from the sale of the common shares. With respect to Non-United
States Holders, copies of such information returns may be made available to the tax authorities in the country in which the Non-United
States Holder resides under the provisions of any applicable income tax treaty or exchange of information agreement. A “backup”
withholding tax may also apply to those payments if:
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a holder of the common shares fails to provide certain identifying information (such as the holder’s taxpayer identification number or an attestation to the status of the holder as a Non-United States Holder);
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such holder is notified by the IRS that he or she has failed to report all interest or dividends required to be shown on his or her federal income tax returns; or
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in certain circumstances, such holder has failed to comply with applicable certification requirements.
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Backup withholding is not an additional tax and may
be refunded (or credited against the holder’s United States federal income tax liability, if any), provided that certain
required information is furnished to the IRS in a timely manner.
Non-United States Holders may be required to establish
their exemption from information reporting and backup withholding by certifying their status on IRS Form W-8BEN, W-8BEN-E, W-8ECI
or W-8IMY, as applicable.
Individual United States Holders who hold certain specified
foreign assets with values in excess of certain dollar thresholds are required to report such assets on IRS Form 8938 with their
U.S. federal income tax return, subject to certain exceptions (including an exception for foreign assets held in accounts maintained
by financial institutions). Stock in a foreign corporation, including our common shares, is a specified foreign asset for this
purpose. Penalties apply for failure to properly complete and file Form 8938. You should consult your tax advisor regarding the
filing of this form. United States Holders of common shares may be required to file additional forms with the IRS under the applicable
reporting provisions of the Code. You should consult your tax advisor regarding the filing of any such forms.
We encourage each United States Holder and Non-United
States Holder to consult with his, her or its own tax advisor as to the particular tax consequences to him, her or it of holding
and disposing of the Company’s common shares, including the applicability of any federal, state, local or foreign tax laws
and any proposed changes in applicable law.
F. Dividends and
Paying Agents
Not Applicable.
G. Statement by Experts
Not Applicable.
H. Documents on
Display
We file reports and other information with the SEC.
These materials, including this annual report on Form 20-F and the accompanying exhibits, may be inspected and copied at the public
reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC’s website, http://www.sec.gov.
You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330 and you may obtain copies
at prescribed rates.
I. Subsidiary
Information
Not Applicable.
Item 11. Quantitative and Qualitative
Disclosures About Market Risk
Interest Rates
We are exposed to market risks associated with changes
in interest rates relating to our loan arrangements with EnTrust Global’s Blue Ocean Fund. As of December 31, 2019, we had
a $37 million principal balance outstanding under the EnTrust Loan Facility with EnTrust Global’s Blue Ocean Fund.
In November 2018, we entered into a credit facility
for up to $15.0 million with Firment Shipping Inc., a related party to us, for the purpose of financing our general working capital
needs. We are not exposed to market risk with respect to this facility because interest is charges at a fixed rate of 7% per annum.
On March 13, 2019, we signed a securities purchase
agreement with a private investor and on the same date issued, for gross proceeds of $5 million, a senior convertible note that
is convertible into shares of the Company’s common stock, par value $0.004 per share. The Convertible Note provides for interest
to accrue at 10% annually.
Interest costs incurred under our loan arrangements
are included in our consolidated statement of comprehensive (loss)/income.
In 2019, the weighted average interest rate for our
then-outstanding facilities in total was 8.66% and the respective interest rates on our loan agreements ranged from 7% to 10.6%,
including margins.
We will continue to have debt outstanding, which could
impact our results of operations and financial condition. Although we may in the future prefer to generate funds through equity
offerings on terms acceptable to us rather than through the use of debt arrangements, we may not be able to do so. We expect to
manage any exposure in interest rates through our regular operating and financing activities and, when deemed appropriate, through
the use of derivative financial instruments.
The following table sets forth the sensitivity of our
existing loans as of December 31, 2019 as to a 1.0% (100 basis points) increase in LIBOR, during the next five years, and reflects
the additional interest expense that will be incurred.
Year
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Amount
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2020
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$ 0.4 million
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2021
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$ 0.4 million
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2022
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$ 0.2 million
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Currency and Exchange Rates
We generate revenues from the trading of our vessels
in U.S. dollars but historically incur certain amounts of our operating expenses in currencies other than the U.S. dollar. For
cash management, or treasury, purposes, we convert U.S. dollars into foreign currencies which we then hold on deposit until the
date of each transaction. Fluctuations in foreign exchange rates create foreign exchange gains or losses when we mark-to-market
these non-U.S. dollar deposits.
For accounting purposes, expenses incurred in Euro
and other foreign currencies are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. Because
a portion of our expenses are incurred in currencies other than the U.S. dollar, our expenses may from time to time increase relative
to our revenues as a result of fluctuations in exchange rates, which could affect the amount of net income that we report in future
periods. While we historically have not mitigated the risk associated with exchange rate fluctuations through the use of financial
derivatives, we may determine to employ such instruments from time to time in the future in order to minimize this risk. Our use
of financial derivatives would involve certain risks, including the risk that losses on a hedged position could exceed the nominal
amount invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to
satisfy its contractual obligations, which could have an adverse effect on our results.
Commodity Risk Exposure
The price and supply of fuel is unpredictable and fluctuates
as a result of events outside our control, including geo-political developments, supply and demand for oil and gas, actions by
members of the Organization of Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries
and regions, regional production patterns and environmental concerns and regulations. Because we do not intend to hedge our fuel
costs, an increase in the price of fuel beyond our expectations may adversely affect our profitability, cash flows and ability
to pay dividends. However, all of our vessels are employed on time charter contracts, where the fuel costs are assumed by our customers.
Inflation
We do not expect inflation to be a significant risk
to us in the current and foreseeable economic environment. In the event that inflation becomes a significant factor in the global
economy, inflationary pressures would result in increased operating, voyage and finance costs.
Item 12. Description of Securities Other
than Equity Securities
Not Applicable.
GLOBUS MARITIME LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2019
(Expressed in thousands of U.S. Dollars)
ASSETS
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Notes
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2019
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2018
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NON-CURRENT
ASSETS
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Vessels,
net
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5
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48,242
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83,750
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Office
furniture and equipment
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103
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120
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Right
of use asset
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2
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562
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—
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Restricted
cash
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3
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1,250
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—
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|
Other
non-current assets
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Total
non-current assets
|
|
|
|
|
|
|
50,167
|
|
|
|
83,880
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
|
|
|
|
240
|
|
|
|
577
|
|
Inventories
|
|
|
6
|
|
|
|
1,545
|
|
|
|
650
|
|
Prepayments
and other assets
|
|
|
|
|
|
|
153
|
|
|
|
171
|
|
Restricted
cash
|
|
|
3
|
|
|
|
1,185
|
|
|
|
1,350
|
|
Cash and
cash equivalents
|
|
|
3
|
|
|
|
2,366
|
|
|
|
46
|
|
Total
current assets
|
|
|
|
|
|
|
5,489
|
|
|
|
2,794
|
|
TOTAL
ASSETS
|
|
|
|
|
|
|
55,656
|
|
|
|
86,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
share capital
|
|
|
9
|
|
|
|
21
|
|
|
|
13
|
|
Share
premium
|
|
|
9
|
|
|
|
145,506
|
|
|
|
140,334
|
|
Accumulated
deficit
|
|
|
|
|
|
|
(135,648
|
)
|
|
|
(99,297
|
)
|
Total
equity
|
|
|
|
|
|
|
9,879
|
|
|
|
41,050
|
|
NON-CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings, net of current portion
|
|
|
4,
11
|
|
|
|
36,551
|
|
|
|
1,500
|
|
Fair value
of derivative financial instruments, net of current portion
|
|
|
21
|
|
|
|
—
|
|
|
|
831
|
|
Provision
for staff retirement indemnities
|
|
|
|
|
|
|
26
|
|
|
|
87
|
|
Lease
liabilities
|
|
|
2,
18
|
|
|
|
469
|
|
|
|
—
|
|
Total
non-current liabilities
|
|
|
|
|
|
|
37,046
|
|
|
|
2,418
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term borrowings
|
|
|
11
|
|
|
|
1,195
|
|
|
|
35,368
|
|
Trade
accounts payable
|
|
|
4,
7
|
|
|
|
4,735
|
|
|
|
6,433
|
|
Accrued
liabilities and other payables
|
|
|
8
|
|
|
|
1,971
|
|
|
|
1,319
|
|
Current
portion of lease liabilities
|
|
|
2,
18
|
|
|
|
208
|
|
|
|
—
|
|
Current
portion of fair value of derivative financial instruments
|
|
|
11
|
|
|
|
622
|
|
|
|
—
|
|
Deferred
revenue
|
|
|
|
|
|
|
—
|
|
|
|
86
|
|
Total
current liabilities
|
|
|
|
|
|
|
8,731
|
|
|
|
43,206
|
|
TOTAL
LIABILITIES
|
|
|
|
|
|
|
45,777
|
|
|
|
45,624
|
|
TOTAL
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
55,656
|
|
|
|
86,674
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
GLOBUS MARITIME LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the year ended December 31, 2019
(Expressed in thousands of U.S. Dollars)
|
|
Issued Share
|
|
|
Share
|
|
|
(Accumulated
|
|
|
Total
|
|
|
|
Capital
|
|
|
Premium
|
|
|
Deficit)
|
|
|
Equity
|
|
As
at January 1, 2017
|
|
|
1
|
|
|
|
110,013
|
|
|
|
(89,254
|
)
|
|
|
20,760
|
|
Loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,475
|
)
|
|
|
(6,475
|
)
|
Other comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total comprehensive
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,475
|
)
|
|
|
(6,475
|
)
|
Share-based payments (note 12)
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
Issuance of common shares (note 9)
|
|
|
11
|
|
|
|
27,271
|
|
|
|
—
|
|
|
|
27,282
|
|
Issuance of common
stock due to exercise of warrants (note 9)
|
|
|
1
|
|
|
|
2,370
|
|
|
|
—
|
|
|
|
2,371
|
|
As
at December 31, 2017
|
|
|
13
|
|
|
|
139,684
|
|
|
|
(95,729
|
)
|
|
|
43,968
|
|
Loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,568
|
)
|
|
|
(3,568
|
)
|
Other comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total comprehensive
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,568
|
)
|
|
|
(3,568
|
)
|
Share-based payments (note 12)
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
Issuance of common
stock due to exercise of warrants (note 9)
|
|
|
—
|
|
|
|
600
|
|
|
|
—
|
|
|
|
600
|
|
As
at December 31, 2018
|
|
|
13
|
|
|
|
140,334
|
|
|
|
(99,297
|
)
|
|
|
41,050
|
|
Loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
(36,351
|
)
|
|
|
(36,351
|
)
|
Other comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total comprehensive
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(36,351
|
)
|
|
|
(36,351
|
)
|
Share-based payments (note 12)
|
|
|
—
|
|
|
|
40
|
|
|
|
—
|
|
|
|
40
|
|
Issuance of common
stock due to conversion (note 11)
|
|
|
8
|
|
|
|
5,132
|
|
|
|
—
|
|
|
|
5,140
|
|
As
at December 31, 2019
|
|
|
21
|
|
|
|
145,506
|
|
|
|
(135,648
|
)
|
|
|
9,879
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
GLOBUS MARITIME LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 2019
(Expressed in thousands of U.S. Dollars)
|
|
Notes
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year
|
|
|
|
|
|
|
(36,351
|
)
|
|
|
(3,568
|
)
|
|
|
(6,475
|
)
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5
|
|
|
|
4,721
|
|
|
|
4,601
|
|
|
|
4,854
|
|
Depreciation
of deferred dry-docking costs
|
|
|
5
|
|
|
|
1,704
|
|
|
|
1,166
|
|
|
|
862
|
|
Payment
of deferred dry-docking costs
|
|
|
|
|
|
|
(861
|
)
|
|
|
(1,204
|
)
|
|
|
(412
|
)
|
Provision
for staff retirement indemnities
|
|
|
|
|
|
|
(61
|
)
|
|
|
5
|
|
|
|
4
|
|
Impairment
loss
|
|
|
5
|
|
|
|
29,902
|
|
|
|
—
|
|
|
|
—
|
|
(Gain)/Loss
on derivative financial instruments
|
|
|
11
|
|
|
|
(1,950
|
)
|
|
|
131
|
|
|
|
—
|
|
Interest
expense and finance costs
|
|
|
15
|
|
|
|
4,703
|
|
|
|
2,056
|
|
|
|
2,221
|
|
Interest
income
|
|
|
|
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
Foreign
exchange gains, net
|
|
|
|
|
|
|
(11
|
)
|
|
|
(81
|
)
|
|
|
181
|
|
Share
based payment
|
|
|
12
|
|
|
|
40
|
|
|
|
50
|
|
|
|
30
|
|
(Increase)/decrease
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
|
|
|
|
337
|
|
|
|
(400
|
)
|
|
|
66
|
|
Inventories
|
|
|
|
|
|
|
(895
|
)
|
|
|
11
|
|
|
|
(145
|
)
|
Prepayments
and other assets
|
|
|
|
|
|
|
18
|
|
|
|
255
|
|
|
|
591
|
|
Increase/(decrease)
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
|
|
|
|
|
(1,013
|
)
|
|
|
1,303
|
|
|
|
(499
|
)
|
Accrued
liabilities and other payables
|
|
|
|
|
|
|
63
|
|
|
|
(258
|
)
|
|
|
(726
|
)
|
Deferred
revenue
|
|
|
|
|
|
|
(86
|
)
|
|
|
(216
|
)
|
|
|
82
|
|
Net
cash generated from operating activities
|
|
|
|
|
|
|
213
|
|
|
|
3,851
|
|
|
|
631
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of vessel equipment
|
|
|
|
|
|
|
(54
|
)
|
|
|
(26
|
)
|
|
|
(245
|
)
|
Purchases
of office furniture and equipment
|
|
|
|
|
|
|
(13
|
)
|
|
|
(100
|
)
|
|
|
(21
|
)
|
Interest
received
|
|
|
|
|
|
|
47
|
|
|
|
—
|
|
|
|
3
|
|
Net
cash used in investing activities
|
|
|
|
|
|
|
(20
|
)
|
|
|
(126
|
)
|
|
|
(263
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from loans
|
|
|
4,
11
|
|
|
|
43,700
|
|
|
|
15,700
|
|
|
|
280
|
|
Repayment
of long-term debt
|
|
|
|
|
|
|
(1,830
|
)
|
|
|
(19,497
|
)
|
|
|
(4,399
|
)
|
Prepayment
of long-term debt
|
|
|
11
|
|
|
|
(33,833
|
)
|
|
|
—
|
|
|
|
—
|
|
Proceeds
from issuance of share capital
|
|
|
9
|
|
|
|
—
|
|
|
|
600
|
|
|
|
9,653
|
|
Increase
in restricted cash
|
|
|
3
|
|
|
|
(1,085
|
)
|
|
|
(1,140
|
)
|
|
|
—
|
|
Payment
of financing costs
|
|
|
|
|
|
|
(880
|
)
|
|
|
(203
|
)
|
|
|
—
|
|
Payment
of lease liability - principal
|
|
|
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
—
|
|
Interest
paid
|
|
|
|
|
|
|
(3,915
|
)
|
|
|
(1,895
|
)
|
|
|
(3,309
|
)
|
Net
cash generated from/(used in) financing activities
|
|
|
|
|
|
|
2,127
|
|
|
|
(6,435
|
)
|
|
|
2,225
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
|
|
|
|
2,320
|
|
|
|
(2,710
|
)
|
|
|
2,593
|
|
Cash
and cash equivalents at the beginning of the year
|
|
|
3
|
|
|
|
46
|
|
|
|
2,756
|
|
|
|
163
|
|
Cash
and cash equivalents at the end of the year
|
|
|
3
|
|
|
|
2,366
|
|
|
|
46
|
|
|
|
2,756
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
1.
|
Basis of presentation and general information
|
The accompanying consolidated
financial statements include the financial statements of Globus Maritime Limited (“Globus”) and its wholly
owned subsidiaries (collectively the “Company”). Globus was formed on July 26, 2006, under the laws of Jersey. On June
1, 2007, Globus concluded its initial public offering in the United Kingdom and its shares were admitted for trading on the Alternative
Investment Market (“AIM”). On November 24, 2010, Globus was redomiciled to the Marshall Islands and its shares were
admitted for trading in the United States (NASDAQ Global Market) under the Securities Act of 1933, as amended. On November 26,
2010, Globus’ shares were effectively delisted from AIM.
The address of the registered
office of Globus is: Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960.
The principal business
of the Company is the ownership and operation of a fleet of dry bulk motor vessels (“m/v”), providing maritime services
for the transportation of dry cargo products on a worldwide basis. The Company conducts its operations through its vessel owning
subsidiaries.
The operations of the
vessels are managed by Globus Shipmanagement Corp. (the “Manager”), a wholly owned Marshall Islands corporation. The
Manager has an office in Greece, located at 128 Vouliagmenis Avenue, 166 74 Glyfada, Greece and provides the commercial, technical,
cash management and accounting services necessary for the operation of the fleet in exchange for a management fee. The management
fee is eliminated on consolidation. The consolidated financial statements include the financial statements of Globus and its subsidiaries
listed below, all wholly owned by Globus as of December 31, 2019:
Company
|
|
|
Country
of
Incorporation
|
|
|
|
Vessel
Delivery
Date
|
|
|
|
Vessel
Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Globus Shipmanagement Corp.
|
|
|
Marshall
Islands
|
|
|
|
—
|
|
|
|
Management
Co.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Devocean Maritime Ltd.
|
|
|
Marshall
Islands
|
|
|
|
December
18, 2007
|
|
|
|
m/v
River Globe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domina Maritime Ltd.
|
|
|
Marshall
Islands
|
|
|
|
May
19, 2010
|
|
|
|
m/v
Sky Globe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dulac Maritime S.A.
|
|
|
Marshall
Islands
|
|
|
|
May
25, 2010
|
|
|
|
m/v
Star Globe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Artful Shipholding S.A.
|
|
|
Marshall
Islands
|
|
|
|
June
22, 2011
|
|
|
|
m/v
Moon Globe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Longevity Maritime Limited
|
|
|
Malta
|
|
|
|
September
15, 2011
|
|
|
|
m/v
Sun Globe
|
|
On October 15, 2018, the
Company effected a ten-for-one reverse stock split which reduced number of outstanding common shares from 32,065,077 to 3,206,495
shares (adjustments were made based on fractional shares). Unless otherwise noted, all historical share numbers and per share amounts
have been adjusted to give effect to the reverse stock split.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
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1.
|
Basis
of presentation and general information (continued)
|
The consolidated financial statements as
of December 31, 2019 and 2018 and for the three years in the period ended December 31, 2019, were approved for issuance by the
Board of Directors on March 30, 2020.
|
2.
|
Basis of Preparation and Significant Accounting Policies
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|
|
|
|
2.1
|
Basis of Preparation: The consolidated financial statements have been prepared on a historical
cost basis, except for financial instruments which are measured at fair value. The consolidated financial statements are presented
in U.S. dollars and all values are rounded to the nearest thousand ($ 000s) except when otherwise indicated.
|
Going concern basis of accounting:
As of December 31, 2019, the Company was
in compliance with the loan covenants of the agreement with EnTrust with loan balance of $37,000 as of December 31, 2019.
As of December 31, 2019, the Company reported
a working capital deficit of $3,242 and accumulated deficit of $135,648.
The current low charter rates for drybulk
vessels as a result of the coronavirus outbreak and its effects on world trade and financial markets have been adversely affecting
the Company. The Company’s cash flow projections indicated that cash on hand and cash to be generated by operating activities
might not be sufficient to cover the liquidity needs, including the debt obligations that become due in the twelve-month period
ending following the issuance of these consolidated financial statements and the Company might not be able to meet the minimum
liquidity requirements included in the loan agreement with EnTrust at certain measurement dates falling due within the 12 month
period from the issuance of these financial statements.
The above conditions raise substantial doubt
about the entity's ability to continue as a going concern. The Company is exploring several alternatives aiming to manage its working
capital requirements and other commitments, including drawdown of additional funds available of $11,100 under the facility with
Firment Shipping Inc, if needed raising of additional debt and discussions with other financial institutions and private funds
to provide the Company with refinancing of the existing indebtedness. With respect to the Convertible Note that matures during
March 2021 (Note 11), the Company anticipates that it will be converted to equity and no cash will be required for its repayment.
As of December 31, 2019, the balance of the Convertible Note was approximately $3,579, principal and accrued interest. As of the
date of issue of these consolidated financial statements, within the first quarter of 2020, an amount of approximately $1,168,
principal and accrued interest, has already been converted to equity (see also Note 22).
Management expects that the lenders will
not demand payment of the loans before their maturity, provided that the Company pays scheduled loan instalments and accumulated
interest as they fall due under the existing loan agreements. Management plans to settle loan interest and scheduled loan repayments
with cash at hand and cash expected to be generated from the operations and from financing activities including the available line
of credit under the facility with Firment Shipping Inc. The Company is dependent upon the continuous support of its shareholder
Firment Shipping Inc to continue as a going concern. If for any reason the Company is unable to continue as a going concern, this
could have an impact on the Company’s ability to realize assets at their recognized values and to extinguish liabilities
in the normal course of business at the amounts stated in these consolidated financial statements.
Statement of Compliance:
These consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of Consolidation:
The consolidated financial statements comprise the financial statements of Globus and its subsidiaries listed in note 1. The financial
statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies.
All inter-company balances
and transactions have been eliminated upon consolidation. Subsidiaries are fully consolidated from the date on which control is
transferred to the Company and cease to be consolidated from the date on which control is transferred out of the Company.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
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2.
|
Basis of Preparation and Significant
Accounting Policies (continued)
|
|
2.2
|
Standards amendments and interpretations:
|
The accounting policies adopted are consistent
with those of previous financial year except for the following amended IFRS which have been adopted by the Company as of January
1, 2019.
IFRS 16 sets out the principles for
the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (“lessee”)
and the supplier (“lessor”). The new standard requires lessees to recognize most leases on their financial statements.
Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged.
The Company has initially adopted IFRS
16 on January 1, 2019 using the modified retrospective approach under which the comparative information presented for 2018 has
not been restated and is presented as it was previously reported under IAS 17 and related interpretations. On transition, the
Company has elected to apply the practical expedients available for leases with a remaining lease term of less than one year and
leases of low value assets.
At transition, the Company identified
the rental agreement with Cyberonica S.A., to give rise to a right of use asset and a corresponding liability estimated to approximately
$674 as of January 1, 2019, calculated as the present value of minimum future lease payments. The discount rate used is the incremental
cost of borrowing, amounting to 8%. In addition, the nature and recognition of expenses related to those leases changed as IFRS
16 replaced the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense
on lease liabilities. The depreciation charge for right-of-use assets for the year ended December 31, 2019, was approximately
$112 and the interest expense on lease liabilities for the same period was approximately $51. As of December 31, 2019, the net
carrying amount of the right of use asset was $562.
For time charters that qualify as leases,
the Company is required to disclose lease and non-lease components of lease revenue. The revenue earned under time charters is
not negotiated in its two separate components, but as a whole. For purposes of determining the standalone selling price of the
vessel lease and technical management service components of the Company’s time charters, the Company concluded that the
residual approach would be the most appropriate method to use given that vessel lease rates are highly variable depending on shipping
market conditions, the duration of such charters and the age of the vessel. The Company believes that the standalone transaction
price attributable to the technical management service component, including crewing services, is more readily determinable than
the price of the lease component and, accordingly, the price of the service component is estimated using data provided by its
technical department, which consist of the crew expenses, maintenance and consumable costs and was approximately $9,169 for the
year ended December 31, 2019. The lease component that is disclosed then is calculated as the difference between total revenue
and the non-lease component revenue and was approximately $6,454 for the year ended December 31, 2019.
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∙
|
IFRS 9: Prepayment features with negative compensation (Amendment)
|
The Amendment allows financial assets
with prepayment features that permit or require a party to a contract either to pay or receive reasonable compensation for the
early termination of the contract (so that, from the perspective of the holder of the asset there may be ‘negative compensation’),
to be measured at amortized cost or at fair value through other comprehensive income. Management has assessed that this amendment
has no impact on the Company’s financial position or performance.
|
∙
|
IAS 28: Long-term Interests in Associates and Joint Ventures (Amendments)
|
The Amendments relate to whether the measurement,
in particular impairment requirements, of long-term interests in associates and joint ventures that, in substance, form part of
the ‘net investment’ in the associate or joint venture should be governed by IFRS 9, IAS 28 or a combination of both.
The Amendments clarify that an entity applies IFRS 9 Financial Instruments, before it applies IAS 28, to such long-term interests
for which the equity method is not applied. In applying IFRS 9, the entity does not take account of any adjustments to the carrying
amount of long- term interests that arise from applying IAS 28. Management has assessed that these amendments have no impact on
the Company’s financial position or performance.
|
∙
|
IFRIC INTERPETATION 23: Uncertainty over Income Tax Treatments
|
The Interpretation addresses the accounting
for income taxes when tax treatments involve uncertainty that affects the application of IAS 12. The Interpretation provides guidance
on considering uncertain tax treatments separately or together, examination by tax authorities, the appropriate method to reflect
uncertainty and accounting for changes in facts and circumstances. Management has assessed that this interpretation has no impact
on the Company’s financial position or performance.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2.
|
Basis of Preparation and Significant
Accounting Policies (continued)
|
|
∙
|
IAS 19: Plan Amendment, Curtailment or Settlement (Amendments)
|
The Amendments require entities to use
updated actuarial assumptions to determine current service cost and net interest for the remainder of the annual reporting period
after a plan amendment, curtailment or settlement has occurred. The Amendments also clarify how the accounting for a plan amendment,
curtailment or settlement affects applying the asset ceiling requirements. Management has assessed that these amendments have no
impact on the Company’s financial position or performance.
|
∙
|
The IASB has issued the Annual Improvements to IFRSs 2015 – 2017 Cycle, which is a
collection of amendments to IFRSs. Management has assessed that these amendments have no impact on its financial position or performance.
|
|
∙
|
IFRS 3 Business Combinations and IFRS 11 Joint Arrangements: The amendments to IFRS 3 clarify that
when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business.
The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity
does not remeasure previously held interests in that business.
|
|
∙
|
IAS 12 Income Taxes: The amendments clarify that the income tax consequences of payments on financial
instruments classified as equity should be recognized according to where the past transactions or events that generated distributable
profits has been recognized.
|
|
∙
|
IAS 23 Borrowing Costs: The amendments clarify paragraph 14 of the standard that, when a qualifying
asset is ready for its intended use or sale, and some of the specific borrowing related to that qualifying asset remains outstanding
at that point, that borrowing is to be included in the funds that an entity borrows generally.
|
Standards issued but
not yet effective and not early adopted:
|
∙
|
Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates
and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.
|
The amendments address an acknowledged
inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between
an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized
when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when
a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December
2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity
method of accounting. The application of this amendment will have no impact on the financial position or the performance of the
Company since the Company is not an investment entity.
|
•
|
Conceptual Framework in IFRS standards
|
The IASB issued the revised Conceptual
Framework for Financial Reporting on March 29, 2018. The Conceptual Framework sets out a comprehensive set of concepts for financial
reporting, standard setting, guidance for preparers in developing consistent accounting policies and assistance to others in their
efforts to understand and interpret the standards. IASB also issued a separate accompanying document, Amendments to References
to the Conceptual Framework in IFRS Standards, which sets out the amendments to affected standards in order to update references
to the revised Conceptual Framework. Its objective is to support transition to the revised Conceptual Framework for companies that
develop accounting policies using the Conceptual Framework when no IFRS Standard applies to a particular transaction. For preparers
who develop accounting policies based on the Conceptual Framework, it is effective for annual periods beginning on or after January
1, 2020.
|
∙
|
IFRS 3: Business Combinations (Amendments)
|
The IASB issued amendments in Definition
of a Business (Amendments to IFRS 3) aimed at resolving the difficulties that arise when an entity determines whether it has acquired
a business or a group of assets. The Amendments are effective for business combinations for which the acquisition date is in the
first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning
of that period, with earlier application permitted. Management does not expect that these amendments will have an impact on the
Company’s financial position or performance.
|
∙
|
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors: Definition of ‘material’ (Amendments)
|
The Amendments are effective for annual
periods beginning on or after January 1, 2020, with earlier application permitted. The Amendments clarify the definition of material
and how it should be applied. The new definition states that, ’Information is material if omitting, misstating or obscuring
it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on
the basis of those financial statements, which provide financial information about a specific reporting entity’. In addition,
the explanations accompanying the definition have been improved. The Amendments also ensure that the definition of material is
consistent across all IFRS Standards. Management does not expect that these amendments will have an impact on the Company’s
financial position or performance.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2.
|
Basis of Preparation and Significant
Accounting Policies (continued)
|
|
∙
|
Interest Rate Benchmark Reform - IFRS 9, IAS 39 and IFRS 7 (Amendments)
|
The amendments are effective for annual
periods beginning on or after January 1, 2020 and must be applied retrospectively. Earlier application is permitted. In September
2019, th
e IASB issued amendments to IFRS 9, IAS 39 and IFRS 7, which concludes phase one of its work to respond to the effects
of Interbank Offered Rates (IBOR) reform on financial reporting. Phase two will focus on issues that could affect financial reporting
when an existing interest rate benchmark is replaced with a risk-free interest rate (an RFR). The amendments published, deal with
issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative
interest rate and address the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments and IAS 39
Financial Instruments: Recognition and Measurement, which require forward-looking analysis. The amendments provided temporary reliefs,
applicable to all hedging relationships that are directly affected by the interest rate benchmark reform, which enable hedge accounting
to continue during the period of uncertainty before the replacement of an existing interest rate benchmark with an alternative
nearly risk-free interest rate. There are also amendments to IFRS 7 Financial Instruments: Disclosures regarding additional disclosures
around uncertainty arising from the interest rate benchmark reform. Management has assessed that these amendments will have no
impact on the Company’s financial position or performance.
|
2.3
|
Significant accounting policies,
judgments, estimates and assumptions: The preparation of consolidated financial statements
in conformity with IFRS requires management to make judgments, 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 amounts
of revenues and expenses recognised during the reporting period. However, uncertainty
about these assumptions and estimates could result in outcomes that could require a material
adjustment to the carrying amount of the asset or liability affected in the future.
|
Judgments: In the process of applying
the Company’s accounting policies, management has made the following judgments that had a significant effect on the amounts
recognised in the consolidated financial statements.
|
∙
|
Allowance for doubtful trade accounts receivable: Following adoption of IFRS 9 as of January
1, 2018, the Company measures allowance for all trade accounts receivable under the simplified model using the lifetime expected
credit loss (“ECL”) approach. When estimating ECLs, the Company considers reasonable and supportable information that
is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic
conditions. Provisions for doubtful trade accounts receivable as of December 31, 2019 and 2018, were $23 and $68, respectively.
No extra allowance for impairment over these receivables was recognized in opening accumulated deficit at January 1, 2018, on transition
to IFRS 9.
|
Estimates and assumptions: The key
assumptions concerning the future and other key sources of estimation uncertainty at the financial position date, that have a significant
risk of causing a significant adjustment to the carrying amount of assets and liabilities within the next financial year, are discussed
below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were
prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances
arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
|
∙
|
Carrying amount of vessels, net: Vessels are stated at cost, less accumulated depreciation
(including depreciation of dry-docking costs and the amortization of the component attributable to favourable or unfavourable lease
terms relative to market terms) and accumulated impairment losses. The estimates and assumptions that have the most significant
effect on the vessels carrying amount are estimations in relation to useful lives of vessels, their residual value and estimated
dry docking dates. The key assumptions used are further explained in notes 2.9 to 2.13.
|
|
∙
|
Impairment of Non-Financial Assets: The Company’s impairment test for non-financial
assets is based on the assets’ recoverable amount, where the recoverable amount is the greater of fair value less costs to
sell and value in use. The Company engaged independent valuation specialists to determine the fair value of non-financial assets
as at December 31, 2019. The value in use calculation is based on a discounted cash flow model. The value in use calculation is
most sensitive to the discount rate used for the discounted cash flow model as well as the expected net cash flows. See notes 2.13
and 5.
|
|
∙
|
Share based payments: The Company measures the cost of equity-settled transactions
with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair
value for share-based payment transactions may require determination of the most appropriate valuation model, which is depended
on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation
model including, expected volatility and dividend yield and making assumptions about them. The assumptions and models used for
estimating fair value for share-based payment transactions are disclosed in note 12.
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GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2.
|
Basis of Preparation and Significant Accounting Policies (continued)
|
|
2.4
|
Accounting for revenue and related expenses: The Company generates its revenues from charterers
for the charter hire of its vessels. Vessels are chartered using time charters and bareboat, where a contract is entered into for
the use of a vessel for a specific period of time and a specified daily charter hire rate. If a time charter agreement exists and
collection of the related revenue is reasonably assured, revenue is recognised on a straight-line basis over the period of the
time charter. Such revenues are treated in accordance with IFRS 16 and the Company is required to disclose lease and non-lease
components of lease revenue as explained in note 2.2 above. Associated voyage expenses are recognised on a pro-rata basis over
the duration of the period of the time charter. Deferred revenue relates to cash received prior to the financial position date
and is related to revenue earned after such date.
|
Interest income: interest income is
recognised as interest on an accrual basis.
Voyage expenses: Voyage expenses
primarily consisting of port, canal and bunker expenses that are unique to a particular charter under time charter arrangements
are paid by the charterer. Furthermore, voyage expenses include brokerage commission on revenue paid by the Company. Voyage expenses
are accounted for on an accrual basis. Under a bareboat charter, the charterer assumes responsibility for all voyage expenses and
risk of operation.
Vessel operating expenses: Vessel
operating costs include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs. Under
bareboat charter arrangements, these expenses are paid by the charterer and by the Company under time charter and voyage charter
arrangements. Vessel operating expenses are accounted for on an accrual basis. Under a bareboat charter, the charterer assumes
responsibility for all vessel operating expenses and risk of operation.
|
2.5
|
Foreign currency translation: The functional currency of Globus and its subsidiaries is
the U.S. dollar, which is also the presentation currency of the Company, since the Company’s vessels operate in international
shipping markets, whereby the U.S. dollar is the currency used for transactions. Transactions involving other currencies during
the period are converted into U.S. dollars using the exchange rates in effect at the time of the transactions. At the financial
position dates, monetary assets and liabilities, which are denominated in currencies other than the U.S. dollar, are translated
into the functional currency using the period-end exchange rate. Gains or losses resulting from foreign currency transactions are
included in foreign exchange gains/(losses), net in the consolidated statement of comprehensive loss.
|
|
2.6
|
Cash and cash equivalents: The Company considers highly liquid investments such as time
deposits and certificates of deposit with original maturity of three months or less to be cash and cash equivalents.
|
|
2.7
|
Trade accounts receivable, net: The amount shown as trade accounts receivable at
each financial position date includes estimated recoveries from charterers for hire, freight and demurrage billings, net of an
allowance for doubtful accounts. Trade accounts receivable without a significant financing component are initially measured at
their transaction price and subsequently measured at amortized cost less impairment losses, which are recognized in the consolidated
statement of comprehensive loss. At each financial position date, all potentially uncollectible accounts are assessed individually
for the purpose of determining the appropriate allowance for doubtful accounts. The provision for doubtful accounts at December
31, 2019 was $23 (2018: $68).
|
|
2.8
|
Inventories: Inventories consist of lubricants, bunkers and gas cylinders and are stated
at the lower of cost and net realisable value. The cost is determined by the first-in, first-out method.
|
|
2.9
|
Vessels, net: Vessels are stated at cost, less accumulated depreciation (including depreciation
of dry-docking costs and amortization of components attributable to favourable or unfavourable lease terms relative to market terms)
and accumulated impairment losses. Vessel cost consists of the contract price for the vessel and any material expenses incurred
upon acquisition (initial repairs, improvements and delivery expenses, interest, commissions paid and on-site supervision costs
incurred during the construction periods). Subsequent expenditures for conversions and major improvements are also capitalised
when the recognition criteria are met. Otherwise these amounts are charged to expenses as incurred.
|
|
2.10
|
Deferred dry-docking costs:
Vessels are required to be dry-docked for major repairs and maintenance that cannot be
performed while the vessels are operating. Dry-dockings occur approximately every 2.5
years. The costs associated with the dry-dockings are capitalised and depreciated on
a straight-line basis over the period between dry-dockings, to a maximum of 2.5 years.
At the date of acquisition of a vessel, management estimates the component of the cost
that corresponds to the economic benefit to be derived until the first scheduled dry-docking
of the vessel under the ownership of the Company and this component is depreciated on
a straight-line basis over the remaining period through the estimated dry-docking date.
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GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2
|
Basis of Preparation and Significant Accounting Policies (continued)
|
|
2.11
|
Depreciation: The cost of each of the Company’s vessels is depreciated on a straight-line
basis over each vessel’s remaining useful economic life, after considering the estimated residual value of each vessel, beginning
when the vessel is ready for its intended use. Management estimates that the useful life of new vessels is 25 years, which is consistent
with industry practice. The residual value of a vessel is the product of its lightweight tonnage and estimated scrap value per
lightweight ton. The residual values and useful lives are reviewed at each reporting date and adjusted prospectively. During the
third quarter of 2017, the Company adjusted the scrap rate from $200/ton to $250/ton due to the increased scrap rates worldwide.
This resulted to a decrease of $86 to the depreciation charge included in the consolidated statement of comprehensive loss for
2017. During the first quarter of 2018, the Company adjusted the scrap rate from $250/ton to $300/ton due to the increased scrap
rates worldwide. This resulted to a decrease of $178 to the depreciation charge included in the consolidated statement of comprehensive
loss for 2018. During 2019 the Company maintained the same scrap rate.
|
|
2.12
|
Amortization of lease component: When the Company acquires a vessel subject to an operating
lease, it amortizes the amount reflected in the cost of that vessel that is attributable to favourable or unfavourable lease terms
relevant to market terms, over the remaining term of the lease. The amortization is included
in the line “amortization of fair value of time charter attached to vessels” in the income statement component
of the consolidated statement of comprehensive loss.
|
|
2.13
|
Impairment of non-financial assets: The Company assesses at each reporting date whether
there is an indication that a vessel may be impaired. The vessel’s recoverable amount is estimated when events or changes
in circumstances indicate the carrying value may not be recoverable. If such indication exists and where the carrying value exceeds
the estimated recoverable amounts, the vessel is written down to its recoverable amount. The recoverable amount is the greater
of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to
their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific
to the vessel. Impairment losses are recognised in the consolidated statement of comprehensive loss. A previously recognised impairment
loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable
amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of comprehensive loss.
After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount,
less any residual value, on a systematic basis over its remaining useful life (refer to note 5).
|
|
2.14
|
Long-term debt: Long-term debt is initially recognised at the fair value of the consideration
received net of financing costs directly attributable to the borrowing. After initial recognition, long-term debt is subsequently
measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any financing
costs and any discount or premium on settlement. Gains and losses are recognised in the income statement component of the consolidated
statement of comprehensive loss when the liabilities are derecognised or impaired, as well as through the amortization process.
|
|
2.15
|
Financing costs: Fees incurred for obtaining new loans or refinancing existing loans are
deferred and amortized over the life of the related debt, using the effective interest rate method. Any unamortized balance of
costs relating to loans repaid or refinanced is expensed in the period the repayment or refinancing is made. For the year ended
December 31, 2019, the Company deferred financing costs of $880, which relate to the costs incurred for the new loan agreement
with EnTrust Global’s Blue Ocean Fund (see Note 11 for more details). For the year ended December 31, 2018, the Company deferred
financing costs of $253, which relate to the costs incurred for the new loan agreement with Macquarie Bank International Limited
(see Note 11 for more details). For the year ended December 31, 2017, the Company did not incur any financing costs.
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|
2.16
|
Borrowing costs: Borrowing costs consist of interest
and other costs that the Company incurs in connection with the borrowing of funds. Borrowing costs are expensed to the income
statement component of the consolidated statement of comprehensive loss as incurred under “interest expense and finance
costs” except borrowing costs that relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a
substantial period of time to get ready for its intended use. Borrowing costs that relate to qualifying assets are capitalised.
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|
2.17
|
Operating segment: The Company reports financial information and evaluates its operations
by charter revenues and not by other factors such as length of ship employment for its customers i.e., spot or time charters or
type of vessel. The Company does not use discrete financial information to evaluate the operating results for each such type of
charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability
or other financial information for these charters. As a result, management, including the chief operating decision maker, reviews
operating results solely by revenue per day and operating results of the fleet and thus the Company has determined that it operates
as one operating segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel
worldwide and, as a result, the disclosure of geographical information is impracticable.
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GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2
|
Basis of Preparation and Significant Accounting Policies (continued)
|
|
2.18
|
Provisions and contingencies: Provisions are recognized when the Company has a present legal
or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and, a reliable estimate of the amount of the obligation can be made. Provisions are
reviewed at each financial position date and adjusted to reflect the present value of the expenditure expected to be required to
settle the obligation. Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless
the possibility of an outflow of resources embodying economic benefits is remote, in which case there is no disclosure. Contingent
assets are not recognized in the consolidated financial statements but are disclosed when an inflow of economic benefits is probable.
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|
2.19
|
Pension and retirement benefit obligations: The crew on board the vessels owned by the ship-owning
companies owned by Globus is under short-term contracts (usually up to nine months) and, accordingly, the Company is not liable
for any pension or post-retirement benefits payable to the crew.
|
Provision for employees’ severance
compensation: The Greek employees, of the Company are bound by the Greek Labour law. Accordingly, compensation is payable to
such employees upon dismissal or retirement. The amount of compensation is based on the number of years of service and the amount
of remuneration at the date of dismissal or retirement. If the employee remains in the employment of the Company until normal retirement
age, they are entitled to retirement compensation which is equal to 40% of the compensation amount that would be payable if they
were dismissed at that time. The number of employees that will remain with the Company until retirement age is not known. The Company
has provided for the employees’ retirement compensation liability which amounted to $26 as at December 31, 2019 (2018: $87),
calculated by using the Projected Unit Credit Method and disclosed under non-current liabilities in the consolidated statement
of financial position.
|
2.20
|
Offsetting of financial assets and liabilities: Financial assets and liabilities are offset
and the net amount is presented in the consolidated financial position only when the Company has a legally enforceable right to
set off the recognised amounts and intend either to settle such asset and liability on a net basis or to realize the asset and
settle the liability simultaneously.
|
|
2.21
|
Financial assets and liabilities:
|
i. Classification and measurement
of financial assets and financial liabilities
On January 1, 2018, the Company adopted
IFRS 9. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities.
However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available
for sale.
Under IFRS 9, on initial recognition,
a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (FVOCI) - debt investment;
FVOCI - equity investment; or fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is
generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
A financial asset is measured at amortized
cost if it meets both of the following conditions and is not designated as at FVTPL:
|
∙
|
it is held within a business model whose objective is to hold assets to collect contractual cash
flows; and
|
|
∙
|
its contractual terms give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
|
A debt investment is measured at FVOCI
if it meets both of the following conditions and is not designated as at FVTPL:
|
∙
|
it is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling financial assets; and
|
|
∙
|
its contractual terms give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
|
All financial assets not classified as
measured at amortized cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Company may irrevocably
designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if
doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
A financial asset (unless it is a trade
receivable without a significant financing component that is initially measured at the transaction price) is initially measured
at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2
|
Basis of Preparation and Significant Accounting Policies (continued)
|
ii. Impairment of financial assets
IFRS 9 replaces the 'incurred loss' model
in IAS 39 with an 'expected credit loss' (ECL) model. The new impairment model applies to financial assets measured at amortized
cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses
are recognized earlier than under IAS 39.
The financial assets at amortized cost
consist of trade accounts receivable and cash and cash equivalents.
Under IFRS 9, loss allowances are measured
on either of the following bases:
|
∙
|
12-month ECLs: these are ECLs that result from possible default events within the 12 months after
the reporting date; and
|
|
∙
|
lifetime ECLs: these are ECLs that result from all possible default events over the expected life
of a financial instrument.
|
When determining whether the credit risk
of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable
and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative
information and analyses, based on the Company's historical experience and informed credit assessment and including forward-looking
information.
The Company assumes that the credit risk
on a financial asset has increased significantly if it is more than 180 days past due.
The Company considers a financial asset
to be in default when:
|
∙
|
the counterparty is unlikely to pay its contractual obligations to the Company in full, without
recourse by the Company to actions such as realising security (if any is held); or
|
|
∙
|
the financial asset is more than 1 year past due.
|
The maximum period considered when estimating
ECLs is the maximum contractual period over which the Company is exposed to credit risk.
ECLs are a probability-weighted estimate
of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between cash flows
due to the entity in accordance with the contract and cash flows that the Company expects to receive). ECLs are discounted at
the effective interest rate of the financial asset.
Loss allowances for financial assets
measured at amortized cost are deducted from the gross carrying amount of the assets. The Company has determined that the application
of IFRS 9's impairment requirements at January 1, 2018, has not resulted to any additional impairment allowance.
iii. Derecognition of financial assets
A financial asset (or, where applicable
a part of a financial asset or part of a group of similar financial assets) is derecognised where:
|
∙
|
the rights to receive cash flows from the asset have expired;
|
|
∙
|
the Company retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a “pass-through” arrangement; or
|
|
∙
|
the Company has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the assets, or (b) has neither transferred nor retained substantially all
the risks and rewards of the asset but has transferred control of the asset.
|
Where the Company has transferred its rights
to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset
nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the
asset.
Continuing involvement that takes the form
of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum
amount of consideration that the Company could be required to repay.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2
|
Basis of Preparation and Significant Accounting Policies (continued)
|
iv. Derecognition of Financial liabilities:
A financial liability is derecognised
when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new
liability, and, the difference in the respective carrying amounts is recognised in profit or loss.
|
2.22
|
Leases – where the Company is the lessee: The Company applies a single recognition
and measurement approach for all leases, except for short term leases and leases of low value assets. The Company recognizes lease
liabilities to make payments and right of use assets representing the right of use of the underlying asset. The Company recognises
right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred,
and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated
on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. If ownership of the leased
asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation
is calculated using the estimated useful life of the asset.
|
At the commencement
date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the
lease term. The lease payments include fixed payments (including any in-substance fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a rate, and any amounts expected to be paid under residual value guarantees.
The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments
of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease
payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories)
in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments,
the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease
is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion
of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there
is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from
a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the
underlying asset.
|
2.23
|
Leases – where an entity is the lessor: Leases of vessels where the entity does not
transfer substantially all the risks and benefits of ownership of the vessel are classified as operating leases. Lease income on
operating leases is recognised on a straight-line basis over the lease term. Contingent rents are recognised as revenue in the
period in which they are earned.
|
|
2.24
|
Insurance: The Company recognizes insurance claim recoveries for insured losses incurred
on damage to vessels. Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Company’s vessels
suffer insured damages. They include the recoveries from the insurance companies for the claims, provided there is evidence the
amounts are virtually certain to be received.
|
|
2.25
|
Share based compensation: Globus operates equity-settled, share-based compensation plans.
The value of the service received in exchange of the grant of shares is recognized as an expense. The total amount to be expensed
over the vesting period is determined by reference to the fair value of the share awards at the grant date. The relevant expense
is recognized in the income statement component of the consolidated statement of comprehensive loss, with a corresponding impact
in equity.
|
|
2.26
|
Share capital: Common shares and preferred shares are classified as equity. Incremental
costs directly attributable to the issue of new shares are recognised in equity as a deduction from the proceeds.
|
|
2.27
|
Dividends: Dividends to shareholders are recognised in the period in which the dividends
are declared and appropriately authorised and are accounted for as dividends payable until paid.
|
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2
|
Basis of Preparation and Significant Accounting Policies (continued)
|
|
2.28
|
Fair value measurement: The Company measures financial instruments, such as, derivatives
and non-financial assets at fair value at each reporting date. In addition, fair values of financial instruments measured at amortised
cost are disclosed in note 21. Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place either, a) in the principal market for the asset or
the liability or b) in the absence of a principal market, in the most advantageous market for the asset or liability both being
accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that the market participants
would use when pricing the asset or liability, assuming that the market participants act in their best economic interest. A fair
value measurement of a non-financial asset takes into account the market participant’s ability to generate economic benefits
by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest
and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
|
The Company uses the following
hierarchy for determining and disclosing the fair value of assets and liabilities by valuation technique:
Level 1: quoted (unadjusted)
prices in active markets for identical assets or liabilities.
Level 2: other techniques
for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques
which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
For assets and liabilities that are recognised
in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between levels
in the hierarchy by reassessing categorization at the end of each reporting period.
The Company engaged independent
valuation specialists to determine the fair value of non-financial assets
|
2.29
|
Current versus non-current classification: The Company presents assets and liabilities in
the consolidated statement of financial position based on current/non-current classification.
|
An asset as current when it is:
|
∙
|
Expected to be realised or intended to be sold or consumed in a normal operating cycle
|
|
∙
|
Held primarily for the purpose of trading
|
|
∙
|
Expected to be realised within twelve months after the reporting period
|
|
∙
|
Cash or cash equivalent
|
All other assets are classified
as non-current.
A liability is current:
|
∙
|
It is expected to be settled in a normal operating cycle
|
|
∙
|
It is held primarily for the purpose of trading
|
|
∙
|
It is due to be settled within twelve months after the reporting period
|
|
∙
|
There is no unconditional right to defer the settlement of the liability for at least twelve months
after the reporting period.
|
All other liabilities are classified
as non-current.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
2
|
Basis of Preparation and Significant Accounting Policies (continued)
|
|
2.30
|
Embedded Derivatives: An embedded derivative is a component of a hybrid contract that also
includes a non-derivative host, with the effect that some of the cash flows of the combined instrument vary in a way similar to
a stand-alone derivative. An embedded derivative is separated from the host contract if, and only if (IFRS 9.4.3.3):
|
(a) the economic characteristics and risks
of the embedded derivative are not closely related to the economic characteristics and risks of the host;
(b) a separate instrument with the same
terms as the embedded derivative would meet the definition of a derivative; and
(c) the hybrid contract is not measured
at fair value with changes in fair value recognised in profit or loss (i.e. a derivative that is embedded in a financial liability
at fair value through profit or loss is not separated).
The Company’s embedded derivatives
are separated to the derivative component and the non-derivative host. The derivative component is shown separately from the non-derivative
host in the consolidated statement of financial position at fair value. The changes in the fair value of the derivative financial
instrument are recognized in the consolidated statement of comprehensive loss. The Company has determined there are derivative
financial liabilities as of December 31, 2019 (see Note 11). The fair value of the embedded derivative instruments at December 31,
2019, is estimated using: i) the Black-Scholes option-pricing model for the embedded derivative included in the Firment Shipping
Inc. Credit Facility with the following assumptions: (a) no dividend yield as the Company does not expect to pay a dividend in
the foreseeable future, (b) weighted average expected volatility of 85%, (c) risk free rate of 1.59% determined by management using
the applicable Treasury Bill as of the measurement date, (d) market value of common stock of $0.99 and (e) expected life of 0.89
years as at December 31, 2019 and ii) the least squares approach on the Monte Carlo simulation for the embedded derivative included
into the Convertible Note with the following assumptions: (a) the closing stock price on December 31, 2019, of $0.99, (b) the average
logarithmic price change during the 6 month historical period of -0.68%, (c) the daily volatility for the 6 month period preceding
the valuation date of 5.31%, (d) 10,000 iterations, (e) 50 remaining trading days as at December 31, 2019, (f) 1.535% risk free
rate determined by management using the applicable 3 month Treasury Bill as at December 31, 2019 and, (g) conversion and floor
price of $1.00 per share.
For the year ended December 31, 2018, the
fair value of the embedded derivative included into the Firment Shipping Credit Facility, was estimated using the Black-Scholes
option-pricing model with the following assumptions: (a) no dividend yield as the Company did not expect to pay a dividend in the
foreseeable future, (b) weighted average expected volatility of 80%, (c) risk free rate of 2.48% determined by management using
the applicable Treasury Bill as of the measurement date, (d) market value of common stock of $2.88 and (e) expected life of 1.89
years as at December 31, 2018.
|
2.31
|
Restricted Cash: Restricted cash represents pledged cash deposits or minimum liquidity required
to be maintained under the Company's borrowing arrangements. In the event that the obligation to maintain such deposits is expected
to be terminated within the next twelve months, these deposits are classified as current assets. Otherwise they are classified
as non-current assets.
|
|
3
|
Cash and cash equivalents and Restricted cash
|
For the purpose of the consolidated statement
of financial position, cash and cash equivalents comprise the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash on hand
|
|
|
10
|
|
|
|
46
|
|
Cash at banks
|
|
|
2,356
|
|
|
|
—
|
|
Total
|
|
|
2,366
|
|
|
|
46
|
|
Cash held in banks
earns interest at floating rates based on daily bank deposit rates.
The fair value of
cash and cash equivalents as at December 31, 2019 and 2018, was $2,366 and $46, respectively. In addition, as of December 31, 2019,
the Company had available $11,100 (2018: $12,800) of undrawn borrowing facilities (note 11).
As at December 31,
2019, the Company had pledged an amount of $2,435, $1,250 in non-current assets and $1,185 in current assets ($1,350 as at December
2018 in current assets) in order to fulfil collateral requirements. The fair value of the restricted cash as at December 31, 2019,
was $2,435, $1,250 in non-current assets and $1,185 in current assets and at December 31, 2018, was $1,350 in current assets. The
cash and cash equivalents are held with reputable bank and financial institution counterparties.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
4
|
Transactions with Related Parties
|
The ultimate controlling party of the Company
is Mr. George Feidakis who beneficially owns 1,252,258 common shares as of December 31, 2019, through Firment Shipping Inc., a
Marshall Islands corporation controlled by Mr. George Feidakis. As at December 31, 2019 and 2018, Mr. George Feidakis beneficially
owned 24% and 44.3%, respectively, of Globus’ shares. Mr. George Feidakis is also the chairman of the Board of Directors
of Globus.
The following are the major transactions
which the Company has entered into with related parties during the years ended December 31, 2019, 2018 and 2017:
In August 2006, Globus had entered into
a rental agreement for 350 square metres of office space for its operations within a building owned by Cyberonica S.A. (an affiliate
of Globus’s chairman). In 2016 the Company renewed the rental agreement at a monthly rate of Euro 10,360 (absolute amount)
($11.9) with a lease period ending January 2, 2025. The Company does not presently own any real estate. During the years ended
December 31, 2019, 2018 and 2017, the rent charged amounted to $139, $147 and $140, respectively. The rental expense for the years
ended December 31, 2018 and 2017 was recognised in the respective income statement component of the consolidated statement of comprehensive
loss under administrative expenses payable to related parties. As of December 31, 2018, $427 of rent expense was due and unpaid
and was classified as trade accounts payable in the consolidated statement of financial position.
As of January 1, 2019, following the adoption
of IFRS 16, the Company identified the rental agreement with Cyberonica S.A. to give rise to a right of use asset and a corresponding
liability estimated to approximately $674 (please refer to note 2.2). The depreciation charge for right-of-use asset for the year
ended December 31, 2019, was approximately $112 and the interest expense on lease liabilities for the same period was approximately
$51 and recognised in the income statement component of the consolidated statement of comprehensive loss under depreciation and
interest expense and finance costs, respectively.
As of December 28, 2015, Athanasios Feidakis
assumed the position of Chief Executive Officer (“CEO”) and Chief Financial Officer. On August 18, 2016, the Company
entered into a consultancy agreement with an affiliated company of its CEO, Mr. Athanasios Feidakis, for the purpose of providing
consulting services to the Company in connection with the Company’s international shipping and capital raising activities,
including but not limited to assisting and advising the Company’s CEO at an annual fee of Euro 200,000 (absolute amount)
(approx. $224). The related expense for the years ended December 31, 2019, 2018 and 2017, amounted to $224, $235 and $229, respectively.
In December 2013, Globus entered into a
credit facility for up to $4,000 with Firment Trading Limited, an affiliate of the Company’s chairman, for the purpose of
financing its general working capital needs (“Firment Credit Facility”). Effective from December 2014, through a supplemental
agreement in April 2015, the credit limit of the facility increased from $4,000 to $8,000 and in December 2015, through a second
supplemental agreement, the credit limit of the facility increased from $8,000 to $20,000. In December 2015, through a third supplemental
agreement, the Firment Credit Facility was assigned from Firment Trading Limited, a Cypriot company, to Firment Trading Limited,
a Marshall Islands corporation, each of which is an affiliate of the Company’s chairman. The Company had the right to drawdown
any amount up to $20,000 or prepay any amount, during the availability period, in multiples of $100.
On February 8, 2017, the Company entered
into a Share and Warrant Purchase Agreement (“February 2017 private placement”) pursuant to which it sold for $5,000,
an aggregate of 500,000 of its common shares, par value $0.004 per share and warrants (the “February 2017 Warrants”)
to purchase 2.5 million of its common shares at a price of $16 per share to four investors in a private placement. One investor
is the sister of the CEO of Globus and the daughter of its chairman. These securities were issued in transactions exempt from registration
under the Securities Act. The following day, the Company entered into a registration rights agreement with those purchasers providing
them with certain rights relating to registration under the Securities Act of the Shares and the common shares underlying the Warrants.
In connection with the closing of the February
2017 private placement, the Company also entered into two loan amendment agreements with existing lenders.
One loan amendment agreement was entered
into by the Company with Firment Trading Limited, the lender of the Firment Credit Facility, which then had an outstanding principal
amount of $18,524. Firment Trading Limited released an amount equal to $16,885 (but left an amount equal to $1,639 outstanding,
which continued to accrue under the Firment Credit Facility as though it were principal) of the Firment Credit Facility and the
Company issued to Firment Shipping Inc., an affiliate of Firment Trading Limited, 1,688,500 common shares and a warrant to purchase
623,058 common shares at a price of $16 per share. Subsequent to the closing of the February 2017 private placement, Globus repaid
the outstanding amount on the Firment Credit Facility in its entirety. The Firment Credit Facility was terminated on April 12,
2017. Firment Trading Limited waived any interest under Firment Credit Facility for 2017.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
4
|
Transactions with Related Parties (continued)
|
In January 2016, Globus Maritime Limited
entered into a credit facility for up to $3,000 with Silaner Investments Limited, an affiliate of the Company’s chairman,
for the purpose of financing its general working capital needs (the “Silaner Credit Facility”) The Silaner Credit Facility
was unsecured and remained available until its final maturity date at January 12, 2018. The Company had the right to drawdown any
amount up to $3,000 or prepay any amount in multiples of $100. Any prepaid amount could have been re-borrowed in accordance with
the terms of the facility. Interest on drawn and outstanding amounts was charged at 5% per annum and no commitment fee was charged
on the amounts remaining available and undrawn.
For the year ended December 31, 2017, Globus
recognised interest expense of $3. The expense was classified in the income statement component of the consolidated statement of
comprehensive loss under interest expense and finance costs and the interest payable was classified in the statement of financial
position under accrued liabilities and other payables.
The second loan amendment agreement in
connection with the closing of the February 2017 private placement was entered into by the Company with Silaner Investments Limited,
the lender of the Silaner Credit Facility. Silaner Investments Limited released an amount equal to the outstanding principal of
$3,115 (but left an amount equal to $74 outstanding, which continued to accrue under the Silaner Credit Facility as though it were
principal) of the Silaner Credit Facility and the Company issued to Firment Shipping Inc., an affiliate of Silaner Investments
Limited, 311,500 common shares and a warrant to purchase 114,944 common shares at a price of $16 per share. During 2017, the Company
drew down $ 280 under this facility. As of December 31, 2017, Globus repaid the outstanding amount on the Silaner Credit Facility
in its entirety. The Silaner Credit Facility was terminated on January 12, 2018.
In June 2016, Globus entered into a consultancy
agreement with Eolos Shipmanagement S.A., an affiliate of the Company’s chairman, for the purpose of providing consultancy
services to Eolos Shipmanagement S.A. For these services the Company received a daily fee of $1. This agreement was terminated
on January 31, 2017. For the year ended 2017, the total income from these fees amounted to $31 and is classified in the income
statement component of the consolidated statement of comprehensive loss under management and consulting fee income.
In November 2018, Globus entered into a
credit facility for up to $15,000 with Firment Shipping Inc., an affiliate of the Company’s chairman, for the purpose of
financing its general working capital needs (“Firment Shipping Credit Facility”). The Firment Shipping Credit Facility
is unsecured and remains available until its final maturity date at April 1, 2021, as amended (Note 22). The Company has the right
to draw-down any amount up to $15,000 or prepay any amount in multiples of $100. Any prepaid amount can be re-borrowed in accordance
with the terms of the facility. Interest on drawn and outstanding amounts is charged at 7% per annum and no commitment fee is charged
on the amounts remaining available and undrawn. Interest is payable the last day of a period of three months after the Draw-down
Date, after this period in case of failure to pay any sum due, a default interest of 2% per annum above the regular interest is
charged. Globus also has the right, in its sole option, to convert in whole or in part the outstanding unpaid principal amount
and accrued but unpaid interest under the Firment Shipping Credit Facility into common stock. The conversion price shall equal
the higher of (i) the average of the daily dollar volume-weighted average sale price for the common stock on the principal market
on any trading day during the period beginning at 9.30 a.m. New York City time and ending at 4.00 p.m. (“VWAP”) over
the pricing period multiplied by 80%, where the “Pricing Period” equals the ten consecutive trading days immediately
preceding the date on which the conversion notice was executed or, (ii) Two US Dollars and Eighty Cents ($2.80).
On April 23, 2019, the Company converted
to share capital, as per the conversion clause included in the Firment Shipping Credit Facility the outstanding principal amount
of $3,100 plus the accrued interest of $70 at a conversion price of $2.80 per share and issued 1,132,191 new common shares to Firment
Shipping Inc. This conversion resulted to a gain of approximately $117, which was classified under “gain on derivative financial
instruments” in the income statement component of the consolidated statement of comprehensive loss.
As of December 31, 2019 and 2018, the amount
drawn and outstanding with respect to the Firment Shipping Credit Facility was $800 and $2,200, respectively and was classified
under long-term borrowings, net of the current portion and the fair value of the derivative financial instruments in the consolidated
statement of financial position (see Note 11). For the year ended December 31, 2019 and 2018, Globus recognised interest expense
of $96 and $12, respectively classified in the income statement component of the consolidated statement of comprehensive loss under
interest expense and finance costs and interest payable is classified in the consolidated statement of financial position under
accrued liabilities and other payables. As of December 31, 2019 and 2018, there was an amount of $11,100 and $12,800, respectively,
available to be drawn under the Firment Shipping Credit Facility.
The Firment Shipping Credit Facility requires
that Athanasios Feidakis remain the Company’s Chief Executive Officer and that Firment Shipping maintains at least a 40%
shareholding in Globus, other than due to actions taken by Firment Shipping, such as sales of shares.
As of December 31, 2019 and 2018, the Company
was in compliance with the loan covenants of the Firment Shipping Credit Facility.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
4
|
Transactions with Related Parties (continued)
|
Compensation of Key Management Personnel of the Company:
Compensation to Globus non-executive
directors is analysed as follows:
|
|
For
the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Director’s
remuneration
|
|
|
147
|
|
|
|
145
|
|
|
|
145
|
|
Share-based
payments
|
|
|
40
|
|
|
|
40
|
|
|
|
40
|
|
Total
|
|
|
187
|
|
|
|
185
|
|
|
|
185
|
|
As of December 31, 2019 and 2018, $318
and $201 of the compensation to non-executive directors was remaining due and unpaid, respectively. Amounts payable to non-executive
directors are classified as trade accounts payable in the consolidated statements of financial position.
Compensation
to the Company’s executive director is analysed as follows:
|
|
For
the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Short-term
employee benefits
|
|
|
224
|
|
|
|
235
|
|
|
|
229
|
|
Total
|
|
|
224
|
|
|
|
235
|
|
|
|
229
|
|
As of December 31, 2019 and 2018, $556
and $391 of the compensation to the executive director was remaining due and unpaid, respectively.
The amounts in the consolidated statement
of financial position are analysed as follows:
|
|
Vessels
cost
|
|
|
Vessels
accumulated
depreciation
|
|
|
Dry
docking costs
|
|
|
Accumulated
depreciation of
dry-docking costs
|
|
|
Net
Book Value
|
|
Balance at January 1, 2017
|
|
|
179,156
|
|
|
|
(87,871
|
)
|
|
|
3,854
|
|
|
|
(3,347
|
)
|
|
|
91,792
|
|
Additions/ (Dry Docking Component)
|
|
|
245
|
|
|
|
—
|
|
|
|
976
|
|
|
|
—
|
|
|
|
1,221
|
|
Depreciation expense
|
|
|
—
|
|
|
|
(4,831
|
)
|
|
|
—
|
|
|
|
(862
|
)
|
|
|
(5,693
|
)
|
Balance at December 31, 2017
|
|
|
179,401
|
|
|
|
(92,702
|
)
|
|
|
4,830
|
|
|
|
(4,209
|
)
|
|
|
87,320
|
|
Additions/ (Dry Docking Component)
|
|
|
26
|
|
|
|
—
|
|
|
|
2,148
|
|
|
|
—
|
|
|
|
2,174
|
|
Depreciation expense
|
|
|
—
|
|
|
|
(4,578
|
)
|
|
|
—
|
|
|
|
(1,166
|
)
|
|
|
(5,744
|
)
|
Balance at December 31, 2018
|
|
|
179,427
|
|
|
|
(97,280
|
)
|
|
|
6,978
|
|
|
|
(5,375
|
)
|
|
|
83,750
|
|
Additions/ (Dry Docking Component)
|
|
|
54
|
|
|
|
—
|
|
|
|
622
|
|
|
|
—
|
|
|
|
676
|
|
Impairment loss
|
|
|
(29,902
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(29,902
|
)
|
Depreciation expense
|
|
|
—
|
|
|
|
(4,578
|
)
|
|
|
—
|
|
|
|
(1,704
|
)
|
|
|
(6,282
|
)
|
Balance at December 31, 2019
|
|
|
149,579
|
|
|
|
(101,858
|
)
|
|
|
7,600
|
|
|
|
(7,079
|
)
|
|
|
48,242
|
|
For the purpose of the
consolidated statement of comprehensive loss, depreciation, as stated in the income statement component, comprises the following:
|
|
For
the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Vessels
depreciation
|
|
|
4,578
|
|
|
|
4,578
|
|
|
|
4,831
|
|
Depreciation
on office furniture and equipment
|
|
|
31
|
|
|
|
23
|
|
|
|
23
|
|
Depreciation
of right of use asset
|
|
|
112
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
4,721
|
|
|
|
4,601
|
|
|
|
4,854
|
|
The Company’s vessels have
been pledged as collateral to secure the bank loans discussed in note 11.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
5
|
Vessels, net (continued)
|
Impairment of non-financial
assets: As of December 31, 2019, the Company performed an assessment on whether there were indicators that a vessel(s) may
be impaired. As impairment indicators were identified, discounted future cash flows for each vessel were determined and compared
to the vessel’s carrying value. For the discount factor, the Company applied the Weighted Average Cost of Capital rate that
was calculated to be 9.42% as at December 31, 2019. The projected net discounted future cash flows for the first year were determined
by considering an estimated daily time charter equivalent based on the most recent blended (for modern and older vessels) FFA (i.e.
Forward Freight Agreements) time charter rate for the year of 2020 for each type of vessel. For the remaining useful life of the
vessels, the Company used the historical ten-year blended average one-year time charter rates substituting for the year 2016 that
was considered as extreme values, with the year 2009. Expected outflows for scheduled vessels maintenance were taken into consideration
as well as vessel operating expenses assuming an average annual increase rate of 1% based on the historical trend derived from
actual results for the Company’s vessels since their delivery under Company’s technical management. The average time
charter rates used were in line with the overall chartering strategy, especially in periods/years of depressed charter rates; reflecting
the full operating history of vessels of the same type and particulars with the Company’s operating fleet (Supramax and Panamax
vessels with a deadweight (“dwt”) of over 50,000 and 70,000, respectively) and they covered at least one full business
cycle. Effective fleet utilization was assumed at 87% and 90% (including ballast days) for the Supramaxes and the Panamaxes, respectively
taking into account the period(s) each vessel is expected to undergo her scheduled maintenance (dry-docking and special surveys),
as well as an estimate of the period(s) needed for finding suitable employment and off-hire for reasons other than scheduled maintenance,
assumptions in line with the Company’s expectations for future fleet utilization under the current fleet deployment strategy.
As of December 31, 2019,
the Company concluded that the recoverable amounts of the vessels were lower than their carrying amounts and recognized an impairment
loss of $29,902. As of December 31, 2018 and 2017, no impairment loss was recognized as the vessels’ recoverable amounts
exceeded their carrying amounts.
The impairment loss for
the year ended December 31, 2019, analysed by vessel is as follows:
Vessel
|
|
|
|
m/v River Globe
|
|
|
(6,920
|
)
|
m/v Sky Globe
|
|
|
(8,074
|
)
|
m/v Star Globe
|
|
|
(7,197
|
)
|
m/v Sun Globe
|
|
|
(4,797
|
)
|
m/v Moon Globe
|
|
|
(2,914
|
)
|
Impairment loss
|
|
|
(29,902
|
)
|
As of December 31, 2019
the recoverable amount for each vessel was as follows:
|
|
December 31,
|
|
|
|
Vessels
|
|
2019
|
|
|
Recoverable
amount
|
m/v River Globe
|
|
|
7,752
|
|
|
At fair value less costs of disposal
|
m/v Sky Globe
|
|
|
8,971
|
|
|
At fair value less costs of disposal
|
m/v Star Globe
|
|
|
9,458
|
|
|
At fair value less costs of disposal
|
m/v Sun Globe
|
|
|
11,165
|
|
|
At fair value less costs of disposal
|
m/v Moon Globe
|
|
|
10,896
|
|
|
At value in use
|
Total:
|
|
|
48,242
|
|
|
|
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
Inventories in the consolidated statement
of financial position are analysed as follows:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Lubricants
|
|
|
295
|
|
|
|
313
|
|
Gas
cylinders
|
|
|
79
|
|
|
|
78
|
|
Bunkers
|
|
|
1,171
|
|
|
|
259
|
|
Total
|
|
|
1,545
|
|
|
|
650
|
|
Trade accounts payable
in the consolidated statement of financial position as at December 31, 2019 and 2018, amounted to $4,735 and $6,433, respectively.
Trade accounts payable are non-interest bearing.
|
8
|
Accrued liabilities and other payables
|
Accrued liabilities and
other payables in the consolidated statement of financial position are analysed as follows:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Accrued
interest
|
|
|
307
|
|
|
|
114
|
|
Accrued
audit fees
|
|
|
56
|
|
|
|
57
|
|
Other
accruals
|
|
|
1,435
|
|
|
|
999
|
|
Insurance
deductibles
|
|
|
132
|
|
|
|
102
|
|
Other
payables
|
|
|
41
|
|
|
|
47
|
|
Total
|
|
|
1,971
|
|
|
|
1,319
|
|
|
∙
|
Interest is normally settled quarterly throughout the year.
|
|
∙
|
Other payables are non-interest bearing.
|
|
9
|
Share Capital and Share Premium
|
The authorised share
capital of Globus consisted of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Authorised
share capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000,000
Common shares of par value $0.004 each
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
2,000
|
|
100,000,000
Class B Common shares of par value $0.001 each
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
100,000,000
Preferred shares of par value $0.001 each
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
Total
authorised share capital
|
|
|
2,200
|
|
|
|
2,200
|
|
|
|
2,200
|
|
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
9
|
Share Capital and Share Premium (continued)
|
Holders of the Company’s
common shares and Class B shares have equivalent economic rights, but holders of Company’s common shares are entitled to
one vote per share and holders of the Company’s Class B shares are entitled to twenty votes per share. Each holder of Class
B shares may convert, at its option, any or all of the Class B shares held by such holder into an equal number of common shares.
Common Shares issued and fully paid
|
|
Number
of shares
|
|
|
USD
|
|
As at January
1, 2017
|
|
|
262,755
|
|
|
|
1
|
|
Issued during the year for share based
compensation (note 12)
|
|
|
2,094
|
|
|
|
—
|
|
Issuance of common stock
|
|
|
2,750,000
|
|
|
|
11
|
|
Issuance of common
stock due to exercise of warrants
|
|
|
148,181
|
|
|
|
1
|
|
As at December 31, 2017
|
|
|
3,163,030
|
|
|
|
13
|
|
Issued during the year for share based
compensation (note 12)
|
|
|
8,797
|
|
|
|
—
|
|
Issuance of common
stock due to exercise of warrants
|
|
|
37,500
|
|
|
|
—
|
|
As at December 31, 2018
|
|
|
3,209,327
|
|
|
|
13
|
|
Issued during the year for share based
compensation (note 12)
|
|
|
17,998
|
|
|
|
—
|
|
Issuance of common
stock due to conversion of loan
|
|
|
1,999,834
|
|
|
|
8
|
|
As
at December 31, 2019
|
|
|
5,227,159
|
|
|
|
21
|
|
On February 8, 2017, the Company entered
into a Share and Warrant Purchase Agreement (“February 2017 private placement”) pursuant to which it sold for $5,000,
an aggregate of 500,000 of its common shares, par value $0.004 per share and warrants (the “February 2017 Warrants”)
to purchase 2.5 million of its common shares at a price of $16 per share to four investors in a private placement. One investor
is the CEO’s sister and the daughter of its chairman. These securities were issued in transactions exempt from registration
under the Securities Act. The following day, the Company entered into a registration rights agreement with those purchasers providing
them with certain rights relating to registration under the Securities Act of the Shares and the common shares underlying the Warrants.
In connection with the closing of the February
2017 private placement, the Company also entered into two loan amendment agreements with existing lenders.
One loan amendment agreement was entered
into by the Company with Firment Trading Limited, the lender of the Firment Credit Facility, which then had an outstanding principal
amount of $18,524. Firment Trading Limited released an amount equal to $16,885 (but left an amount equal to $1,639 outstanding,
which continued to accrue under the Firment Credit Facility as though it were principal) of the Firment Credit Facility and the
Company issued to Firment Shipping Inc., an affiliate of Firment Trading Limited, 1,688,500 common shares and a warrant to purchase
623,058 common shares at a price of $16 per share.
The second loan amendment agreement in
connection with the closing of the February 2017 private placement was entered into by the Company with Silaner Investments Limited,
the lender of the Silaner Credit Facility. Silaner Investments Limited released an amount equal to the outstanding principal of
$3,115 (but left an amount equal to $74 outstanding, which continued to accrue under the Silaner Credit Facility as though it were
principal) of the Silaner Credit Facility and the Company issued to Firment Shipping Inc., an affiliate of Silaner Investments
limited, 311,500 common shares and a warrant to purchase 114,944 common shares at a price of $16 per share.
Further to the February 2017 private placement
two investors, other than Firment Shipping Inc. and Silaner Investments Limited, partially exercised their warrants in 2017 purchasing
148,181 shares for the aggregate gross proceeds to the Company of approximately $2,371. In January 2018 one investor, other than
Firment Shipping Inc. and Silaner Investments Limited, partially exercised its warrants, purchasing 37,500 of the Company’s
common shares for aggregate gross proceeds to the Company of approximately $600. Each of the February 2017 Warrants were exercisable
for 24 months after their respective issuance.
As of December 31, 2019,
in connection with the February 2017 private placement, the February 2017 Warrants outstanding had not been exercised and had expired,
while as of December 31, 2018, the outstanding warrants were exercisable for an aggregate of 3,052,321 common shares.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
9
|
Share Capital and Share Premium (continued)
|
On October 19, 2017,
the Company entered into a Share and Warrant Purchase Agreement (the “October 2017 SPA”) pursuant to which it sold
for $2,500 an aggregate of 250,000 of its common shares, par value $0.004 per share and a warrant (the “October 2017 Warrant”)
to purchase 1.25 million of its common shares at a price of $16 per share to an investor in a private placement (the “October
2017 Private Placement”). These securities were issued in transactions exempt from registration under the Securities Act
of 1933, as amended. On that day, Company also entered into a registration rights agreement with the purchaser providing it with
certain rights relating to registration under the Securities Act of the 250,000 common shares issued in connection with the October
2017 Private Placement and the common shares underlying the October 2017 Warrant.
Under the terms of the
October 2017 Warrant, the purchaser could not exercise its warrant to the extent such exercise would cause the purchaser, together
with its affiliates and attribution parties, to beneficially own a number of common shares which would exceed 4.99% (which could
be increased upon no less than 61 days’ notice, but not to exceed 9.99%) of Globus’s then outstanding common shares
immediately following such exercise, excluding for purposes of such determination common shares issuable upon exercise of the October
2017 Warrant which were not exercised. This provision did not limit the purchaser from acquiring up to 4.99% of the Company’s
common shares, selling all of its common shares, and re-acquiring up to 4.99% of the Company’s common shares. The October
2017 Warrant were exercisable for 24 months after its issuance.
As of December 31, 2019,
in connection with the October 2017 SPA, the October 2017 Warrant outstanding had not been exercised and had expired, while as
of December 31, 2018, the outstanding warrants were exercisable for an aggregate of 1,250,000 common shares.
The Company during 2017
had recorded $218 expense in connection with these warrants which was deducted from share premium in equity.
During the years ended
December 31, 2019, 2018 and 2017, Globus issued 17,998, 8,797 and 2,094 common shares, respectively as share-based payments.
As of December 31, 2019, 2018
and 2017, the Company had no series A preferred shares outstanding.
As of December 31, 2019, 2018
and 2017, no Class B shares were outstanding.
On April 23, 2019, the
outstanding principal amount of $3,100 plus the accrued interest of $70 outstanding under the Firment Shipping Inc. Credit Facility
was converted to share capital at a conversion price of $2.80 per share and, accordingly, the Company issued 1,132,191 new common
shares to Firment Shipping Inc.
During the year ended
December 31, 2019, an amount corresponding to $ 1,691,250 plus the accrued interest of $97,311 under the Convertible Note with
Arnaki (Note 11) was converted to share capital and the Company issued 867,643 new common shares to Arnaki.
Share premium includes
the contribution of Globus’ shareholders to the acquisition of the Company’s vessels. Additionally, share premium includes
the effects of the Globus initial and follow-on public offerings, the effects of the settlement of the related party loans (note
4) with the issuance of the Company’s common shares and the effects of the share based payments described in note 12. Accordingly,
at December 31, 2019, 2018 and 2017, Globus share premium amounted to $145,506, $140,334 and $139,684, respectively.
Basic loss per share (‘‘LPS’’)
is calculated by dividing the net loss for the year attributable to Globus shareholders by the weighted average number of shares
issued, paid and outstanding.
Diluted loss per share is calculated by
dividing the net loss attributable to common equity holders of the parent by the weighted average shares outstanding during the
year plus the weighted average number of common shares that would be issued on the conversion of all the dilutive potential common
shares into common shares. The incremental shares (the difference between the number of shares assumed issued and the number of
shares assumed purchased) are included in the denominator of the diluted earnings/(losses) per share computation unless such inclusion
would be anti-dilutive. As the Company reported losses for the years ended December 31, 2019, 2018 and 2017, the effect of any
incremental shares would be antidilutive and thus excluded from the computation of the LPS.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
10
|
Loss per Share (continued)
|
The following reflects the loss and share
data used in the basic and diluted loss per share computations:
|
|
For
the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Loss
attributable to common equity holders
|
|
|
(36,351
|
)
|
|
|
(3,568
|
)
|
|
|
(6,475
|
)
|
Weighted
average number of shares for basic and diluted LPS
|
|
|
4,165,919
|
|
|
|
3,200,927
|
|
|
|
2,574,995
|
|
Long-term
debt in the consolidated statement of financial position is analysed as follows:
|
|
|
Borrower
|
|
Loan
Balance
|
|
|
Unamortized
Debt
Discount
|
|
|
Total
Borrowings
|
|
(a)
|
|
|
Devocean Maritime LTD., Domina
Maritime LTD., Dulac Maritime S.A., Artful Shipholding S.A. & Longevity Maritime Limited
|
|
|
37,000
|
|
|
|
(741
|
)
|
|
|
36,259
|
|
(b)
|
|
|
Globus Maritime Ltd. – Firment Shipping
Inc.
|
|
|
307
|
|
|
|
—
|
|
|
|
307
|
|
(c)
|
|
|
Globus Maritime Ltd. – Convertible
Note
|
|
|
1,180
|
|
|
|
—
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31,
2019
|
|
|
38,487
|
|
|
|
(741
|
)
|
|
|
37,746
|
|
|
|
|
Less:
Current Portion
|
|
|
(1,487
|
)
|
|
|
292
|
|
|
|
(1,195
|
)
|
|
|
|
Long-Term
Portion
|
|
|
37,000
|
|
|
|
(449
|
)
|
|
|
36,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31,
2018
|
|
|
37,163
|
|
|
|
(295
|
)
|
|
|
36,868
|
|
|
|
|
Less:
Current Portion
|
|
|
(35,663
|
)
|
|
|
295
|
|
|
|
(35,368
|
)
|
|
|
|
Long-Term
Portion
|
|
|
1,500
|
|
|
|
—
|
|
|
|
1,500
|
|
|
(a)
|
In June 2019, Globus through its wholly owned subsidiaries, Devocean Maritime Ltd.(the “Borrower
A”), Domina Maritime Ltd.(the “Borrower B”), Dulac Maritime S.A. (the “Borrower C”), Artful Shipholding
S.A. (the “Borrower D”) and Longevity Maritime Limited (the “Borrower E”), vessel owning companies of m/v
River Globe, m/v Sky Globe, m/v Star Globe, m/v Moon Globe and m/v Sun Globe, respectively, entered a new term loan facility for
up to $37,000 with EnTrust Global’s Blue Ocean Fund for the purpose of refinancing the existing indebtedness secured on the
ships and for general corporate purposes. The loan facility is in the names of Devocean Maritime Ltd., Domina Maritime Ltd, Dulac
Maritime S.A., Artful Shipholding S.A. and Longevity Maritime Limited as the borrowers and is guaranteed by Globus. The loan facility
bears interest at LIBOR plus a margin of 8.50% (or 10.5% default interest) for interest periods of three months. This loan facility
will be referred as EnTrust loan facility.
|
On June 24, 2019, the Company drew down
$37,000 under the EnTrust loan facility and fully prepaid the existing loan facilities with Hamburg Commercial Bank AG (formerly
known as HSH Nordbank AG) and Macquarie Bank International Limited. The “EnTrust” loan facility consists of five Tranches:
Tranche (A) of $6,375
for the purpose of prepaying to Hamburg Commercial Bank AG the amount outstanding with respect to the m/v River Globe. The balance
outstanding of tranche (A) at December 31, 2019, was $6,375 payable in 6 equal quarterly instalments of $266 starting, March 2021,
as well as a balloon payment of $4,779 due together with the 6th and final instalment due in June 2022. This repayment schedule
is subject to alterations depending on the amount of “Excess cash”, as described in the loan agreement, which will
be applied against the balloon amount.
Tranche (B) of $7,375
for the purpose of prepaying to Hamburg Commercial Bank AG the amount outstanding with respect to the m/v Sky Globe. The balance
outstanding of tranche (B) at December 31, 2019, was $7,375 payable in 6 equal quarterly instalments of $230 starting, March 2021,
as well as a balloon payment of $5,995 due together with the 6th and final instalment due in June 2022. This repayment schedule
is subject to alterations depending on the amount of “Excess cash”, as described in the loan agreement, which will
be applied against the balloon amount.
Tranche (C) of $7,750
for the purpose of prepaying to Hamburg Commercial Bank AG the amount outstanding with respect to the m/v Star Globe. The balance
outstanding of tranche (C) at December 31, 2019, was $7,750 payable in 6 equal quarterly instalments of $215 starting, March 2021,
as well as a balloon payment of $6,460 due together with the 6th and final instalment due in June 2022. This repayment schedule
is subject to alterations depending on the amount of “Excess cash”, as described in the loan agreement, which will
be applied against the balloon amount.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
11
|
Long-Term Debt, net (continued)
|
Tranche (D) of $6,500
for the purpose of prepaying to Macquarie Bank International Limited the amount outstanding with respect to the m/v Moon Globe.
The balance outstanding of tranche (D) at December 31, 2019, was $6,500 payable in 6 equal quarterly instalments of $406 starting,
March 2021, as well as a balloon payment of $4,064 due together with the 6th and final instalment due in June 2022. This repayment
schedule is subject to alterations depending on the amount of “Excess cash”, as described in the loan agreement, which
will be applied against the balloon amount.
Tranche (E) of $9,000
for the purpose of prepaying to Macquarie Bank International Limited the amount outstanding with respect to the m/v Sun Globe.
The balance outstanding of tranche (E) at December 31, 2019, was $9,000 payable in 6 equal quarterly instalments of $375 starting,
March 2021, as well as a balloon payment of $6,750 due together with the 6th and final instalment due in June 2022. This repayment
schedule is subject to alterations depending on the amount of “Excess cash”, as described in the loan agreement, which
will be applied against the balloon amount.
The total amount
of borrowing costs that were capitalized for this loan facility amounted to $880 which will be amortized over the term of this
loan facility.
The loan is secured
by, among other things:
|
o
|
First preferred mortgage over m/v River Globe, m/v Sky Globe, m/v Star Globe, m/v Moon Globe and
m/v Sun Globe.
|
|
o
|
Guarantee from Globus and joint liability of the vessel owning companies.
|
|
o
|
Shares pledges respecting each borrower.
|
|
o
|
Pledges of bank accounts, charter assignments, and a general assignment over each ship’s
earnings, insurances and any requisition compensation in relation of that ship.
|
The EnTrust loan facility contains various
covenants requiring the vessels owning companies and/or Globus to, amongst others things, ensure that:
|
∙
|
The Borrowers shall maintain a minimum liquidity at all times of not less than $250 for each mortgaged
ship.
|
|
∙
|
The Parent Guarantor shall maintain, on a consolidated basis, at the end of each calendar quarter
liquid funds in an amount, in aggregate, of not less than 5 per cent of the consolidated “Financial Indebtedness”,
as described in the loan agreement, of the Group as reflected in the most recent financial statements of the Parent Guarantor.
|
|
∙
|
Each Borrower shall maintain in its earnings account during a “Cash Sweep Period”,
which is the period commencing on the relevant Utilisation Date and ending on September 30, 2019 and each three-month period thereafter
commencing on January 1, April 1, July 1 and October 1, in each financial year of that Borrower, with the last such three-month
period commencing on June 30, 2020 and ending on September 30, 2020, the applicable “Buffer Amount”, which is in relation
to a Borrower for a Cash Sweep Period, the product of:
|
(a) an amount equal to the lower of:
(i) $1,000; and
(ii) the difference between the daily time
charter equivalent rate of the Ship owned by that Borrower, as evidenced in the management accounts, and the “Break-Even
Expenses”, as described in the loan agreement, of that ship for that Cash Sweep Period; and
(b) the actual number
of days lapsed during that Cash Sweep Period for that Borrower.
|
∙
|
Each of Borrower B, Borrower C and Borrower D shall create a reserve fund in the Reserve Account
to meet the anticipated dry docking and special survey fees and expenses for the Ship owned by it, by maintaining in the Reserve
Account a minimum credit balance (the "Accruing Dry Docking and Special Survey Reserves") which may not be withdrawn
(other than for the purpose of covering the documented and incurred costs and expenses for the next special survey of that Ship),
in an amount equal to, at each Quarter End Date, the product of:
|
(i) $500; and
(ii) the number of days elapsed from
the relevant Utilisation Date until such Quarter End Date, and that Borrower shall ensure that the credit balance of the Reserve
Account shall be increased to meet the required amount of the Accruing Dry Docking and Special Survey Reserves by no later than
each Quarter End Date.
Each of Borrower A and Borrower E shall
deposit on the relevant Utilisation Date in the Reserve Account to meet the anticipated dry docking and special survey fees and
expenses for Ship which is owned by it, a minimum credit balance in an amount equal to $450 which may not be withdrawn (other than
for the purpose of covering the documented and incurred costs and expenses for the next special survey of that Ship).
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
11
|
Long-Term Debt, net (continued)
|
|
∙
|
No Borrower shall incur or permit to be outstanding any Financial Indebtedness except “Permitted
Financial Indebtedness”.
|
"Permitted Financial Indebtedness"
means:
(a) any Financial Indebtedness incurred
under the Finance Documents;
(b) any Financial Indebtedness that is
subordinated to all Financial Indebtedness incurred under the Finance Documents pursuant to a Subordination Agreement or otherwise
and which is, in the case of any such Financial Indebtedness of the Borrower, the subject of Subordinated Debt Security; and
(c) any “Permitted Trade Debt”.
"Permitted Trade Debt" means
any trade debt on arm's length commercial terms reasonably incurred in the ordinary course of owning, operating, trading, chartering,
maintaining and repairing a Ship which remains unpaid for over 15 days of its due date and which does not exceeds $400 (or the
equivalent in any other currency) per Ship at any relevant time
As of December 31,
2019, the Company was in compliance with the covenants of EnTrust Loan Agreement.
|
(b)
|
In November 2018, Globus Maritime Limited entered into a credit facility for up to $15,000 with
Firment Shipping Inc., an affiliate of the Company’s chairman, for the purpose of financing its general working capital needs
(Note 4). The Firment Shipping Credit Facility is unsecured and remains available until its final maturity date on April 1, 2021,
as amended (Note 22). The Company has the right to draw-down any amount of up to $15,000 or prepay any amount in multiples of $100.
Any prepaid amount can be re-borrowed in accordance with the terms of the facility. Interest on drawn and outstanding amounts is
charged at 7% per annum and no commitment fee was charged on the amounts remaining available and undrawn. Interest is payable the
last day of a period of three months after the draw-down date, after this period in case of failure to pay any sum due, a default
interest of 2% per annum above the regular interest is charged.
|
Globus also has the right,
in its sole option, to convert in whole or in part the outstanding unpaid principal amount and accrued but unpaid interest under
the Firment Shipping Credit Facility into common stock. The conversion price shall equal the higher of (i) the average of the daily
dollar volume-weighted average sale price for the common stock on the principal market on any trading day during the period beginning
at 9.30 a.m. New York City time and ending at 4.00 p.m. (“VWAP”) over the pricing period multiplied by 80%, where the
“Pricing Period” equals the ten consecutive trading days immediately preceding the date on which the conversion notice
was executed or (ii) Two US Dollars and Eighty Cents ($2.80).
As per the conversion
clause included in the Firment Shipping Credit Facility, the Company has recognized this agreement as a hybrid financial instrument
which includes an embedded derivative. This embedded derivative component was separated from the non-derivative host. The derivative
component is shown separately from the non-derivative host in the consolidated statement of financial position at fair value. The
changes in the fair value of the derivative financial instrument are recognized in the income statement component of the consolidated
statement of comprehensive loss. For the year ended December 31, 2019 and 2018, the amount drawn and outstanding with respect to
Firment Shipping Credit Facility was $800 and $2,200, respectively. The non-derivative host at December 31, 2019 and 2018 amounted
to $307 and $1,500, respectively and was classified under “current portion of long-term borrowings” and “non-current
portion of long-term borrowings”, respectively in the consolidated statements of financial position. The derivative component
at December 31, 2019 and 2018 amounted to $524 and $831, respectively and was classified under “fair value of derivative
financial instruments, current” and “fair value of derivative financial instruments, non-current”, respectively
in the consolidated statements of financial position.
On April 23, 2019, the
Company converted to share capital, as per the conversion clause included in the Firment Shipping Credit Facility the outstanding
principal amount of $3,100 plus the accrued interest of $70 with a conversion price of $2.80 per share and issued 1,132,191 new
common shares on behalf of Firment Shipping Inc. This conversion resulted to a gain of approximately $117, which was classified
under “gain/(loss) on derivative financial instruments” in the income statement component of the consolidated statement
of comprehensive loss.
For the year ended December
31, 2019 and 2018, the Company recognized a gain on this derivative financial instrument amounting to $135 and a loss of $131,
respectively, which was classified under “gain/(loss) on derivative financial instruments” in the income statement
component of the consolidated statement of comprehensive loss.
As of December 31, 2019 and 2018, there
was an amount of $11,100 and $12,800, respectively, available to be drawn under the Firment Shipping Credit Facility.
The Firment Shipping Credit Facility requires
that Mr. Athanasios Feidakis remain the Company’s Chief Executive Officer and that Firment Shipping Inc. maintains at least
a 40% shareholding in Globus, other than due to actions taken by Firment Shipping, Inc. such as sales of shares.
As of December 31, 2019
and 2018, the Company in compliance with the loan covenants of the Firment Shipping Credit Facility.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
11
|
Long-Term Debt, net (continued)
|
|
(c)
|
On March 13, 2019, the Company signed a securities purchase agreement with a private investor and
on the same date issued, for gross proceeds of $5 million, a senior convertible note (the “Convertible Note”) that
is convertible into shares of the Company’s common stock, par value $0.004 per share. If not converted or redeemed beforehand
pursuant to the terms of the Convertible Note, the Convertible Note matured upon the anniversary of its issue. On March 13, 2020,
Company and the holder of the Convertible Note entered into a waiver regarding the Convertible Note (the “Waiver”).
The Waiver waives the Company’s obligation to repay the Convertible Note on the existing maturity date of March 13, 2020
and does not require the Company to repay the Convertible Note until March 13, 2021. The Convertible Note was issued in a transaction
exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).
|
The Convertible Note provides for interest
to accrue at 10% annually, which interest shall be paid on the first anniversary of the Convertible Note’s issuance unless
the Convertible Note is converted or redeemed pursuant to its terms beforehand. The interest may be paid in common shares of the
Company, if certain conditions described within the Convertible Note are met. With respect to the Convertible Note, the Company
also signed a registration rights agreement with the private investor pursuant to which it agreed to register for resale the shares
that could be issued pursuant to the Convertible Note. The registration rights agreement contains liquidated damages if the Company
is unable to register for resale the shares into which the Convertible Note may be converted and maintain such registration.
As per the conversion clause included in
the Convertible Note, the Company has recognized this agreement as a hybrid financial instrument which includes an embedded derivative.
This embedded derivative component was separated from the non-derivative host. The derivative component is shown separately from
the non-derivative host in the consolidated statement of financial position at fair value. The changes in the fair value of the
derivative financial instrument are recognized in the income statement component of the consolidated statement of comprehensive
loss. The initial amount drawn with respect to the Convertible Note was $5,000. The non-derivative host and the derivative component
that was initially recognized amounted to $1,783 and $3,217, respectively.
The non-derivative host
at December 31, 2019, amounted to $1,180 and was classified under “current portion of long-term borrowings” in the
consolidated statement of financial position. The derivative component at December 31, 2019, amounted to $98 and was classified
under “fair value of derivative financial instruments - current” in the consolidated statement of financial position.
As of December 31, 2019, the amount outstanding
with respect to the Convertible Note was $3,309.
For the year ended December 31, 2019, the
Company recognized a gain on this derivative financial instrument amounting to $1,815, which was classified under “gain/(loss)
on derivative financial instruments” in the income statement component of the consolidated statement of comprehensive loss.
|
(d)
|
In February 2015, Devocean Maritime Ltd., Domina Maritime Ltd and Dulac Maritime S.A. (“Devocean
et al.”), vessel owning companies of m/v River Globe, m/v Sky Globe and m/v Star Globe, respectively, entered into a loan
agreement for up to $30,000 with Hamburg Commercial Bank AG (formerly known as HSH Nordbank AG) (the “Bank”) for the
purpose of partially prepaying the then outstanding secured reducing revolving credit facility with Credit Suisse AG. On March
3, 2015, Devocean et al. drew down $29,405 and the Company prepaid $30,000 to Credit Suisse AG reducing the balance due to Credit
Suisse AG to $5,000, which was settled in July 2015. As at June 27, 2019, the balances of all tranches of $20,776 were fully repaid
using the proceedings from the new loan agreement with EnTrust loan facility.
|
|
(e)
|
In December 2018, Globus through its wholly owned subsidiaries, Artful Shipholding S.A. (“Artful”)
and Longevity Maritime Limited (“Longevity”), entered into the Macquarie Loan Agreement for an amount up to $13,500
with Macquarie Bank International Limited. In December 2018, $6,000 (Artful Advance) and $7,500 (Longevity Advance) were drawn
down for the purpose of partly refinancing the existing DVB Loan Agreement for m/v Moon Globe and m/v Sun Globe, respectively.
As at June 28, 2019, the balance of all tranches of $13,057 were fully repaid using the proceedings from the new loan agreement
with EnTrust loan facility.
|
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
11
|
Long-Term Debt, net (continued)
|
The contractual annual
loan principal payments per lender to be made subsequent to December 31, 2019, assuming that the lenders will not demand the repayment
of the loans before their maturity, were as follows:
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Total
|
|
December
31,
|
|
|
EnTrust
|
|
|
Firment
|
|
|
Convertible
Note
|
|
|
|
|
|
2020
|
|
|
|
—
|
|
|
|
800
|
*
|
|
|
3,309
|
*
|
|
|
4,109
|
|
|
2021
|
|
|
|
5,970
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,970
|
|
|
2022
and thereafter
|
|
|
|
31,030
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,030
|
|
|
Total
|
|
|
|
37,000
|
|
|
|
800
|
|
|
|
3,309
|
|
|
|
41,109
|
|
* This table represents
the maturities before the waivers/extensions acquired within the first quarter of 2020 (see note 22).
The contractual annual
loan principal payments per bank loan to be made subsequent to December 31, 2018, assuming that the lenders will not demand the
repayment of the loans before their maturity, were as follows:
|
|
|
(d)
|
|
|
(b)
|
|
|
(e)
|
|
|
|
|
|
|
|
Hamburg
Commercial
Bank AG
|
|
|
Firment
Shipping Inc.
|
|
|
Macquarie Bank
International Limited
|
|
|
Total
|
|
December
31
|
|
|
|
|
|
|
|
|
Advance
(A)
|
|
|
Advance
(B)
|
|
|
|
|
|
2019
|
|
|
|
22,163
|
|
|
|
—
|
|
|
|
889
|
|
|
|
882
|
|
|
|
23,934
|
|
|
2020
|
|
|
|
—
|
|
|
|
2,200
|
|
|
|
889
|
|
|
|
882
|
|
|
|
3,971
|
|
|
2021
|
|
|
|
—
|
|
|
|
—
|
|
|
|
889
|
|
|
|
882
|
|
|
|
1,771
|
|
|
2022
|
|
|
|
—
|
|
|
|
—
|
|
|
|
889
|
|
|
|
882
|
|
|
|
1,771
|
|
|
2023
and thereafter
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,444
|
|
|
|
3,972
|
|
|
|
6,416
|
|
|
Total
|
|
|
|
22,163
|
|
|
|
2,200
|
|
|
|
6,000
|
|
|
|
7,500
|
|
|
|
37,863
|
|
The weighted average interest rate for
the years ended December 31, 2019 and 2018 was 8.66% and 4.97%, respectively.
Share-based payments are quarterly restrictive
share issued to the Company’s Non-executive directors for their services and in accordance with appointment letters.
Share based payment comprise
the following:
Year 2019
|
|
Number
of
common shares
|
|
|
Number
of
preferred shares
|
|
|
Share
premium
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-executive
directors’ payment (1)
|
|
|
17,998
|
|
|
|
—
|
|
|
|
40
|
|
|
|
—
|
|
Balance at December
31, 2019
|
|
|
17,998
|
|
|
|
—
|
|
|
|
40
|
|
|
|
—
|
|
(1) These amounts relate to the
shares issued in 2019, not to the shares approved for issuance for the year.
Year 2018
|
|
Number
of
common shares
|
|
|
Number
of
preferred shares
|
|
|
Share
premium
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-executive
directors’ payment (1)
|
|
|
8,797
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
Balance at December
31, 2018
|
|
|
8,797
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
(1) These amounts relate to the
shares issued in 2018, not to the shares approved for issuance for the year.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
12
|
Share Based Payment (continued)
|
Year 2017
|
|
Number
of
common shares
|
|
|
Number
of
preferred shares
|
|
|
Share
premium
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-executive
directors payment (1)
|
|
|
2,094
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
Balance at December
31, 2017
|
|
|
2,094
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
(1) These amounts relate to the
shares issued in 2017, not to the shares approved for issuance for the year.
|
13
|
Voyage Expenses and Vessel Operating Expenses
|
Voyage expenses and vessel operating expenses
in the consolidated statements of comprehensive loss consisted of the following:
Voyage expenses
consisted of:
|
|
For the year
ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Commissions
|
|
|
224
|
|
|
|
281
|
|
|
|
241
|
|
Bunkers
expenses
|
|
|
1,634
|
|
|
|
716
|
|
|
|
968
|
|
Other
voyage expenses
|
|
|
240
|
|
|
|
191
|
|
|
|
143
|
|
Total
|
|
|
2,098
|
|
|
|
1,188
|
|
|
|
1,352
|
|
Vessel operating expenses consisted of:
|
|
For the year ended December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Crew wages and related costs
|
|
|
4,670
|
|
|
|
4,766
|
|
|
|
4,645
|
|
Insurance
|
|
|
664
|
|
|
|
607
|
|
|
|
742
|
|
Spares, repairs and maintenance
|
|
|
1,884
|
|
|
|
2,721
|
|
|
|
2,222
|
|
Lubricants
|
|
|
517
|
|
|
|
501
|
|
|
|
496
|
|
Stores
|
|
|
820
|
|
|
|
1,000
|
|
|
|
783
|
|
Other
|
|
|
327
|
|
|
|
330
|
|
|
|
247
|
|
Total
|
|
|
8,882
|
|
|
|
9,925
|
|
|
|
9,135
|
|
|
14
|
Administrative Expenses
|
The amount shown in the consolidated statements
of comprehensive loss is analysed as follows:
|
|
For the year
ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Personnel expenses
|
|
|
1,006
|
|
|
|
778
|
|
|
|
628
|
|
Audit fees
|
|
|
98
|
|
|
|
103
|
|
|
|
101
|
|
Travelling expenses
|
|
|
3
|
|
|
|
5
|
|
|
|
3
|
|
Consulting fees
|
|
|
191
|
|
|
|
76
|
|
|
|
54
|
|
Communication
|
|
|
7
|
|
|
|
9
|
|
|
|
11
|
|
Stationery
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Greek tax authorities (note 19)
|
|
|
116
|
|
|
|
118
|
|
|
|
116
|
|
Other
|
|
|
160
|
|
|
|
265
|
|
|
|
309
|
|
Total
|
|
|
1,583
|
|
|
|
1,356
|
|
|
|
1,224
|
|
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
15
|
Interest Expense and Finance Costs
|
The amounts in the consolidated
statements of comprehensive loss are analysed as follows:
|
|
For the year
ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Interest
payable on long-term borrowings
|
|
|
3,603
|
|
|
|
2,004
|
|
|
|
1,778
|
|
Bank charges
|
|
|
28
|
|
|
|
29
|
|
|
|
34
|
|
Amortization
of debt discount
|
|
|
383
|
|
|
|
23
|
|
|
|
84
|
|
Operating
lease liability interest
|
|
|
51
|
|
|
|
—
|
|
|
|
—
|
|
Other finance
expenses
|
|
|
638
|
|
|
|
—
|
|
|
|
325
|
|
Total
|
|
|
4,703
|
|
|
|
2,056
|
|
|
|
2,221
|
|
No dividends were declared or paid
on common shares during the years ended December 31, 2019, 2018 and 2017.
Various claims, suits and complaints, including
those involving government regulations, arise in the ordinary course of the shipping business. In addition, losses may arise from
disputes with charterers, environmental claims, agents, and insurers and from claims with suppliers relating to the operations
of the Company’s vessels. Currently, management is not aware of any such claims or contingent liabilities, which are material
for disclosure.
The Company enters into time charter and
bareboat charter arrangements on its vessels. There were no non-cancellable arrangements as of December 31, 2019. As of December
31, 2018, the non-cancellable arrangements had remaining terms between five days to seven months, assuming redelivery at the earliest
possible date. Future net minimum lease revenues receivable under non-cancellable operating leases as of December 31, 2019 and
2018, were as follows (vessel off-hires and dry-docking days that could occur but are not currently known are not taken into consideration
and early delivery of the vessels by the charterers is not accounted for):
|
|
2019
|
|
|
2018
|
|
Within
one year
|
|
|
—
|
|
|
|
2,991
|
|
Total
|
|
|
—
|
|
|
|
2,991
|
|
These amounts include
consideration for other elements of the arrangement apart from the right to use the vessel such as maintenance and crewing and
its related costs.
At December 31, 2019,
2018 and 2017, the Company was a party to a lease agreement as lessee (note 4). The lease relates to the rental of office premises
at a monthly rate of Euro 10,360 (absolute amount) and for a lease period ending January 2, 2025.
The future minimum lease
payments under this agreement as of December 31, 2018 and 2017, assuming a Euro: US dollar exchange rate for 2018 1:1.14 and for
2017: 1:1.20, were as follows:
|
|
2018
|
|
|
2017
|
|
Within
one year
|
|
|
142
|
|
|
|
149
|
|
After
one year but not more than five years
|
|
|
567
|
|
|
|
596
|
|
More
than five years
|
|
|
142
|
|
|
|
299
|
|
Total
|
|
|
851
|
|
|
|
1,044
|
|
Total rent expense under
operating leases for the years ended December 31, 2018 and 2017, amounted to $147 and $140 respectively.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
18
|
Commitments (continued)
|
As further discussed
in note 4, on January 1, 2019, following the adoption of IFRS 16, the Company recognised a right of use asset and a corresponding
liability of approximately $674 with respect to the rental agreement. The depreciation charge for right-of-use assets for the year
ended December 31, 2019, was approximately $112 and the interest expense on lease liability for the same period was approximately
$51 and recognised in the income statement component of the consolidated statement of comprehensive loss under depreciation and
interest expense and finance costs, respectively.
At December 31, 2019,
the current and non-current lease liability amounted to $208 and $469, respectively and are included in the accompanying consolidated
statement of financial position.
Under the laws of the countries of the
vessel owning companies’ incorporation and / or vessels’ registration, vessel owning companies are not subject to tax
on international shipping income; however, they are subject to registration and tonnage taxes, which are included in vessel operating
expenses in the accompanying consolidated statements of loss.
Greek Authorities Tax
In January 2013, the tax Law 4110/2013
amended the long-standing provisions of art. 26 of Law 27/1975 by imposing a fixed annual tonnage tax on vessels flying a foreign
(i.e., non-Greek) flag which are managed by a Law 89/67 company, establishing an identical tonnage tax regime as the one already
in force for vessels flying the Greek flag. This tax varies depending on the size of the vessel, calculated in gross registered
tonnage, as well as on the age of each vessel. Payment of this tonnage tax satisfies all income tax obligations of both the shipowning
company and of all its shareholders up to the ultimate beneficial owners. Any tax payable to the state of the flag of each vessel
as a result of its registration with a foreign flag registry (including the Marshall Islands) is subtracted from the amount of
tonnage tax due to the Greek tax authorities. As of December 31, 2019, 2018 and 2017, the tax expense under the law amounted to
$116, $118 and $116, respectively and is included in administrative expenses in the consolidated statements of comprehensive loss.
U.S. Federal Income Tax
Globus is a foreign corporation with wholly
owned subsidiaries that are foreign corporations, which derive income from the international operation of a ship or ships that
earn United States (“U.S”) source shipping income for U.S. federal income tax purposes.
Globus believes that to the best of its
knowledge, under § 883 of the Internal Revenue Code, its income and the income of its ship-owning subsidiaries, to the extent
derived from the international operation of a ship or ships, are currently exempt from U.S. federal income tax.
The following is a summary, discussing
the application of the U.S. federal income tax laws to the Company relating to income derived from the international operation
of a ship or ships. The discussion and its conclusion are based upon existing U.S. federal income tax law, including the Internal
Revenue Code (the “Code”) and final U.S. Treasury Regulations (the “Regs”) as currently in effect, all
of which are subject to change, possibly with retroactive effect.
Application of § 883 of the Code
for the year ended December 31, 2019
In general, under § 883, certain non-U.S.
corporations are not subject to U.S. federal income tax on their U.S. source income derived from the international operation of
a ship or ships (“gross transportation income”). Absent § 883 or a tax treaty exemption, such income generally
would be subject to a 4% gross basis tax, or in certain cases, to a net income tax plus a 30% branch profits tax.
For this purpose, U.S. source gross transportation
income includes 50% of the shipping income that is attributable to transportation that begins or ends (but that does not both begin
and end) in the United States.
Shipping income attributable to transportation
exclusively between non-U.S. ports is generally not subject to any U.S. Federal income tax. “Shipping income” generally
means income that is derived from:
(a) the use of vessels;
(b) the hiring or leasing of vessels for use
on a time, operating or bareboat charter basis;
(c) 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
(d) the performance of services directly related
to those uses.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
19
|
Income Tax (continued)
|
The Regs provide that a foreign corporation
will qualify for the benefits of § 883 if, in relevant part, the foreign country in which the foreign corporation is organized
grants an equivalent exemption to corporations organized in the U.S. and the foreign corporation meets either the qualified shareholder
test or the publicly traded test described below.
Qualified Shareholder Test
A foreign corporation having more than
50 percent of the value of its outstanding shares owned, directly or indirectly by application of specific attribution rules, for
at least half of the number of days in the foreign corporation's taxable year by one or more qualified shareholders will meet the
qualified shareholder test. In part, an individual who is a shareholder will be considered a qualified shareholder if he or she
is a resident of a qualified foreign country (which means for this purpose that he or she is fully liable to tax in such country,
and maintains a tax home in such country for 183 days or more in the taxable year, or certain other rules apply) and does not own
his or her interest in the foreign corporation through bearer shares (except for bearer shares held in a dematerialized or immobilized
book entry system), either directly or indirectly by application of the attribution rules. In addition, in order to meet the qualified
shareholder test, a foreign corporation will need to obtain certifications from its qualified shareholders (including from intermediary
entities) substantiating their stock ownership.
Publicly Traded Test
The Publicly Traded Test requires that
one or more classes of equity representing more than 50% of the voting power and value in a non-United States corporation be “primarily
and regularly traded” on an established securities market either in the United States or in a foreign country that grants
an equivalent exemption. Among others, § 883 provides, in relevant part, that the shares of a non-United States corporation
will be considered to be “primarily traded” on an established securities market in a country if the number of shares
of each class of shares 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.
Notwithstanding the foregoing, § 883
provides, in relevant part, that a class of shares will not be considered to be “regularly traded” on an established
securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned,
actually or constructively under specified share attribution rules, on more than half the days during the taxable year by persons
who each own 5% or more of the vote and value of such class of outstanding shares which is referred as the 5 Percent Override Rule.
In the event that the 5 Percent Override
Rule is triggered, § 883 provides that such rule will not apply if the Company can establish that within the group of 5% shareholders,
there are sufficient qualified shareholders within the meaning of § 883 to preclude non-qualified shareholders in such group
from owning 50% or more of the total value of the Company’s common shares for more than half the number of days during the
taxable year.
For the year ended December 31, 2019, Globus
and its wholly owned subsidiaries deriving income from the operation of international ships are organized in foreign countries
that grant equivalent exemptions to corporations organized in the U.S. Globus’s common shares, representing more than 50%
of the voting power and value in Globus, were primarily and regularly traded on the Nasdaq Capital Market, which is an established
securities market. Although Globus’s ship-owning and operating subsidiaries were not publicly traded, they should qualify
for the qualified shareholder test by virtue of their ownership by Globus. Accordingly, all of Globus’ and its ship-owning
or operating subsidiaries that rely on § 883 for exempting U.S. source income from the international operation of ships should
not be subject to U.S. federal income tax for the year ended December 31, 2019. Globus anticipates it and its relevant subsidiaries
income will continue to be exempt in the future from U.S. federal income tax.
However, in the future, Globus or its subsidiaries
may not continue to satisfy certain criteria in the U.S. tax laws and as such, may become subject to the U.S. federal income tax
on future U.S. source shipping income.
Under the laws of the Republic of Malta,
the country of incorporation of one of the Company’s vessel-owning company’s, this vessel-owning company is not liable
for any income tax on its income derived from shipping operations. The Republic of Malta is a country that has an income tax treaty
with the United States. Accordingly, income earned by vessel-owning companies organized under the laws of the Republic of Malta
may qualify for a treaty-based exemption. Specifically, under Article 8 (Shipping and Air Transport) of the treaty sets out the
relevant rule to the effect that profits of an enterprise of a Contracting State from the operation of ships in international traffic
shall be taxable only in that State.
|
20
|
Financial risk management objectives and policies
|
The Company’s financial
liabilities are long term borrowings, trade and other payables and the financial derivative instrument. The main purpose of these
financial liabilities is to assist in the financing of Company’s operations and the acquisition of vessels. The Company has
various financial assets such as trade accounts receivable and cash and short-term deposits, which arise directly from its operations.
The main risks arising from the Company’s financial instruments are cash flow interest rate risk, credit risk, liquidity
risk and foreign currency risk.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
20
|
Financial risk management objectives and policies
(continued)
|
Interest rate risk
Interest rate risk is
the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest
rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term
debt obligations with floating interest rates. As of December 31, 2018, 6% of the Company’s long term borrowings were at
a fixed rate of interest and as of December 31, 2019, 10% of the Company’s long term borrowings were at a fixed rate of interest.
Interest rate risk
table
The following table demonstrates
the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s
loss.
|
|
|
Increase/(Decrease)
in
basis points
|
|
|
Effect
on loss
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
$
Libor
|
|
|
|
+15
|
|
|
|
(55
|
)
|
|
|
|
|
|
-20
|
|
|
|
73
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
$
Libor
|
|
|
|
+15
|
|
|
|
(60
|
)
|
|
|
|
|
|
-20
|
|
|
|
80
|
|
Foreign currency risk
The following table demonstrates the sensitivity
to a reasonably possible change in the Euro exchange rate, with all other variables held constant, to the Company’s loss
due to changes in the fair value of monetary assets and liabilities. The Company’s exposure to foreign currency changes for
all other currencies as of December 31, 2019 and 2018, was not material.
|
|
|
Change in rate
|
|
|
Effect on loss
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
+10%
|
|
|
|
(255
|
)
|
|
|
|
|
|
-10%
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
+10%
|
|
|
|
(284
|
)
|
|
|
|
|
|
-10%
|
|
|
|
284
|
|
Credit risk
The Company operates
only with recognised, creditworthy third parties including major charterers, commodity traders and government owned entities. Receivable
balances are monitored on an ongoing basis with the result that the Company’s exposure to impairment on trade accounts receivable
is not significant. The maximum exposure is the carrying value of trade accounts receivable as indicated in the consolidated statement
of financial position. With respect to the credit risk arising from other financial assets of the Company such as cash and cash
equivalents, the Company’s exposure to credit risk arises from default of the counter parties, which are recognised financial
institutions. The Company performs annual evaluations of the relative credit standing of these counter parties. The exposure of
these financial instruments is equal to their carrying amount as indicated in the consolidated statement of financial position.
Concentration of
credit risk table:
The following table provides
information with respect to charterers who individually, accounted for approximately more than 10% of the Company’s revenue
for the years ended December 31, 2019, 2018 and 2017:
|
|
|
2019
|
|
|
%
|
|
|
2018
|
|
|
%
|
|
|
2017
|
|
|
%
|
|
|
A
|
|
|
|
3,476
|
|
|
|
22%
|
|
|
|
3,679
|
|
|
|
21%
|
|
|
|
1,404
|
|
|
|
10%
|
|
|
B
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,873
|
|
|
|
17%
|
|
|
|
—
|
|
|
|
—
|
|
|
C
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,849
|
|
|
|
13%
|
|
|
D
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,459
|
|
|
|
11%
|
|
|
Other
|
|
|
|
12,147
|
|
|
|
78%
|
|
|
|
10,802
|
|
|
|
62%
|
|
|
|
9,140
|
|
|
|
66%
|
|
|
Total
|
|
|
|
15,623
|
|
|
|
100%
|
|
|
|
17,354
|
|
|
|
100%
|
|
|
|
13,852
|
|
|
|
100%
|
|
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
20
|
Financial risk management objectives and policies
(continued)
|
Liquidity risk
The Company mitigates
liquidity risk by managing cash generated by its operations, applying cash collection targets appropriately. The vessels are normally
chartered under time-charter, bareboat and spot agreements where, as per the industry practice, the charterer pays for the transportation
service 15 days in advance, supporting the management of cash generation. Vessel acquisitions are carefully controlled, with authorisation
limits operating up to board level and cash payback periods applied as part of the investment appraisal process. In this way, the
Company maintains a good credit rating to facilitate fund raising. In its funding strategy, the Company’s objective is to
maintain a balance between continuity of funding and flexibility through the use of bank loans. Excess cash used in managing liquidity
is only invested in financial instruments exposed to insignificant risk of changes in market value or are being placed on interest
bearing deposits with maturities fixed usually for no more than 3 months. The Company monitors its risk relating to the shortage
of funds by considering the maturity of its financial liabilities and its projected cash flows from operations.
The table below summarises
the maturity profile of the Company’s financial liabilities (including interest) at December 31, 2019 and 2018, assuming
that the lenders will not demand the repayment of the loans before their maturity, based on contractual undiscounted cash flows.
Year ended
December 31, 2019*
|
|
Less
than 3
months
|
|
|
3
to 12
months
|
|
|
1
to 5
years
|
|
|
More
than 5
years
|
|
|
Total
|
|
Long-term debt
|
|
|
4,674
|
|
|
|
3,776
|
|
|
|
42,247
|
|
|
|
—
|
|
|
|
50,697
|
|
Lease liabilities
|
|
|
126
|
|
|
|
106
|
|
|
|
567
|
|
|
|
1
|
|
|
|
800
|
|
Accrued liabilities and other payables
|
|
|
1,971
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,971
|
|
Trade payables
|
|
|
4,735
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,735
|
|
Total
|
|
|
11,506
|
|
|
|
3,882
|
|
|
|
42,814
|
|
|
|
1
|
|
|
|
58,203
|
|
|
*
|
This table includes both the derivative component
and the non-derivative host of the hybrid agreements of both the Firment Shipping Credit Facility and the Convertible Note (see
note 11).
|
Year ended
December 31, 2018*
|
|
Less
than 3
months
|
|
|
3
to 12
months
|
|
|
1
to 5
years
|
|
|
More
than 5
years
|
|
|
Total
|
|
Long-term debt
|
|
|
1,720
|
|
|
|
24,502
|
|
|
|
16,465
|
|
|
|
—
|
|
|
|
42,687
|
|
Accrued liabilities and other payables
|
|
|
1,319
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,319
|
|
Trade payables
|
|
|
6,433
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,433
|
|
Total
|
|
|
9,472
|
|
|
|
24,502
|
|
|
|
16,465
|
|
|
|
—
|
|
|
|
50,439
|
|
|
*
|
This table includes both the derivative component
and the non-derivative host of the hybrid agreement with Firment Shipping Credit Facility (see note 11)
|
Capital management
The primary objective
of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order
to support its business and maximise shareholder value. The Company manages its capital structure and makes adjustments to it,
in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment
to shareholders, return capital to shareholders or issue new shares as well as managing the outstanding level of debt. Lenders
may impose capital structure or solvency ratios (refer to note 11). No changes were made in the objectives, policies or processes
during the years ended December 31, 2019 and 2018. The Company monitors capital using the ratio of net debt to book capitalisation
adjusted for the market value of the Company’s vessels plus net debt.
The Company includes
within net debt, interest bearing loans gross of unamortized debt discount, less cash.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
20
|
Financial risk management objectives and policies
(continued)
|
Adjusted
book capitalization refers to total equity adjusted for the market value of the Company’s vessels. The Company’s policy
is to keep the ratio described above between a range of 60% - 80%.
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Interest
bearing loans
|
|
|
38,487
|
|
|
|
37,163
|
|
Cash
(including restricted cash)
|
|
|
(4,801
|
)
|
|
|
(1,396
|
)
|
Net
debt
|
|
|
33,686
|
|
|
|
35,767
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
9,879
|
|
|
|
41,050
|
|
Adjustment for the market
value of vessels (charter-free)
|
|
|
(2,902
|
)
|
|
|
(27,500
|
)
|
Adjusted
book capitalization
|
|
|
6,977
|
|
|
|
13,550
|
|
|
|
|
|
|
|
|
|
|
Adjusted
book capitalization plus net debt
|
|
|
40,663
|
|
|
|
49,317
|
|
Ratio
|
|
|
83%
|
|
|
|
73%
|
|
The Company’s objective
is to maintain the ratio of net debt to adjusted capitalization plus net debt to the range of 60%- 80%. Net debt as calculated
above is not consistent with the International Financial Reporting Standards (“IFRS”) definition of debt.
The following reconciliation
is provided:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Debt
in accordance with IFRS (long and short-term borrowings)
|
|
|
37,746
|
|
|
|
36,868
|
|
Add:
Unamortized debt discount
|
|
|
741
|
|
|
|
295
|
|
|
|
|
38,487
|
|
|
|
37,163
|
|
Less:
Cash and bank balances and bank deposits (including restricted cash)
|
|
|
4,801
|
|
|
|
1,396
|
|
Net
debt
|
|
|
33,686
|
|
|
|
35,767
|
|
Carrying amounts and
fair values
The following table shows
the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy
(as defined in note 2.28). It does not include fair value information for financial assets and financial liabilities not measured
at fair value if the carrying amount is a reasonable approximation of fair value, such as cash and cash equivalents, restricted
cash, trade receivables and trade payables.
|
|
Carrying amount
|
|
|
Fair value
|
|
(in thousands
of USD)
|
|
Financial
assets
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels
(see also note 5)
|
|
|
37,346
|
|
|
|
37,346
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,346
|
|
|
|
|
37,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
|
622
|
|
|
|
—
|
|
|
|
—
|
|
|
|
622
|
|
|
|
622
|
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities not measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings
|
|
|
38,487
|
|
|
|
—
|
|
|
|
39,853
|
|
|
|
—
|
|
|
|
39,853
|
|
|
|
|
38,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
21
|
Fair values (continued)
|
|
|
Carrying amount
|
|
|
Fair value
|
|
(in
thousands of USD)
|
|
Other
financial
liabilities
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
|
831
|
|
|
|
—
|
|
|
|
—
|
|
|
|
831
|
|
|
|
831
|
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities not measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings
|
|
|
37,163
|
|
|
|
—
|
|
|
|
37,030
|
|
|
|
—
|
|
|
|
37,030
|
|
|
|
|
37,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement of fair values
Valuation techniques
and significant unobservable inputs
The following tables show
the valuation techniques used in measuring Level 1, Level 2 and Level 3 fair values, as well as the significant unobservable inputs
used.
Financial instruments measured at fair value
|
|
|
|
|
|
|
|
|
|
Type
|
|
Valuation Techniques
|
|
Significant unobservable inputs
|
|
|
|
|
|
Vessels
|
|
Quoted (unadjusted) prices in active markets for identical assets less costs of disposal
|
|
-
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
Firment
|
|
Black-Scholes model
|
|
Refer to note 2.30
|
Convertible Note
|
|
Monte Carlo model
|
|
Refer to note 2.30
|
|
|
|
|
|
Financial instruments not measured at fair value
|
|
|
|
|
|
|
|
|
|
Type
|
|
Valuation Techniques
|
|
Significant unobservable inputs
|
|
|
|
|
|
Long-term borrowings
|
|
Discounted cash flow
|
|
Discount rate
|
Transfers between Level 1, 2 and 3
There were no transfers between
these levels in 2018 and 2019.
|
22
|
Events after the reporting date
|
Further to the conversion
clause included into the Convertible Note up to March 2020 a total amount of approximately $1,168, principal and accrued interest,
was converted to share capital with the conversion price of $1 per share and a total number of 1,167,767 new shares issued in name
of the holder of the Convertible Note. On March 13, 2020, Company and the holder of the Convertible Note entered into a waiver
regarding the Convertible Note (the “Waiver”). The Waiver waives the Company’s obligation to repay the Convertible
Note on the existing maturity date of March 13, 2020 and does not require the Company to repay the Convertible Note until March
13, 2021.
On March 23, 2020,
the Company and Firment Shipping Inc. agreed to extend the final maturity of the Firment Shipping Credit Facility to April 1, 2021
keeping all the other terms of the Credit Facility unchanged.
GLOBUS MARITIME LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts presented in thousands of U.S. Dollars - except
for share, per share and warrants
data, unless otherwise stated)
|
22
|
Events after the reporting date (continued)
|
On March 6, 2020,
the Company announced that it had received written notification from The Nasdaq Stock Market (“Nasdaq”) dated March
2, 2020, indicating that because the closing bid price of the Company’s common stock for the last 30 consecutive business
days was below $1.00 per share, the Company no longer meet the minimum bid price continued listing requirement for the Nasdaq Capital
Market, as set forth in Nasdaq Listing Rule 5450(a)(1). Pursuant to Nasdaq Listing Rules, the applicable grace period to regain
compliance is 180 days, or until August 31, 2020. The Company intends to cure the deficiency within the prescribed grace period.
During this time, the Company’s common stock will continue to be listed and trade on the Nasdaq Capital Market.
The World Health
Organization has declared the outbreak of a novel coronavirus (COVID-19) a global pandemic. The measures taken by governments worldwide
in response to the outbreak, which included numerous factory closures and restrictions on travel, as well as potential labor shortages
resulting from the outbreak, are expected to slow down production of goods worldwide and decrease the amount of goods exported
and imported worldwide. Some experts fear that the economic consequences of the coronavirus could cause a recession that outlives
the pandemic.
Besides reducing
demand for cargo, coronavirus may functionally limit the amount of cargo that we and our competitors are able to move because countries
worldwide have imposed quarantine checks on arriving vessels, which have caused delays in loading and delivery of cargoes. It is
possible that charterers may try to invoke force majeure clauses as a result.
Although it is too
early to assess the full impact of the coronavirus outbreak on global markets, and particularly on the shipping industry, the pandemic
has already added, and could continue to add, pressure to shipping freight rates. Further depressed rates could have a material
adverse impact on the Company’s business, financial condition, results of operations, and cash flows.
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