The consolidated financial statements include the accounts of Top Ships Inc. (formerly Top Tankers Inc. and Ocean Holdings Inc.) and its wholly owned subsidiaries (collectively the “Company”). Ocean Holdings Inc. was formed on January 10, 2000, under the laws of Marshall Islands and was renamed to Top Tankers Inc. and Top Ships Inc. in May 2004 and December 2007, respectively. The Company is an international provider of worldwide oil, petroleum products and chemicals transportation services.
| | Companies | Date of Incorporation | Country of Incorporation | Activity |
| | Top Tanker Management Inc. | May 2004 | Marshall Islands | Management company |
| | Wholly owned Shipowning Companies (“SPC”) with vessels in operation during years ended December 31, 2019, 2020 and 2021 | | Date of Incorporation | Country of Incorporation | Vessel | Delivery Date |
| 1 | Monte Carlo 71 Shipping Company Limited | | June 2014 | Marshall Islands | M/T Stenaweco Energy | July 2014 (sold in 2020) |
| 2 | Monte Carlo One Shipping Company Ltd | | June 2012 | Marshall Islands | M/T Stenaweco Evolution | March 2015 (sold in 2020) |
| 3 | Monte Carlo Seven Shipping Company Limited | | April 2013 | Marshall Islands | M/T Stenaweco Excellence | May 2016 (sold in 2020) |
| 4 | Monte Carlo Lax Shipping Company Limited | | May 2013 | Marshall Islands | M/T Nord Valiant | August 2016 (sold in 2021) |
| 5 | Monte Carlo 37 Shipping Company Limited | | September 2013 | Marshall Islands | M/T Eco Fleet | July 2015 (sold in 2020) |
| 6 | Monte Carlo 39 Shipping Company Limited | | December 2013 | Marshall Islands | M/T Eco Revolution | January 2016 (sold in 2020) |
| 7 | Eco Seven Inc. | | February 2017 | Marshall Islands | M/T Stenaweco Elegance | February 2017 (sold in 2020) |
| 8 | Astarte International Inc. | | April 2017 | Marshall Islands | M/T Eco Palm Desert | September 2018 (sold in 2020) |
| 9 | PCH77 Shipping Company Limited | | September 2017 | Marshall Islands | M/T Eco California | January 2019 (sold in 2020) |
| 10 | PCH Dreaming Inc. | | January 2018 | Marshall Islands | M/T Eco Marina Del Ray | March 2019 |
| 11 | South California Inc. | | January 2018 | Marshall Islands | M/T Eco Bel Air | April 2019 (sold in 2020) |
| 12 | Malibu Warrior Inc. | | January 2018 | Marshall Islands | M/T Eco Beverly Hills | May 2019 (sold in 2020) |
| 13 | Santa Catalina Inc. | | December 2018 | Marshall Islands | M/T Eco Los Angeles | February 2020 |
| 14 | Santa Monica Marine Inc. | | December 2018 | Marshall Islands | M/T Eco City of Angels | February 2020 |
| 15 | Roman Empire Inc. | | February, 2020 | Marshall Islands | Eco West Coast | March 2021 |
| 16 | Athenean Empire Inc. | | February, 2020 | Marshall Islands | Eco Malibu | May 2021 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
| | Wholly owned SPCs with vessels under construction during year ended December 31, 2021 | | Date of Incorporation | Country of Incorporation | Vessel | Delivery Date |
| 1 | Julius Caesar Inc. | | May, 2020 | Marshall Islands | Julius Caesar (Hull No. 3213) | January 2022 |
| 2 | Legio X Inc. | | December, 2020 | Marshall Islands | Legio X Equestris (Hull No. 3214) | March 2022 |
| 3 | Eco Oceano Ca Inc. | | December, 2020 | Marshall Islands | Eco Oceano Ca (Hull No. 871) | March 2022 |
As of December 31, 2019, 2020 and 2021, the Company was the owner of 50% of outstanding shares of the following companies.
| | SPC | Date of Incorporation | Country of Incorporation | Vessel | Built Date |
| 1 | City of Athens Pte. Ltd. | November 2016 | Singapore | M/T Eco Holmby Hills | March 2018 (sold in 2020) |
| 2 | Eco Nine Pte. Ltd. | March 2015 | Singapore | M/T Eco Palm Springs | May 2018 (sold in 2020) |
| 3 | California 19 Inc. | May 2019 | Marshall Islands | M/T Eco Yosemite Park | March 2020 |
| 4 | California 20 Inc. | May 2019 | Marshall Islands | M/T Eco Joshua Park | March 2020 |
On December 18, 2019 the Company acquired 100% of the issued and outstanding shares of Santa Catalina Inc. and Santa Monica Inc. two Marshall Islands companies that had entered into new building contracts for two high specification 50,000 dwt Medium Range (“MR”) product/chemical tankers (M/T Eco Los Angeles and M/T Eco City of Angels) under construction at that time in Hyundai Mipo Dockyard Co., Ltd. in South Korea which were delivered in February 2020. The Company acquired the shares from an entity affiliated with the Company’s Chief Executive Officer, Director and President, Mr. Evangelos J. Pistiolis, for an aggregate purchase price of $14,350, of which $7,515 was paid upon purchase of the vessel owning companies and the remaining $6,835 was paid upon delivery of the vessels from the shipyard. The transaction specified that following each vessel’s delivery, each vessel was going to enter into a time charter with Trafigura Maritime Logistics Pte Ltd (“Trafigura”) for a firm duration of three years at a gross daily rate of $17,500, with a charterer’s option to extend for two additional years at $18,750 and $20,000, respectively. Both acquired companies had already advanced $7,515 of shipyard installments and $134 of capitalized expenses for the construction of said newbuilding vessels.
On May 6, 2020, the Company acquired for $18,000 from a company affiliated with Mr. Evangelos J. Pistiolis a 100% ownership interest in three Marshall Island companies (the “MR Transaction”) that each had a newbuilding contract for the construction of one scrubber-fitted 50,000 dwt eco MR product/chemical tanker, under construction at that time in Hyundai Mipo shipyard in South Korea, with attached time charters. The vessels, M/T Eco Van Nuys (Hull No 2789), M/T Eco Santa Monica (Hull No 2790) and M/T Eco Venice Beach (Hull No 2791) were scheduled to be delivered in the first quarter of 2021. Each of the three product tankers had time charters with Central Tankers Chartering Inc, a company affiliated with Mr. Evangelos J. Pistiolis, for a firm term of five years at a gross daily rate of $16,200, with a charterer’s option to extend for two additional years at $17,200 and $18,200 (see Note 5), scheduled to commence upon delivery of each vessel. Of the consideration payable, $16,850 was paid in the year ended December 31, 2020 and the remaining $1,150 was due on the vessels’ delivery date and was included in Due to related parties in the consolidated balance sheets as of December 31, 2020.
On May 28, 2020, the Company acquired for $22,000 from a company affiliated with Mr. Evangelos J. Pistiolis, or the Suezmax Seller, a 50% ownership interest in two Marshall Island companies (the “SPVs”) that each had a newbuilding contract for the construction of one scrubber-fitted 157,000 dwt eco Suezmax tanker, M/T Eco West Coast (Hull No 865) and M/T Eco Malibu (Hull No 866) under construction at that time in Hyundai Heavy Industries shipyard in South Korea, with attached time charters with Clearlake Shipping Pte Ltd. The M/T’s Eco West Coast and Eco Malibu, scheduled to commence upon delivery of each vessel, were delivered on March 26 and May 11, 2021 respectively. The Company had the option to acquire the other 50% ownership interest in both vessels from the Seller at the same price until July 15, 2020. On June 18, 2020, the Company exercised both purchase options for a consideration of $22,000. Upon their delivery, both vessels entered into time charters with Clearlake Shipping Pte Ltd., for a firm term of three years at a gross daily rate of $33,950, with a charterer’s option to extend for two additional years at $34,750 and $36,750, respectively. The full amount of the consideration was paid in the year ended December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
On January 6, 2021 the Company sold to a related party affiliated with Mr. Evangelos J. Pistiolis (the “Buyer”) three shipowning companies that own M/T Eco Van Nuys (Hull No 2789), M/T Eco Santa Monica (Hull No 2790) and M/T Eco Venice Beach (Hull No 2791) in exchange for:
| | ● | 100% ownership in a Marshall Islands company that was party to a shipbuilding contract for a high specification scrubber fitted Suezmax Tanker at the time under construction at Hyundai Samho shipyard that was delivered in March 2022 (M/T Eco Oceano Ca - Hull No 871). The shipowning company is party to a time charter, starting from the vessel’s delivery, with Central Tankers Chartering, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, for a firm duration of five years at a gross daily rate of $32,450, with a charterer’s option to extend for two additional years at $33,950 and $35,450. |
| | ● | 35% ownership in one Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker under construction at Hyundai Heavy Industries shipyard that was delivered in January 2022 (Julius Caesar - Hull No. 3213). The shipowning company is party to a time charter, starting from the vessel’s delivery, with a major oil trader, for a firm duration of three years at a gross daily rate of $36,000, with a charterer’s option to extend for two additional years at $39,000 and $41,500. |
| | ● | 35% ownership in one Marshall Islands company that is party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker at the time under construction at Hyundai Heavy Industries shipyard that was delivered in March 2022 (Legio X Equestris - Hull No. 3214). The shipowning company is party to a time charter, starting from the vessel’s delivery, with a major oil trader, for a firm duration of three years at a gross daily rate of $35,750, with a charterer’s option to extend for two additional years at $39,000 and $41,500. |
| | ● | A settlement of $1,150 in related party payables to the Buyer. |
The Buyer remains the guarantor on the shipbuilding contracts towards the shipyard and in addition, the Buyer provided the Company with an option for a credit line up to 10% of the total shipbuilding cost at market terms, to be negotiated when the option is exercised, amounting to $23,815.
On September 8, 2021 the Company purchased from the Buyer for a consideration of $29,750 an additional 65% ownership interest in Julius Caesar Inc. - Hull No. 3213 and Legio X Inc. - Hull No. 3214 (the “VLCC Companies”). Following this transaction, the Company is the 100% owner of the VLCC Companies (see Notes 3 and 8 for related capital commitments assumed). The Buyer will remain the guarantor on the shipbuilding contracts towards the shipyard and in addition the Buyer will provide a financing option to the Company by remaining responsible to the shipyard for up to 20% of the shipbuilding cost per vessel (increased from 10%, as previously agreed on January 6, 2021,), at the option of the Company, to be exercised until each vessel’s delivery date.
Due to the abovementioned purchase of the remaining 65% of the VLCC Companies, which were initially accounted for as Investments in affiliates, the Company as of December 31, 2021 and for the year ended December 31, 2021 consolidates the VLCC Companies.
Each of the abovementioned transactions were approved by a special committee of the Company's board of directors (the “Special Committee”), of which all of the directors were independent and for each transaction the Special Committee obtained a fairness opinion relating to the consideration of each transaction from an independent financial advisor. The Company accounted for the abovementioned acquisitions as a transfer of assets between entities under common control and has recognized the vessels at their historical carrying amounts at the date of transfer.
The amount of the consideration given in excess of the historical carrying value of the net assets acquired is recognized as a reduction to the Company’s additional paid in capital and presented as Excess of consideration over the carrying value of acquired assets in the Company’s consolidated statement of stockholders' equity for the twelve months ended December 31, 2019, 2020 and 2021 respectively. An analysis of the consideration paid is presented in the table below:
| As of December 31, | | 2019 | | | 2020 | | | 2021 | |
| Consideration | | | 14,350 | | | | 62,000 | | | | 29,750 | |
| Carrying value of net assets of companies sold | | | - | | | | - | | | | 24,074 | |
| Less: Carrying value of net assets of companies acquired | | | (7,649 | ) | | | - | | | | (8,933 | ) |
| Less: Consideration received in cash | | | - | | | | - | | | | (10,000 | ) |
| Less: Settlement of related party payables | | | - | | | | - | | | | (1,150 | ) |
| Excess of consideration over acquired assets | | | 6,701 | | | | 62,000 | | | | 33,741 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
On March 11, 2020, the World Health Organization declared the recent novel coronavirus (“COVID-19”) outbreak a pandemic. In response to the pandemic, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the pandemic, such as quarantines and travel restrictions. Such measures have caused and will likely continue to cause severe trade disruptions. During the years ended December 31, 2020 and 2021 we encountered certain prolonged delays embarking and disembarking crew onto our ships as a result of restrictions at ports placed by various countries due to COVID-19 resulting to an increase in off-hire days or approximately $487 and $519 respectively of reduction in revenue as well as a slight increase in operating expenses relating to crew as well as an increase in fuel expenses during off-hires in both periods.
The extent to which COVID-19 will impact the Company's future results of operations and financial condition, including possible vessel impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the additional actions to contain or treat its impact, among others the distribution of the vaccine.
On August 10, 2020 the Company effected a 1-for-25 reverse stock split of its common stock. There was no change in the number of authorized common shares of the Company, or the floor price of the Company’s Series E Shares and the Class B Warrants, or the number of votes of the Company’s Series D Shares. All numbers of common share and earnings per share amounts, as well as warrant shares eligible for purchase under the Company's warrants, exercise price of said warrants and conversion prices of the Company’s Series E Shares, in these consolidated financial statements have been retroactively adjusted to reflect this 1-for-25 reverse stock split.
| 2. | Significant Accounting Policies: |
(a) Principles of Consolidation: The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts and operating results of Top Ships Inc. and its subsidiaries referred to in Note 1. Intercompany balances and transactions have been eliminated on consolidation. Non-controlling interests are stated at the non-controlling interest’s proportion of the net assets of the subsidiaries where the Company has less than 100% interest. Subsequent to initial recognition the carrying amount of non-controlling interest is increased or decreased by the non-controlling interest’s share of subsequent changes in the equity of such subsidiaries. Total comprehensive income is attributed to a non-controlling interest even if this results in a deficit balance. Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions and the carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect these changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.
(b) Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates mainly include impairment of vessels, vessel useful lives and residual values and fair values of derivative instruments. Actual results may differ from these estimates.
(c) Foreign Currency Translation: The Company’s functional currency is the U.S. Dollar because all vessels operate in international shipping markets, and therefore primarily transact business in U.S. Dollars. The Company’s books of account are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies are translated to U.S. Dollars based on the year-end exchange rates and any gains and losses are included in the statement of comprehensive loss / (income).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(d) Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents.
(e) Restricted Cash: The Company considers amounts that are pledged, blocked, held as cash collateral, required to be maintained with a specific bank or be maintained by the Company as minimum cash under the terms of a loan agreement, as restricted and these amounts are presented separately on the balance sheets. In the event original maturities are shorter than twelve months, such deposits are presented as current assets while if original maturities are longer than twelve months, such deposits are presented as non-current assets.
(f) Trade Accounts Receivable, net: The amount shown as trade accounts receivable, net at each balance sheet date, includes estimated recoveries from charterers for hire billings, net of a provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually, combined with the application of a historical recoverability ratio, for purposes of determining the appropriate provision for doubtful accounts. The Company assessed that it had no potentially uncollectible accounts and hence formed no provision for doubtful accounts at December 31, 2020 and 2021 respectively.
(g) Inventories: Inventories consist of lubricants and paints on board the vessels. Inventories are stated at the lower of cost and net realizable value. Cost, which consists of the purchase price, is determined by the first in, first out method.
(h) Vessel Cost: Vessels are stated at cost, which consists of the contract price, pre-delivery costs and capitalized interest incurred during the construction of new building vessels, and any material expenses incurred upon acquisition (improvements and delivery costs). Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Repairs and maintenance are charged to expense as incurred and are included in Vessel operating expenses in the consolidated statements of comprehensive (loss)/income.
(i) Impairment of Long-Lived Assets: The Company evaluates the existence of impairment indicators whenever events or changes in circumstances indicate that the carrying values of the Company’s long lived assets are not recoverable. Such indicators of potential impairment include, vessel sales and purchases, business plans, declines in the fair market value of vessels and overall market conditions. If there are indications for impairment present, the Company determines undiscounted projected net operating cash flows for each vessel and compares it to the vessel's carrying value. If the carrying value of the related vessel exceeds its undiscounted future net cash flows, the carrying value is reduced to its fair value, and the difference is recognized as an impairment loss. The impairment tests the Company conducted as of December 31, 2020 and 2021 showed that there are no impairment indications for any of the vessels held for use in the Company’s fleet.
(j) Vessel Depreciation: Depreciation is calculated using the straight-line method over the estimated useful life of the vessels, after deducting the estimated salvage value. Each vessel's salvage value is equal to the product of its lightweight tonnage and estimated scrap rate, of $300 per lightweight ton. Management estimates the useful life of the Company's vessels to be 25 years from the date of initial delivery from the shipyard. Second hand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its useful life is adjusted at the date such regulations are adopted.
(k) Long Lived Assets Held for Sale: The Company classifies vessels as being held for sale when the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset, (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets, (c) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated, (d) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale, within one year, (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Long-lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell. These vessels are not depreciated once they meet the criteria to be classified as held for sale.
Long-lived assets previously classified as held for sale that are classified as held and used are revalued at the lower of (a) the carrying amount of the asset before it was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the asset been continuously classified as held and used and (b) the fair value of the asset at the date that the Company decided not to sell the asset.
(l) Other Fixed Assets, Net: Other fixed assets, net, consist of furniture, office equipment, and cars, stated at cost, which consists of the purchase/contract price less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the assets as presented below:
| Description | | Useful Life (years) | |
| Cars | | | 6 | |
| Office equipment | | | 5 | |
| Furniture and fittings | | | 5 | |
| Computer equipment | | | 3 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(m) Accounting for Dry-Docking Costs: All dry-docking and special survey costs are expensed in the period incurred.
(n) Financing Costs: Fees incurred and paid to the lenders for obtaining new loans or refinancing existing ones are recorded as a contra to debt and such fees are amortized to interest and finance costs over the life of the related debt using the effective interest method. Unamortized fees relating to loans repaid or refinanced are expensed when a repayment or refinancing is made and charged to interest and finance costs.
(o) Accounting for Revenue and Expenses: Revenues are generated from time charter arrangements. A time charter is a contract for the use of a vessel for a specific period of time and a specified daily charter hire rate, which is generally payable monthly in advance. Time charter revenue is only recognized when an agreement exists, the price is fixed, service is provided and the collection of the related revenue is reasonably assured. Revenue is shown net of address commissions, if applicable, payable directly to charterers under the relevant charter agreements. Address commissions represent a common market practice discount (sales incentive) on services rendered by the Company and no identifiable benefit is received in exchange for the consideration provided to the charterer. Commissions on time charter revenues are recognized on a pro rata basis over the duration of the period.
The Company based on ASC 842 determined that all time charter-out contracts are considered operating leases and therefore fall under the scope of ASC 842 because: (i) the vessel is an identifiable asset; (ii) the Company as lessor, does not have substantive substitution rights; and (iii) the charterer, as lessee, has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use.
Time charter revenue is recognized as earned on a straight-line basis over the term of the relevant time charter starting from the vessel’s delivery to the charterer, except for any off-hire period. Revenue generated from variable lease payments is recognized in the period when changes in the facts and circumstances on which the variable lease payments are based occur. The Company elected to not separate the lease and non-lease components included in the time charter revenue because (i) the pattern of revenue recognition for the lease and non-lease components (included in the daily hire rate) is the same and (ii) the lease component would be classified as an operating lease. The daily hire rate represents the hire rate for a bare boat charter as well as the compensation for expenses incurred running the vessel such as crewing expense, repairs, insurance, maintenance and lubes. Both the lease and non-lease components are earned by passage of time. Under a time charter agreement, vessel operating expenses such as management fees, crew wages, provisions and stores, technical maintenance and insurance expenses and broker’s commissions are paid by the vessel owner, whereas voyage expenses such as bunkers, port expenses, agents’ fees, and extra war risk insurance are paid by the charterer. Vessel operating expenses are expensed as incurred. Unearned revenue represents cash received prior to year-end related to revenue applicable to periods after December 31 of each year.
When vessels are acquired with time charters attached and the rates on such charters are below or above market on the acquisition date, the Company allocates the total cost between the vessel and the fair value of the attached time charter based on the relative fair values of the vessel and time charter acquired. The fair value of the attached time charter is computed as the present value of the difference between the contractual amount to be received over the term of the time charter and management’s estimates of the market time charter rate at the time of acquisition. The fair value of below or above market time charter is recognized as a liability or an intangible asset respectively and is amortized over the remaining period of the time charter as an increase or decrease to revenues.
Where the time charter contains a profit or loss sharing arrangement, the profit or loss is recognized based on amounts earned or incurred as of the reporting date.
The Company pays commissions to ship brokers and to the Company’s fleet manager (Note 5), a related party affiliated with the family of Mr. Evangelos J. Pistiolis, associated with arranging the Company’s charters. These brokers’ commissions are recognized over the related charter period and are included in voyage expenses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Voyage charters
In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single voyage, which may contain multiple load ports and discharge ports. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or "dead" freight. The voyage contract generally has standard payment terms of 95% freight paid within three days after completion of loading. The voyage charter party generally has a "demurrage" or "despatch" clause. As per this clause, the charterer reimburses the Company for any potential delays exceeding the allowed laytime as per the charter party clause at the ports visited, which is recorded as demurrage revenue. Demurrage revenue is recognized starting from the point that is determined that the amount can be estimated and its collection is probable and on a straight line basis until the end of the voyage. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime known as despatch resulting in a reduction in revenue and is recognized as the performance obligation is satisfied. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo. The Company determined that its voyage charter contracts consist of a single performance obligation of transporting the cargo within a specified time period. Therefore, the performance obligation is met evenly as the voyage progresses and the revenue is recognized on a straight- line basis over the voyage days from the commencement of the loading of cargo to completion of discharge.
The voyage contracts are considered service contracts which fall under the provisions of ASC 606 because the Company, as the shipowner, retains the control over the operations of the vessel such as directing the routes taken or the vessel speed. The voyage contracts generally have variable consideration in the form of demurrage or despatch.
In a voyage charter contract, the Company bears all voyage related costs such as fuel costs, port charges and canal tolls. These costs are considered contract fulfillment costs because they are (1) incurred to fulfill a contract that the Company can specifically identify, (2) able to generate or enhance resources of the Company that will be used to satisfy performance of the terms of the contract, and (3) expected to be recoverable. The costs incurred during the period prior to commencement of loading the cargo, primarily bunkers, are deferred as they represent contract fulfillment costs and recorded as a current asset and are amortized on a straight-line basis as the related performance obligations are satisfied.
(p) Earnings / (Loss) per Share: Basic earnings/(loss) per share are computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised. For purposes of calculating diluted earnings per share the denominator of the diluted earnings per share calculation includes the incremental shares assumed issued under the treasury stock method weighted for the period the non-vested shares were outstanding. The computation of diluted earnings per share also reflects the potential dilution that could occur if warrants to issue common stock were exercised, to the extent that they are dilutive, using the treasury stock method, the potential dilution that could occur if convertible preferred stock were converted, using the if-converted method as well as the potential dilution that could occur if the Company completed all sales pursuant to common stock purchase agreements, using the if-converted method. Finally net income or loss available to common stockholders, when computing basic earnings/(loss) per share, is reduced to reflect any deemed dividends on convertible preferred stock, weighted for the period the convertible preferred shares were outstanding.
(q) Derivatives and Hedging, Hedge Accounting: The Company records every derivative instrument (including certain derivative instruments embedded in other contracts) on the balance sheet as either an asset or liability measured at its fair value, with changes in the derivatives' fair value recognized in earnings unless specific hedge accounting criteria are met.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy undertaken for the hedge. The documentation includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting exposure to changes in the hedged item’s cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they actually have been highly effective throughout the financial reporting periods for which they were designated. Contracts which meet the criteria for hedge accounting are accounted for as cash flow hedges. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted transaction that could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly as a component of “Accumulated other comprehensive income” in equity, while the ineffective portion, if any, is recognized immediately in current period earnings. The Company discontinues cash flow hedge accounting if the hedging instrument expires and it no longer meets the criteria for hedge accounting or designation is revoked by the Company. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is kept in equity until the forecasted transaction occurs. When the forecasted transaction occurs, any cumulative gain or loss on the hedging instrument is recognized in the statement of income. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to net profit or loss for the year as a component of “Gain/(Loss) on derivatives”.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(r) Financial liabilities: Financial liabilities are classified as either financial liabilities at ‘fair value through the profit and loss’ (“FVTPL”) or ‘other financial liabilities’. Financial instruments classified as FVTPL are recognized at fair value in the balance sheet when the Company has an obligation to perform under the contractual provisions of those instruments. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Changes in the fair value of financial instruments are recognized in earnings, except in the cases where these financial instruments fall under the guidance in ASC 815-40, where they are initially classified in equity and are initially measured at fair value in permanent equity and subsequent changes in fair value are not subsequently measured. Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortized cost using the effective interest rate method.
(s) Segment Reporting: The Chief Operating Decision Maker (“CODM”), Mr. Evangelos J. Pistiolis, receives financial information and evaluates the Company’s operations by charter revenues and not by the length, type of vessel or type of ship employment for its customers or by geographical region as the charterer is free to trade the vessel worldwide and as a result, the disclosure of geographic information is impracticable. The CODM does not use discrete financial information to evaluate the operating results for each such type of charter or vessel. Although revenue can be identified for these types of charters or vessels, management cannot and does not identify expenses, profitability or other financial information for these various types of charters or vessels. As a result, management, including the CODM, reviews operating results solely by revenue per day and operating results of the fleet, and thus the Company has determined that it operates as one reportable segment.
(t) Leases:
| | ● | Sale-leaseback transactions: In accordance with ASC 842, the Company, as seller-lessee, determines whether the transfer of an asset should be accounted for as a sale in accordance with ASC 606 (existence of a contract and satisfaction of performance obligation by transferring of the control of the asset). The existence of an option for the seller-lessee to repurchase the asset precludes the accounting for the transfer of the asset as a sale unless both of the following criteria are met: (1) the exercise price of the option is the fair value of the asset at the time the option is exercised; and (2) there are alternative assets, substantially the same as the transferred asset, readily available in the marketplace. If the transfer of the asset meets the criteria of sale, the Company, as seller-lessee recognizes the transaction price for the sale when the buyer-lessor obtains control of the asset, derecognizes the carrying amount of the underlying asset and accounts for the lease in accordance with ASC 842. If the transfer does not meet the criteria of sale, the Company does not derecognize the transferred asset, accounts for any amounts received as a financing arrangement and recognizes the difference between the amount of consideration received and the amount of consideration to be paid as interest. |
| | ● | Finance lease: The Company classifies a lease as a finance lease when the lease meets any of the following criteria at lease commencement: |
| i. | | The lease transfers ownership of the underlying asset to the lessee by the end of the lease term. |
| ii. | | The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. |
| iii. | | The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
| iv. | | The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset. |
| v. | | The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. |
When none of these criteria are met the Company classifies the lease as an operating lease.
| | ● | Operating lease- The Company as a lessee: The Company recognizes right-of-use assets (“ROU”) and corresponding lease liabilities for its operating leases. ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made to the lessor prior to lease commencement, less any lease incentives, and initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. |
(u) Beneficial conversion feature: A beneficial conversion feature is defined as a non-detachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the intrinsic value of the option, which is the in-the- money portion of the conversion option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as a deemed dividend over either the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.
(v) Investments in unconsolidated joint ventures: The Company's investments in unconsolidated joint ventures are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the Company's proportionate share of earnings or losses and distributions. The Company evaluates its investments in unconsolidated joint ventures for impairment when events or circumstances indicate that the carrying value of such investments may have experienced other than temporary decline in value below their carrying value. If the estimated fair value is less than the carrying value and is considered other than a temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the Consolidated Statements of comprehensive (loss)/income.
(w) Other Comprehensive Income: The Company follows the provisions of guidance regarding reporting comprehensive income which requires separate presentation of certain transactions, such as unrealized gains and losses from effective portion of cash flow hedges, which are recorded directly as components of stockholders’ equity
(x) Impairment of Right of use assets from operating leases: The Company evaluates its Right of use assets from operating leases for potential impairment when it determines a triggering event has occurred. When a triggering event has occurred, the Company performs a test of recoverability by comparing the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms to the carrying value of the Right of use asset. If the test of recoverability identifies a possible impairment, the Right of use asset’s fair value is measured in accordance with the fair value measurement framework. An impairment charge is recognized for the amount by which the carrying value of the Right of use asset exceeds its estimated fair value and would be recorded in the Consolidated Statements of comprehensive (loss)/income. For the years ended December 31, 2019, 2020, and 2021 there was no impairment in the Company’s Right of use assets from operating leases.
(y) Recent Accounting Pronouncements:
Accounting standards issued but not yet adopted
The Financial Accounting Standards Board (“FASB”) issued guidance, ASU 2020-06 Debt - Debt with Conversion and Other Options and Derivative and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments. This guidance eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is required to be adopted by us in the period commencing January 1, 2022 and must be applied using either a modified or full retrospective approach. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
At December 31, 2021, the Company had a working capital deficit of $31,754 and for the year ended December 31, 2021 realized a net income of $8,616 and generated cash flow from operations of $16,061. In addition, as of December 31, 2021, the Company had remaining contractual commitments for the vessels it had contracted to acquire totaling $213,405.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
As of the date of this annual report all contractual commitments for the acquisition of the Company’s fleet have been settled and the company has successfully taken delivery of all abovementioned newbuilding vessels.
Furthermore, as of the date of this annual report $24,370 of Due to related parties, which were categorized as short term liabilities as of December 31, 2021 and have been the major factor resulting in the Company’s working capital deficit position, have been exchanged with 2,437,000 Series F Perpetual Preferred Shares (see Note 20).
Therefore, the Company believes it has the ability to continue as a going concern and finance its obligations as they come due via cash from operations over the next twelve months following the date of the issuance of these financial statements. Consequently, the consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
| 4(a) | Advances for vessels acquisitions / under construction: |
An analysis of Advances for vessels acquisitions / under construction is as follows:
| | | Advances for vessels acquisitions / under construction | |
| Balance, December 31, 2019 | | | 12,241 | |
| — Advances paid | | | 117,203 | |
| — Capitalized expenses | | | 3,509 | |
| — Transferred to Vessels, net | | | (76,959 | ) |
| — Transferred to Assets held for sale | | | (24,340 | ) |
| Balance, December 31, 2020 | | | 31,654 | |
| — Advances paid | | | 119,656 | |
| — Capitalized expenses | | | 5,915 | |
| — Transferred to Vessels, net | | | (126,646 | ) |
| Balance, December 31, 2021 | | | 30,579 | |
For the year ended December 31, 2020, the balance of Advances for vessels acquisitions / under construction relate to M/T West Coast (Hull No S865) and M/T Malibu (Hull No S866) and consist of $18,991 and $12,663 respectively, out of which $624 and $419, respectively relate to capitalized expenses.
For the year ended December 31, 2021, the balance of Advances for vessels acquisitions / under construction relate to M/T Eco Oceano Ca (Hull No. 871), M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214) and consist of $9,914, $10,422 and $10,243 respectively, out of which $892, $1,522 and $1,343, respectively relate to capitalized expenses.
The amounts in the consolidated balance sheets are analyzed as follows:
| | | Vessel Cost | | | Accumulated Depreciation | | | Net Book Value | |
| Balance, December 31, 2019 | | | 372,543 | | | | (18,597 | ) | | | 353,946 | |
| — Transferred from advances for vessels acquisitions / under construction | | | 76,959 | | | | - | | | | 76,959 | |
| — Disposals (see Note 19) | | | (303,157 | ) | | | 21,718 | | | | (281,439 | ) |
| — Depreciation | | | - | | | | (13,174 | ) | | | (13,174 | ) |
| Balance, December 31, 2020 | | | 146,345 | | | | (10,053 | ) | | | 136,292 | |
| — Transferred from advances for vessels under construction | | | 126,646 | | | | - | | | | 126,646 | |
| — Transferred to Assets held for sale | | | (76,959 | ) | | | 5,323 | | | | (71,636 | ) |
| — Disposals (see Note 19) | | | (32,531 | ) | | | 5,484 | | | | (27,047 | ) |
| — Depreciation | | | - | | | | (7,670 | ) | | | (7,670 | ) |
| Balance, December 31, 2021 | | | 163,501 | | | | (6,916 | ) | | | 156,585 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
In 2020 and 2021 the Company took delivery of the following vessels and hence advances paid and capitalized expenses relating to these vessels were transferred from Advances for vessels under construction to Vessels, net:
| Vessel Name | Delivery Date | | Yard Installments | | | Capitalized Expenses | | | Final Cost | |
| M/T Eco Los Angeles | February 10, 2020 | | | 37,659 | | | | 835 | | | | 38,494 | |
| M/T Eco City of Angels | February 17, 2020 | | | 37,659 | | | | 806 | | | | 38,465 | |
| Subtotal 2020 | | | 75,318 | | | | 1,641 | | | | 76,959 | |
| M/T Eco West Coast | March 26, 2021 | | | 61,723 | | | | 1,618 | | | | 63,341 | |
| M/T Eco Malibu | May 11, 2021 | | | 61,722 | | | | 1,583 | | | | 63,305 | |
| Subtotal 2021 | | | 123,445 | | | | 3,201 | | | | 126,646 | |
As of December 31, 2021 title of ownership is held by the relevant lenders in respect of vessels with a carrying value of $104,710 to secure the relevant sale and lease back financing transactions and in the case of vessels financed via bank loans vessels with a carrying value of $123,511 have been mortgaged as security under their respective loan facilities (see Note 7).
| 4(c) | Vessels held for sale: |
As of December 31, 2020, the M/T’s Eco Van Nuys (Hull No 2789), Eco Santa Monica (Hull No 2790) and Eco Venice Beach (Hull No 2791) met the criteria to be classified as assets held for sale on December 31, 2020 according to guidance in ASC 360. Consequently, the Company has treated the vessels under construction as Assets held for sale. Since their fair value less costs to sell approximated their carrying amount the Company didn’t incur any impairment charges. As of December 31, 2020, the M/T’s Eco Van Nuys (Hull No 2789), Eco Santa Monica (Hull No 2790) and Eco Venice Beach (Hull No 2791) carrying amount was $8,187, $8,146 and $8,007 respectively. The vessels were sold on January 6, 2021 to a company affiliated with Mr. Evangelos J. Pistiolis (see Note 1).
As of December 31, 2021, the M/T’s Eco Los Angeles and Eco City of Angels met the criteria to be classified as assets held for sale according to guidance in ASC 360. Consequently, the Company has treated the vessels as vessels held for sale. Since their fair value less costs to sell were higher than their carrying amount the Company didn’t incur any impairment charges. As of December 31, 2021, each of the M/T’s Eco Los Angeles and Eco City of Angels carrying amount is $35,818. The vessels were sold on February 28 and March 15, 2022 to unaffiliated third parties (see Note 20).
| 5. | Transactions with Related Parties: |
(a) Central Mare– Executive Officers and Other Personnel Agreements: On September 1, 2010, the Company entered into separate agreements with Central Mare, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, pursuant to which Central Mare provides the Company with its executive officers (Chief Executive Officer, Chief Financial Officer, Chief Technical Officer and Chief Operating Officer).
As of December 31, 2020 and 2021 the amounts due to Central Mare were $29 and $32 respectively. This amount is presented in Due to related parties, on the consolidated balance sheets.
The fees charged by and expenses relating to Central Mare for the years ended December 31, 2019, 2020 and 2021 are as follows:
| | | Year Ended December 31, | | |
| | | 2019 | | | 2020 | | | 2021 | | Presented in: |
| Executive officers and other personnel expenses | | | 360 | | | | 360 | | | | 360 | | General and administrative expenses – Statement of comprehensive loss / (income) |
| Amortization of awarded shares* | | | (34 | ) | | | (34 | ) | | | (34 | ) | Management fees – related parties – Statement of comprehensive loss / (income) |
| Total | | | 326 | | | | 326 | | | | 326 | | |
| *As per the Company’s equity incentive plan, or the 2015 plan (currently null and void since due to the reverse stock splits of the Company’s stock the shares left to be vested are zero), the Company incurred an amortization gain of $34 relating to the amortization of the original fair value of the equity incentive plan recognized at inception, for each of the years ended December 31, 2019, 2020 and 2021. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(b) Central Shipping Inc (“CSI”) – Letter Agreement and Management Agreements: On January 1, 2019, the Company entered into a letter agreement with CSI (“CSI Letter Agreement”), a related party affiliated with the family of Evangelos J. Pistiolis and between January 1, 2019 and September 8, 2021 the Company entered into management agreements, or Management Agreements, between CSI and the Company’s vessel-owning subsidiaries. The CSI Letter Agreement can only be terminated subject to an eighteen-month advance notice, subject to a termination fee equal to twelve months of fees payable under the CSI Letter Agreement.
Pursuant to the CSI Letter Agreement, as well as the Management Agreements concluded between CSI and the Company’s vessel-owning subsidiaries, the Company pays a management fee of $572 per day per vessel for the provision of technical, commercial, operation, insurance, bunkering and crew management, commencing three months before the vessel is scheduled to be delivered by the shipyard. In addition, the Management Agreements provide for payment to CSI of: (i) $520 per day for superintendent visits plus actual expenses; (ii) a chartering commission of 1.25% on all freight, hire and demurrage revenues; (iii) a commission of 1.00% on all gross vessel sale proceeds or the purchase price paid for vessels and (iv) a financing fee of 0.2% on derivative agreements and loan financing or refinancing. CSI also performs supervision services for all of the Company’s newbuilding vessels while the vessels are under construction, for which the Company pays CSI the actual cost of the supervision services plus a fee of 7% of such supervision services.
CSI provides, at cost, all accounting, reporting and administrative services. Finally, the CSI Letter Agreement provides for a performance incentive fee for the provision of management services to be determined at the discretion of the Company’s Board of Directors. The management agreements have an initial term of five years, after which they will continue to be in effect until terminated by either party subject to an eighteen-month advance notice of termination. Pursuant to the terms of the management agreements, all fees payable to CSI are adjusted annually according to the US Consumer Price Inflation (“CPI”) of the previous year and if CPI is less than 2% then a 2% increase is effected. On September 15, 2021 the Company entered into an amendment to the CSI Letter Agreement, whereby the payment for the already agreed commission for sale and purchase of vessels in the case of the purchase of a vessel under construction is denoted as “Newbuilding vessels monitoring fee” and is payable as follows: 25% of the commission on the purchase of the newbuilding construction contract, 25% of the commission on the steel cutting of the newbuilding vessel, 25% of the commission on launching of the newbuilding vessel and 25% of the commission on the delivery of the newbuilding vessel to the Company (“steel cutting” and “launching” are newbuilding vessel construction milestones, evidenced by notices received by the shipyard).
As of December 31, 2020 and 2021, the amounts due to CSI were $3,116 and $1,193 respectively and are presented in Due to related parties, on the consolidated balance sheets.
The fees charged by and expenses relating to CSI for the years ended December 31, 2019, 2020 and 2021 are as follows:
| | | Year Ended December 31, | | |
| | | 2019 | | | 2020 | | | 2021 | | Presented in: |
| Management fees | | | 109 | | | | 69 | | | | 199 | | Capitalized in Vessels, net / Advances for vessels acquisitions / under construction –Balance sheet |
| | | | 2,237 | | | | 1,953 | | | | 1,477 | | Management fees – related parties –Statement of comprehensive loss / (income) |
| Supervision services fees | | | 55 | | | | 63 | | | | 79 | | Capitalized in Vessels, net / Advances for vessels acquisitions / under construction –Balance sheet |
| Superintendent fees | | | 247 | | | | 60 | | | | 17 | | Vessel operating expenses –Statement of comprehensive loss / (income) |
| | | | 172 | | | | 198 | | | | 255 | | Capitalized in Vessels, net / Advances for vessels acquisitions / under construction –Balance sheet |
| Accounting and reporting cost | | | 240 | | | | 330 | | | | 360 | | Management fees – related parties –Statement of comprehensive loss / (income) |
| Commission for sale and purchase of vessels | | | - | | | | 3,377 | | | | 793 | | Management fees – related parties –Statement of comprehensive loss / (income) |
| | | | | | | | 3,971 | | | | - | | Loss from vessel sales –Statement of comprehensive loss / (income) |
| | | | | | | | 454 | | | | - | | Capitalized in Investments in unconsolidated joint ventures –Balance sheet |
| | | | | | | | 1,017 | | | | - | | Capitalized in Right of use assets from operating leases – Balance Sheet |
| | | | | | | | - | | | | 264 | | Impairment on vessels – Statement of comprehensive loss / (income) |
| Newbuilding vessels monitoring fee | | | - | | | | - | | | | 1,365 | | Capitalized in Vessels, net / Advances for vessels acquisitions / under construction –Balance sheet |
| Financing fees | | | 263 | | | | - | | | | 150 | | Net in Current and Non-current portions of long-term debt – Balance sheet |
| Commission on charter hire agreements | | | 829 | | | | 761 | | | | 705 | | Voyage expenses - Statement of comprehensive loss / (income) |
| Total | | | 4,152 | | | | 12,253 | | | | 5,664 | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
For the years ended December 31, 2019, 2020 and 2021 CSI charged the Company newbuilding supervision related pass-through costs amounting to $985, $967 and $1,207 respectively, which are not included in the table above and are presented within Vessels, net / Advances for vessels acquisitions / under construction in the Company’s consolidated balance sheet.
(c) Issuance of Series E Shares to Family Trading Inc (“Family Trading”): On March 29, 2019 the Company entered into a stock purchase agreement with Family Trading, a related party owned by the Lax Trust, an irrevocable trust established for the benefit of certain family members of Mr. Evangelos J. Pistiolis, pursuant to which the Company exchanged the outstanding principal, fees and interest of the Further Amended Family Trading Credit Facility with 27,129 Series E Shares (defined below, also see Note 16). As of December 31, 2020 and 2021, dividends due to Family Trading were $864 and $968 and are presented in Due to related parties, on the consolidated balance sheets.
(d) Vessel Acquisitions from affiliated entities: From February 20, 2020 to September 8, 2021 the Company entered into a series of transactions with a number of entities affiliated with Mr. Evangelos J. Pistiolis (see Notes 1 and 5). As of December 31, 2020 and 2021, the Company owes $1,150 and $27,562 respectively to the previous owners of the newbuilding vessels presented in Due to related parties in the consolidated balance sheets.
(e) Charter Party with Central Tankers Chartering Inc (“Central Tankers Chartering”): On September 1, 2017 the Company entered into a time charter party with Central Tankers Chartering, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, for the vessel M/T Eco Palm Desert delivered from Hyundai in September 2018. The time charter was for a firm period of three years at a daily rate of $14,750 with two optional years at daily rates of $15,250 and $15,750 respectively, at Central Tankers Chartering’s option. The time charter carried a 1.25% address commission payable to Central Tankers Chartering. In April 2019 the Company terminated the time charter party with Central Tankers Chartering without incurring any penalties and entered into a time charter agreement with Shell Tankers Singapore Private Limited (“Shell”) for a firm period of two years at a fixed daily rate of $13,300 plus a 50% profit share for earned rates over the fixed rate with one optional year at a daily rate of $13,950, at charterers option. Furthermore, as part of the MR Transaction (see Note 1) Central Tankers Chartering was the charterer of the vessels M/T Eco Van Nuys, M/T Eco Santa Monica and M/T Eco Venice Beach. The time charters were for a firm period of five years at a daily rate of $16,200 with two optional years at daily rates of $17,200 and $18,200 at Central Tankers Chartering’s option and would have commenced upon each vessel’s delivery from the shipyard in the first quarter of 2021. The vessels M/T Eco Van Nuys, M/T Eco Santa Monica and M/T Eco Venice Beach were exchanged as part of the VLCC Transaction on January 6, 2021 (see Note 1) and also as part of the VLCC Transaction, the M/T Eco Oceano (Hull No. 871) newbuilding vessel has a time charter party with Central Tankers Chartering for a firm period of five years at a gross daily rate of $32,450, with a charterer’s option to extend for two additional years at $33,950 and $35,450. As of December 31, 2020 and 2021, there are no amounts due to Central Tankers Chartering.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
(f) Personal Guarantees by Mr. Evangelos J. Pistiolis and Related Amendments to the Series D Preferred Shares: As a prerequisite for the Navigare Lease (defined below, see Note 6), Mr. Evangelos J. Pistiolis personally guaranteed the performance of the bareboat charters connected to the lease and in exchange, the Company agreed to indemnify him for any losses suffered as a result of the guarantee provided, and the Company amended the Certificate of Designations governing the terms of the Series D Preferred Shares (see Note 7), to adjust the voting rights per share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of the Company’s total voting power, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. This personal guarantee comes into effect in the case 120 days have passed and the Company is still unable to pay down all amounts due under the Navigare lease, with the exception of amounts due to Navigare due to a total loss, where in this case the personal guarantee will cover an amount equal to all unpaid charter hire and a further amount equivalent to all future charter hire that would have accrued from the date of the total loss up to the end of the charter period and is callable 200 days after the date of the total loss. Due to the related party nature of the transactions involving Mr. Evangelos J. Pistiolis, such transactions were unanimously approved by our Board of Directors, including all three independent directors.
A. Lease arrangements, under which the Company acts as the lessee
Bareboat Chartered-in Vessels:
On January 29, 2015 and March 31, 2015, the Company sold and leased back M/T Stenaweco Energy and M/T Stenaweco Evolution respectively. The vessels were chartered back on a bareboat basis for 7 years at a bareboat hire of $8,586 and $8,625 per day respectively. In addition, the Company had the option to buy back each vessel from the end of year 3 up to the end of year 7 at purchase prices stipulated in the bareboat agreement depending on when the option is exercised. On December, 18 and December 20, 2019, the Company exercised the purchase options and terminated the operating leases on its two bareboat chartered in vessels. The purchase option prices paid amounted to $23,871 and $24,063 for the M/T Stenaweco Energy the M/T Stenaweco Evolution respectively, not including fees and expenses related to the transfer of ownership.
On December 1 and December 10, 2020, the Company sold and leased back M/T Eco Beverly Hills and M/T Eco Bel Air respectively to a third non-affiliated party (the “Navigare Lease”). Each vessel was chartered back on a bareboat basis for five years at a bareboat hire of $16,750 per day for the first two years, $14,000 per day for the next two years and $10,000 per day for the fifth year. The Company does not have any option nor obligation to buy back the vessels. The abovementioned sale and leaseback transactions contain, customary covenants and event of default clauses, including cross-default provisions, change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the Company) and restrictive covenants and performance requirements. The Company must maintain a minimum liquidity of $4,000 at all times which is certified bi-annually. As of December 31, 2021, the Company complied with all covenants of the Navigare Lease.
The Company has treated the Navigare lease as an operating lease. An operating lease ROU asset amounting to $45,765 was recognized at the inception of the lease together with a lease liability of $43,759 based on the present value of lease payments over the lease term. The operating lease ROU asset also includes initial direct costs of $1,666 and deferred losses from the sale of the vessels of $340. The discount rate used to calculate the present value of lease payments was calculated by taking into account the original lease term and lease payments and was estimated to be 6.72% (same as the weighted average), which was the Company’s estimated incremental borrowing rate, that reflects the interest the Company would have to pay to borrow funds on a collateralized basis over a similar term and similar economic environment. Losses from the sale of these two vessels and initial direct costs which were included in the respective ROU assets are amortized on a straight-line basis over the duration of the lease and are included in operating lease expense in the statement of consolidated (loss)/income. The cash paid for operating leases with original terms greater than 12 months was $877 and $12,228 for the year ended December 31, 2020 and 2021 respectively. The revenue generated from vessels under operating leases with original terms greater than 12 months was $17,288 and $ 17,887 for the year ended December 31, 2020 and 2021 respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The Company's future minimum operating lease payments required to be made after December 31, 2021, relating to the bareboat chartered-in vessels M/T Eco Beverly Hills and M/T Eco Bel Air are as follows:
| Year ending December 31, | | Bareboat charter lease payments | |
| 2022 | | | 12,084 | |
| 2023 | | | 10,220 | |
| 2024 | | | 10,038 | |
| 2025 | | | 6,777 | |
| Total | | | 39,119 | |
| Less imputed interest | | | (5,356 | ) |
| Total Lease Liability | | | 33,763 | |
| Presented as follows: | | | | |
| Short-term lease liability | | | 9,815 | |
| Long-term lease liability | | | 23,948 | |
The average remaining lease term on our chartered-in contracts greater than 12 months is 47.2 months.
At the lease’s inception, the carrying amounts of the M/T Eco Beverly Hills and M/T Eco Bel Air were less than the vessels fair value, as this was determined by a third party broker valuation. Hence in accordance with ASC 842-40-30-1 that stipulates that sale-and-leaseback transactions are accounted for at fair value, the Company recognized a loss on the sale and leaseback transactions of $10,688 included in Loss on sale of vessels in the Company's consolidated statements of comprehensive (loss) / income.
B. Lease arrangements, under which the Company acts as the lessor
Charter agreements:
During the year ended December 31, 2021, the Company operated two vessels (M/T Eco Bel Air and M/T Eco Beverly Hills) under time charters with BP Shipping Limited, one vessel (M/T Nord Valiant) under a time charter with Dampskibsselskabet Norden A/S, one vessel (M/T Marina Del Ray) under a time charter with Cargill International SA, two vessels (M/T Eco West Coast and M/T Eco Malibu) with Clearlake Shipping Pte Ltd and two vessels (M/T Eco Los Angeles and M/T Eco City of Angels) under time charters with Trafigura Maritime Logistics Pte Ltd (“Trafigura”).
Furthermore, the Company has entered into a time charter party for its newbuilding vessel M/T Eco Oceano Ca (Hull No 871) with Central Tankers Chartering Inc (see Note 1 and 5), a company affiliated with Mr. Evangelos J. Pistiolis and into time charter parties for its newbuilding vessels M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214) with Trafigura (see Note 1). All the above mentioned time charter agreements will commence upon the respective vessels’ delivery.
Future minimum time-charter receipts of the Company’s vessels in operation as of December 31, 2021, based on commitments relating to non-cancellable time charter contracts as of December 31, 2021, are as follows (excluding vessels held for sale):
| Year ending December 31, | | Time Charter receipts | |
| 2022 | | | 36,054 | |
| 2023 | | | 30,296 | |
| 2024 | | | 8,851 | |
| Total | | | 75,201 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Future minimum time-charter receipts of the Company’s vessels under construction as of December 31, 2021, are as follows (based on estimated delivery dates):
| Year ending December 31, | | Time Charter receipts | |
| 2022 | | | 33,300 | |
| 2023 | | | 38,033 | |
| 2024 | | | 38,138 | |
| 2025 | | | 14,565 | |
| 2026 | | | 11,844 | |
| 2027 | | | 2,012 | |
| Total | | | 137,892 | |
In arriving at the minimum future charter revenues, an estimated 20 days off-hire time to perform scheduled dry-docking in the year the dry-docking is expected on each vessel has been deducted, and it has been assumed that no additional off-hire time is incurred, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
The amounts in the consolidated balance sheets are analyzed as follows (facility names defined below):
| Bank / Vessel(s) | | December 31, | |
| | | 2020 | | | 2021 | |
| Total long term debt: | | | | | | | | |
| 2nd ABN Facility (M/T Eco West Coast) | | | - | | | | 34,955 | |
| 2nd Alpha Bank Facility (M/T Eco Malibu) | | | - | | | | 36,500 | |
| BoComm Leasing Facility (M/T Nord Valiant) | | | 20,227 | | | | - | |
| Cargill Facility (M/T Eco Marina Del Ray) | | | 29,116 | | | | 27,195 | |
| AVIC Facility (M/T Eco Los Angeles and M/T Eco City of Angels), classified as of December 31, 2021 as Debt related to Vessels held for sale | | | 57,656 | | | | - | |
| Total long term debt | | | 106,999 | | | | 98,650 | |
| Less: Deferred finance fees | | | (2,380 | ) | | | (1,282 | ) |
| Total long term debt net of deferred finance fees | | | 104,619 | | | | 97,368 | |
| | | | | | | | | |
| Presented: | | | | | | | | |
| Current portion of long term debt | | | 5,324 | | | | 7,205 | |
| Long term debt | | | 99,295 | | | | 90,163 | |
| | | | | | | | | |
| Debt related to Vessels held for sale: | | | | | | | | |
| AVIC Facility (M/T Eco Los Angeles and M/T Eco City of Angels) | | | - | | | | 54,665 | |
| Less: Deferred finance fees | | | - | | | | (1,463 | ) |
| Debt related to Vessels held for sale net of deferred finance fees | | | - | | | | 53,202 | |
| | | | | | | | | |
| Total Debt net of deferred finance fees | | | 104,619 | | | | 150,570 | |
2nd ABN Facility
On March 18, 2021, the Company entered into a credit facility with ABN Amro for $36,800 for the financing of the vessel M/T Eco West Coast (Hull No 865). This facility was drawn down in full. The credit facility is repayable in 24 consecutive quarterly installments of $615 commencing in June 2021, plus a balloon installment of $22,040 payable together with the last installment.
The facility contains various covenants, including (i) an asset cover ratio of 125%, (ii) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of no more than 75% (iii) minimum free liquidity of $500 per delivered vessel owned/operated by the Company and (iv) market adjusted total assets of the Company minus total liabilities to be at least $60,000. Additionally, the facility contains restrictions on the shipowning company incurring further indebtedness or guarantees and change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the Company). It also restricts the shipowning company from paying dividends if such a payment will result in an event of default or in a breach of covenants under the loan agreement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The facility is secured as follows:
• First priority mortgage over M/T Eco West Coast;
• Assignment of insurance and earnings of the mortgaged vessel;
• Specific assignment of any time charters with duration of more than 12 months;
• Corporate guarantee of the Company;
• Pledge of the shares of the shipowning subsidiary;
• Pledge over the earnings account of the vessel.
The facility bears interest at LIBOR plus a margin of 2.50%. The applicable LIBOR as of December 31, 2021 was approximately 0.10%.
2nd Alpha Bank Facility
On May 6, 2021, the Company entered into a credit facility with Alpha Bank for $38,000 for the financing of the vessel M/T Eco Malibu (Hull No 866). This facility was drawn down in full. The credit facility is repayable in 12 consecutive quarterly installments of $750 and 12 consecutive quarterly installments of $625, commencing three months from draw down, and a balloon payment of $21,500 payable together with the last installment.
The facility contains various covenants, including (i) an asset cover ratio of 125%, (ii) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of no more than 75% and minimum free liquidity of $500 per delivered vessel owned/operated by the Company. Additionally, the facility contains restrictions on the shipowning company incurring further indebtedness or guarantees and change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the Company). It also restricts the shipowning company from paying dividends if such a payment will result in an event of default or in a breach of covenants under the loan agreement.
The facility is secured as follows:
• First priority mortgage over M/T Eco Malibu;
• Assignment of insurance and earnings of the mortgaged vessel;
• Specific assignment of any time charters with duration of more than 12 months;
• Corporate guarantee of the Company;
• Pledge of the shares of the shipowning subsidiary;
• Pledge over the earnings account of the vessel.
The facility bears interest at LIBOR plus a margin of 3.00%. The applicable LIBOR as of December 31, 2021 was approximately 0.10%.
FINANCINGS COMMITTED UNDER SALE AND LEASEBACK AGREEMENTS
The majority of the below sale and leaseback agreements (“SLB”s) contain, customary covenants and event of default clauses, including cross-default provisions and restrictive covenants and performance requirements including (i) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of no more than 75% and (ii) minimum free liquidity of $500 per vessel at the guarantors level.
Additionally, all the SLBs contain restrictions on the relative shipowning company incurring further indebtedness or guarantees and paying dividends, if such dividend payment would result in an event of default or termination event under the SLB agreements.
All the below SLBs are secured mainly by the following:
• Ownership of the vessel financed;
• Assignment of insurances and earnings of the vessel financed;
• Specific assignment of any time charters of the vessel financed with duration of more than 12 months;
• Corporate guarantee of Top Ships Inc.;
• Pledge of the shares of the relative shipowning subsidiary;
• Pledge over the earnings account of the vessel financed.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
Cargill Facility
On June 29, 2018 the Company entered into a sale and leaseback agreement (“SLB”) and a 5 year time charter with Cargill, a non-affiliated party, for its newbuilding vessel M/T Eco Marina Del Ray (Hull No 8242) delivered in March 2019. Consummation of the SLB took place on the vessel’s delivery date. Following the sale, the Company has bareboat chartered back the vessel at a bareboat hire rate of $8,600 per day and simultaneously the vessel commenced its five year time charter with Cargill. As part of this transaction, the Company has the obligation to buy back the vessel at the end of the five year period for $22,680. The gross proceeds from the sale were $32,387.
The SLB with Cargill is accounted for as a financing transaction, as control remains with the Company and the M/T Eco Marina Del Ray will continue to be recorded as an asset on the Company’s balance sheet. In addition, the Company has an obligation to repurchase the vessel.
Bank of Communications Financial Leasing Company (“BoComm Leasing”) Facility
On December 21, 2018 the Company entered into an SLB with BoComm Leasing, a non-affiliated party, for M/T Nord Valiant and M/T Eco California. Consummation of the SLB took place on January 17, 2019 for M/T Nord Valiant and on January 31, 2019 for M/T Eco California. Following the sale, the Company has bareboat chartered back M/T Nord Valiant for five years and M/T Eco California for seven years at a bareboat hire rate of $5,875 per day and $6,550 per day respectively. As part of this transaction, the Company has continuous options to buy back the vessels at purchase prices stipulated in the bareboat agreement depending on when the option is exercised. The gross proceeds from the SLBs were $21,655 for M/T Nord Valiant and $24,140 for M/T Eco California.
The SLB with BoComm Leasing contains a covenant requiring that there is no change of control of the Company, save with the prior written consent of BoComm Leasing.
The SLB with BoComm Leasing is accounted for as a financing transaction, as control remains with the Company and M/T Nord Valiant and M/T Eco California will continue to be recorded as an asset on the Company’s balance sheet. In addition, the Company has continuous options to repurchase the vessels below fair value.
On November 9, 2020, the Company exercised its purchase option on the M/T Eco California for $22,520 and on the same date the vessel was sold to an unaffiliated third party. In connection with this exercise, the Company paid an early termination/prepayment fee of $674, which is included in Loss on sale of vessels in the consolidated statements of comprehensive (loss)/income. On September 1, 2021, the Company exercised its purchase option on the M/T Nord Valiant for $19,514 and on the same date the vessel was sold to an unaffiliated third party.
Avic International Leasing Co., Ltd ("AVIC") Facility
On September 30, 2019 the owning companies of the M/T Eco Los Angeles and M/T Eco City of Angels entered into an SLB with AVIC, a non-affiliated party, for their newbuilding vessels M/T Eco Los Angeles and M/T Eco City of Angels. Consummation of the SLB and drawdown of funds took place on the vessels delivery dates from the shipyard, namely on February 10 and February 17, 2020 respectively. Following the sale, the Company has bareboat chartered back the vessels for a period of ten years at a bareboat hire rate of $9,435 for the first 5 years and $9,090 for the next 5 years per day per vessel, with a balloon installment of $11,288 for each vessel on the final charter hire date. As part of this transaction, the Company has continuous options, after the second year, to buy back the vessels at purchase prices stipulated in the bareboat agreement depending on when the option is exercised and at the end of the ten year period it has an obligation to buy back the vessels at a cost represented by the balloon payment. The gross proceeds from the sale amounted to $60,200 for both vessels.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The SLB with AVIC contains a covenant requiring that there is no change of control of the Company, save with the prior written consent of AVIC.
The SLB with AVIC was accounted for as a financing transaction, as control would remain with the Company and the vessels would continue to be recorded as assets on the Company’s balance sheet. In addition, the Company had the obligation to repurchase the vessels.
On December 31, 2021 the Company classified the M/T Eco Los Angeles and M/T Eco City of Angels as a Vessels held for sale (see Note 4c). Hence, the AVIC facility was also classified as short term in a separate balance sheet line from the other non-current portion of debt in the consolidated balance sheets.
On February 28 and March 15, 2022 the company exercised its purchase option on the M/T Eco Los Angeles and M/T Eco City of Angels respectively and purchased the vessels for $27,197 and $27,163 respectively. The vessels were sold on the same dates to unaffiliated third parties.
2nd CMBFL Facility
On November 23, 2021 the Company entered into an SLB with CMBFL, for its newbuilding vessels M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214). Consummation of the SLB took place on January 17 and March 2 2022, respectively. Following the sale, the Company has bareboat chartered back the vessels for a period of eight years at bareboat hire rates comprising of 32 consecutive quarterly installments of $675 and a balloon payment of $32,403 payable together with the last installment, plus interest based on the three months LIBOR plus 2.60%.
As part of this transaction, the Company has continuous options to buy back the vessels at purchase prices stipulated in the bareboat agreements depending on when the option was exercised and at the end of the eight year period it has an option to buy back the vessels at a cost represented by the balloon payment. The gross proceeds from the sale of the two vessels were $54,005 and $53,997 for M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214) respectively.
The 2nd CMBFL facility contains a covenant requiring that there is no change of control of the Company, save with the prior written consent of CMBFL.
The 2nd CMBFL facility was accounted for as a financing transaction, as control will remain with the Company and the two vessels will continue to be recorded as assets on the Company’s balance sheet. In addition, the Company has continuous options to repurchase the vessels below fair value.
Scheduled Principal Repayments: The Company’s annual principal payments required to be made after December 31, 2021 on its loan obligations, are as follows (including the financings under sale and leaseback agreements but excluding debt related to Vessels held for sale):
| Years | | | | |
| December 31, 2022 | | | 7,466 | |
| December 31, 2023 | | | 7,554 | |
| December 31, 2024 | | | 28,304 | |
| December 31, 2025 | | | 4,960 | |
| December 31, 2026 | | | 4,960 | |
| December 31, 2027 and thereafter | | | 45,406 | |
| Total | | | 98,650 | |
As of December 31, 2021, the Company was in compliance with all debt covenants with respect to its loans and credit facilities. The fair value of debt outstanding on December 31, 2021, after excluding unamortized financing fees, amounted to $147,246 when valuing the Cargill and AVIC Sale and Leasebacks on the basis of the Commercial Interest Reference Rates (“CIRR”s) as applicable on December 31, 2021, which is considered to be a Level 2 item in accordance with the fair value hierarchy.
Financing Costs: The net additions in deferred financing costs amounted to $1,115 and $1,204 during the years ended December 31, 2020 and 2021 respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
| 8. | Commitments and Contingencies: |
Legal proceedings:
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. As part of the normal course of operations, the Company's customers may disagree on amounts due to the Company under the provision of the contracts which are normally settled through negotiations with the customer. Disputed amounts are normally reflected in revenues at such time as the Company reaches agreement with the customer on the amounts due.
On August 1, 2017, the Company received a subpoena from the U.S. Securities and Exchange Commission (“SEC”) requesting certain documents and information in connection with offerings made by the Company between February 2017 and August 2017. The Company provided the requested information to the SEC in response to that subpoena. On September 26, 2018 and on October 5, 2018 the Company received two additional subpoenas from the SEC requesting certain documents and information in connection with the previous subpoena the Company received on August 1, 2017. The Company provided the requested information to the SEC in response to these subpoenas. The SEC investigation is ongoing and the Company continues to cooperate with the SEC in its investigation. The Company’s last communication with the SEC was in February 2019. The Company is unable to predict what action, if any, might be taken by the SEC or its staff as a result of this investigation or what impact, if any, the cost of responding to the SEC's investigation or its ultimate outcome might have on the Company's financial position, results of operations or liquidity. Hence the Company has not established any provision for losses relating to this matter.
Other than the cases mentioned above, the Company is not a party to any material litigation where claims or counterclaims have been filed against the Company other than routine legal proceedings incidental to its business.
Capital Expenditures under the Company’s Newbuilding program:
On January 6 and on September 8, 2021 the Company entered into a series of transactions with a number of entities affiliated with Mr. Evangelos J. Pistiolis that led to the purchase of a number of vessels and newbuilding contracts (see Notes 1 and 5). As a result of these transactions, the Company has remaining contractual commitments as of December 31, 2021 for the acquisition of its fleet that are non-recourse to the Company as they are guaranteed by Central Mare Inc, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, totaling $213,405, including $51,189, $81,108 and $81,108 pursuant to newbuilding agreements for M/T Eco Oceano Ca (Hull No. 871), M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214) respectively. All of these contractual commitments are payable in the first quarter of 2022.
As of the date of this annual report all contractual commitments for the acquisition of the Company’s fleet have been settled and the company has successfully taken delivery of all abovementioned newbuilding vessels.
Guarantee on performance of loans of the New 2020 Joint Venture
On December 10, 2020, the Company entered into a corporate guarantee agreement with Alpha Bank of Greece (which was amended on February 2, 2022) in respect of the obligations of its 50% subsidiary California 19 Inc. and California 20 Inc. under the Loan Agreement dated March 12, 2020 for a secured loan facility of $37,660 ($18,830 for each vessel) for the financing of M/T Eco Yosemite Park and M/T Eco Joshua Park (the “Alpha Corporate Guarantee”). The Company assigns zero probability of default to said loan agreements and hence has not established any provisions for losses relating to this matter.
Environmental Liabilities:
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
| 9. | Common and Preferred Stock, Additional Paid-In Capital and Dividends: |
Reverse stock split: On August 10, 2020 the Company effected a 1-for-25 reverse stock split of its common stock respectively. There was no change in the number of authorized common shares of the Company, or the floor price of the Company’s Series E Shares and the Class B Warrants, or the number of votes of the Company’s Series D Shares. All numbers of common share and earnings per share amounts, as well as warrant shares eligible for purchase under the Company's warrants, exercise price of said warrants and conversion prices of the Company’s Series E Shares, in these financial statements have been retroactively adjusted to reflect these reverse stock splits.
Series D preferred shares: On May 8, 2017, the Company issued 100,000 shares of Series D preferred shares (the “Series D shares”) to Tankers Family Inc., a company controlled by Lax Trust for one thousand dollars ($1,000) pursuant to a stock purchase agreement. The Series D shares are not convertible into common shares and each Series D share has the voting power of 1,000 common shares. The Series D shares have no dividend or distribution rights and shall expire and all outstanding Series D shares shall be redeemed by the Company for par value on the date that any financing facility with any financial institution, which contain covenants that require that any member of the family of Mr. Evangelos J. Pistiolis maintain a specific minimum ownership or voting interest (either directly and/or indirectly through companies or other entities beneficially owned by any member of the Pistiolis family and/or trusts or foundations of which any member of the Pistiolis family are beneficiaries) of the Company's issued and outstanding common shares, respectively, are fully repaid or reach their maturity date. The Series D shares shall not be otherwise redeemable and upon any liquidation, dissolution or winding up of the Company, the Series D shares shall have a liquidation preference of $0.01 per share. Currently the SLBs with BoComm Leasing and AVIC Leasing, the Alpha Corporate Guarantee and the Navigare Lease have similar provisions that are satisfied via the existence of the Series D Shares. As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis guaranteed the performance of the bareboat charters, under certain circumstances, and in exchange, the Company agreed to indemnify him for any losses suffered as a result of the guarantee provided and in addition, the Company has amended the Certificate of Designation governing the terms of the Series D Shares, to adjust the voting rights per share of Series D Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of the total voting power of the Company, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. Due to the related party nature of the transactions involving Mr. Evangelos J. Pistiolis, such transactions were unanimously approved by the Company’s Board of Directors, including all three independent directors.
Issuance of common stock and warrants as part of the November 2019 Registered Direct Offering: On November 6, 2019, the Company entered into a placement agent agreement with Maxim Group LLC relating to the sale of the Company’s securities, or the Placement Agent Agreement. Pursuant to the Placement Agent Agreement, the Company entered into a Securities Purchase Agreement, with certain institutional investors in connection with a registered direct offering of an aggregate of 168,000 of the Company’s common shares at a public offering price of $50.00 per share, registered on the Company’s Registration Statement on Form F-3 (333-215577), or the Registered Offering. Concurrently with the Registered Offering and pursuant to the Purchase Agreement, the Company also commenced a private placement whereby the Company issued and sold class A warrants (or the “Class A Warrants”) to purchase up to 168,000 of the Company’s common shares and class B warrants (or the “Class B Warrants”) to purchase up to 168,000 of the Company’s common shares. The November 2019 Registered Direct Offering resulted in gross proceeds of $8,400 before deducting underwriting discounts, commissions and other offering expenses. The Class A Warrants and Class B Warrants were registered via a registration statement in form F1 that became effective on January 21, 2020.
During the year ended December 31, 2020, all outstanding Class A warrants (4,200,000 warrants) were exercised on a cashless basis into 67,200 of the Company’s common shares and no Class B Warrants were exercised. As of December 31, 2020 there were 4,200,000 Class B Warrants exercisable into 168,000 of the Company’s common shares with an exercise price of $1.00, that corresponded to the Class A Warrants floor price. The Class B Warrants entitled their holders to purchase 0.040 common shares upon a cash exercise. Each Class B Warrant was exercisable from the date of issuance up to May 7, 2021. No Class B Warrants were exercised in the year ended December 31, 2021.
Accounting Treatment of the Class B Warrants
As of the issuance date the fair value of the 4,200,000 Class B Warrants amounted to $0.2373 per warrant, using the Cox, Ross and Rubinstein Binomial methodology.
The fair value was considered by the Company to be classified as Level 3 in the fair value hierarchy since it was derived by unobservable inputs. The major unobservable input in connection with the valuation of the Company’s Class B Warrants was the volatility used in the valuation model. The annualized eighteen-month daily historical volatility that has been applied in the warrant valuation at inception was 134%. A 5% increase in the volatility applied would have led to an increase of 14% in the fair value of the Class B Warrants.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The warrants issued in connection with the Company's follow-on offering provide for physical settlement requiring the Company to deliver shares to the holder of the warrants in exchange for cash. However, the warrants provide for a series of round down protection features that in accordance with ASU No. 2017-11 led to their classification as a liability since the settlement amount of the warrants may not equal the difference between the fair value of a fixed number of the Company shares and a fixed strike price. As a result, the fair value of the warrants was classified as a derivative liability and subsequent changes in fair value were recognized in the consolidated statements of comprehensive (loss)/income (see Note 14).
Dividends to common stock holders: No dividends were paid to common stock holders in the years ended December 31, 2019, 2020 and 2021.
| 10. | (Loss)/Earnings Per Common Share: |
All shares issued are included in the Company's common stock and have equal rights to vote and participate in dividends and in undistributed earnings.
The components of the calculation of basic and diluted (loss) / earnings per share for the years ended December 2019, 2020 and 2021 are as follows:
| | | Year Ended December 31, | |
| | | 2019 | | | 2020 | | | 2021 | |
| (Loss) / Net Income | | | (14,773 | ) | | | (22,818 | ) | | | 8,616 | |
| Less: Deemed dividend for beneficial conversion feature of Series E Shares | | | (9,339 | ) | | | (1,067 | ) | | | (900 | ) |
| Less: Deemed dividend equivalents on Series E Shares related to redemption value | | | (4,227 | ) | | | (3,099 | ) | | | (437 | ) |
| Less: Dividend of Series E Shares | | | (2,650 | ) | | | (1,796 | ) | | | (1,883 | ) |
| (Loss) / gain attributable to common shareholders | | | (30,989 | ) | | | (28,780 | ) | | | 5,396 | |
| | | | | | | | | | | | | |
| (Loss) /Earnings per share: | | | | | | | | | | | | |
| Weighted average common shares outstanding, basic and dilutive | | | 117,104 | | | | 23,517,479 | | | | 39,831,972 | |
| (Loss) / earnings per share, basic and diluted | | | (264.63 | ) | | | (1.22 | ) | | | 0.14 | |
| | | | | | | | | | | | | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Series E Shares | | | - | | | | - | | | | 12,716,351 | |
| Weighted average common shares outstanding, diluted | | | 117,104 | | | | 23,517,479 | | | | 52,548,323 | |
For the years ended December 31, 2019, 2020 and 2021 no dilutive shares were included in the computation of diluted earnings per share because to do so would have been antidilutive for the period presented. Particularly for the year ended December 31, 2021 conversion was not assumed since such conversion would result in diluted earnings per share exceeding basic earnings per share.
| 11. | Voyage and Vessel Operating Expenses: |
The amounts in the consolidated statements of comprehensive (loss)/income are as follows:
| Voyage Expenses | | Year Ended December 31, | |
| | | 2019 | | | 2020 | | | 2021 | |
| Port charges / other voyage expenses | | | 678 | | | | 1 | | | | - | |
| Bunkers | | | 830 | | | | 659 | | | | 165 | |
| Commissions (including $829, $761 and $705 respectively, to related party) | | | 1,530 | | | | 1,334 | | | | 1,152 | |
| Total | | | 3,038 | | | | 1,994 | | | | 1,317 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
| Vessel Operating Expenses | | Year Ended December 31, | |
| | | 2019 | | | 2020 | | | 2021 | |
| Crew wages and related costs | | | 15,771 | | | | 14,532 | | | | 11,066 | |
| Insurance | | | 1,180 | | | | 1,194 | | | | 1,026 | |
| Repairs and maintenance (including $247, $60 and $17 respectively, to related party) | | | 1,528 | | | | 1,259 | | | | 747 | |
| Spares and consumable stores | | | 4,148 | | | | 3,861 | | | | 2,530 | |
| Registration and taxes (Note 13) | | | 159 | | | | 178 | | | | 310 | |
| Total | | | 22,786 | | | | 21,024 | | | | 15,679 | |
| 12. | Interest and Finance Costs: |
The amounts in the consolidated statements of comprehensive (loss)/income are analyzed as follows:
| Interest and Finance Costs | | Year Ended December 31, | |
| | | 2019 | | | 2020 | | | 2021 | |
| Interest on debt (including $928, $0 and $0, respectively, to related party) | | | 16,586 | | | | 16,033 | | | | 7,342 | |
| Bank charges and loan commitment fees (including $20, $0 and $0, respectively, to related party) | | | 282 | | | | 233 | | | | 20 | |
| Amortization and write-off of financing fees | | | 1,812 | | | | 6,311 | | | | 840 | |
| Amortization of debt discount | | | 324 | | | | - | | | | - | |
| Total | | | 19,004 | | | | 22,577 | | | | 8,202 | |
| Less interest capitalized | | | (927 | ) | | | (1,621 | ) | | | (1,204 | ) |
| Total | | | 18,077 | | | | 20,956 | | | | 6,998 | |
Marshall Islands and Greece does not impose a tax on international shipping income. Under the laws of Marshall Islands and Greece the countries of the companies' incorporation and vessels' registration, the companies are subject to registration and tonnage taxes, which have been included in Vessel operating expenses in the consolidated statements of comprehensive (loss)/income.
Under the United States Internal Revenue Code of 1986, as amended (the "Code"), the U.S. source gross transportation income of a ship-owning or chartering corporation, such as the Company, is subject to a 4% U.S. Federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
Under Section 883 of the Code and the regulations thereunder, the Company will be exempt from U.S. federal income tax on our U.S.-source shipping income if:
(1) the Company is organized in a foreign country, or its country of organization, grants an “equivalent exemption” to corporations organized in the United States; and
(2) either
A. more than 50% of the value of the Company’s stock is owned, directly or indirectly, by individuals who are “residents” of the Company’s country of organization or of another foreign country that grants an “equivalent exemption” to corporations organized in the United States (each such individual a “qualified shareholder” and such individuals collectively, “qualified shareholders”), which the Company refers to as the “50% Ownership Test,” or
B. the Company’s stock is “primarily and regularly traded on an established securities market” in the Company’s country of organization, in another country that grants an “equivalent exemption” to U.S. corporations, or in the United States, which the Company refers to as the “Publicly-Traded Test.”
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The Marshall Islands, the jurisdiction where the Company and the Company’s ship-owning subsidiaries are incorporated, grants an “equivalent exemption” to U.S. corporations. Therefore, the Company will be exempt from U.S. federal income tax with respect to the Company’s U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.
Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be “primarily traded” on an established securities market if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. The Company’s common shares, which is the Company’s sole class of issued and outstanding stock that is traded, is and the Company anticipates will continue to be “primarily traded” on the Nasdaq Capital Market.
The Treasury Regulations also require that the Company’s stock be "regularly traded" on an established securities market. Under the Treasury Regulations, the Company’s stock will be considered to be "regularly traded" if one or more classes of the Company’s stock representing more than 50% of the Company’s outstanding shares, by total combined voting power of all classes of stock entitled to vote and by total combined value of all classes of stock, are listed on one or more established securities markets, which the Company refers to as the "listing threshold." The Company’s common stock, which is listed on the Nasdaq Capital Market and is the Company’s only class of publicly-traded stock, did not constitute more than 50% of the Company’s outstanding shares by value for the 2021 taxable year, and accordingly, the Company didn’t satisfy the 50% Ownership Test for the 2021 taxable year and hence the Company didn’t qualify for exemption from tax under Section 883 for the 2021 taxable year.
The Company for the 2021 taxable year is subject to an effective 2% United States federal tax on the U.S. source shipping income that is attributable to the transport of cargoes to or from the United States which is not considered an income tax. The amount of this tax for the year ended December 31, 2021 was $152 and it was recorded within "Vessel operating expenses" in the consolidated statements of comprehensive (loss)/income. For 2019 and 2020 the Company qualified for this exemption.
| 14. | Financial Instruments: |
The principal financial assets of the Company consist of cash on hand and at banks, restricted cash, prepaid expenses and other receivables and long term deposits. The principal financial liabilities of the Company consist of long term loans, accounts payable due to suppliers, amounts due to related parties, accrued liabilities and warrants granted to third parties.
| | a) | Interest rate risk: The Company as of December 31, 2021 is subject to market risks relating to changes in interest rates, since the ABN and Alpha Bank financing facilities were subject to floating interest rates. |
| | b) | Credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash. The Company places its temporary cash investments, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions with which it places its temporary cash investments. |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short term maturities. The Company considers its creditworthiness when determining the fair value of its liquid assets.
The fair value of interest rate swaps was determined using a discounted cash flow method taking into account current and future interest rates and the creditworthiness of both the financial instrument counterparty the Company and hence are considered Level 2 items in accordance with the fair value hierarchy. The Company paid a fixed rate and received a floating rate for these interest rate swaps. The fair values of these derivatives were derived principally from, or corroborated by, observable market data inputs included quoted prices for similar assets, liabilities (risk adjusted) and market-corroborated inputs, such as market comparables, interest rates, yield curves and other items that allowed values to be determined.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The fair value of warrants was determined using the Cox, Ross and Rubinstein Binomial methodology and hence are considered Level 3 items in accordance with the fair value hierarchy.
The Company follows the accounting guidance for Fair Value Measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
Interest rate swap agreements
The Company had entered into interest rate swap transactions to manage interest costs and the risk associated with changing interest rates with respect to its variable interest rate credit facilities. These interest rate swaps were pay-fixed, receive-variable interest rate swaps based on the USD LIBOR swap rate.
On January 17, 2019, as part of the prepayment of ABN Facility Tranche C, the Company unwound the interest rate swap with ABN Amro bank dated December 19, 2016 and realized a gain of $213. Furthermore, on July 15, 2019, as part of the prepayment of the NORD/LB facility, the Company unwound the interest rate swap with NORD/LB bank dated May 17, 2017 and realized a loss of $205. On January 16 and January 21, 2020, as part of the prepayment of the ABN Facility, the Company unwound its two remaining interest rate swaps with ABN Amro bank and realized a loss of $405. On February 21, 2020, as part of the prepayment of the Alpha Bank Facility, the Company unwound its interest rate swap with Alpha bank and realized a loss of $927, being the last interest rate swap of the Company. In both cases the resulting losses included losses resulting from the discontinuation of hedge accounting applied that were transferred from Other comprehensive income to Gain/(Loss) on Derivative financial instruments in the consolidated statements of comprehensive (loss)/income.
Class B Warrant liability
The Company's Class B Warrant derivatives outstanding as of December 31, 2020, were recorded at their fair values. As of December 31, 2020 the Company’s Class B Warrant derivatives consisted of 168,000 warrant shares outstanding, issued in connection with the Company’s November 2019 Registered Direct Offering that closed on November 7, 2019, as depicted in the following table:
| Class B Warrants Outstanding December 31, 2020 | | | Class B Warrant Shares Outstanding December 31, 2020 | | Original Term | | Warrant Exercise Price* | | | Fair Value – Liability December 31, 2020 | |
| 4,200,000 | | | | 168,000 | | 18 months | | $ | 1.00 | | | | 66 | |
* Applying the Floor Price
On May 7, 2021 the Company’s outstanding Class B Warrants expired.
Recurring fair value measurements
The following table presents the fair value of those financial assets and liabilities measured at fair value on a recurring basis and their locations on the consolidated balance sheets, analyzed by fair value measurement hierarchy level:
| | | | | | | Fair Value Measurement at Reporting Date | |
| As of December 31, 2020 | | Total | | | Using Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Other Unobservable Inputs (Level 3) | |
| Current liability (Class B Warrants) | | | 66 | | | | - | | | | - | | | | 66 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
As of December 31, 2020, the Class B Warrants have been classified in current liabilities, due to the fact that they matured on May 7, 2021.
The following table sets forth a summary of changes in fair value of the Company’s level 3 fair value measurements for the years ended December 31, 2020 and 2021:
| Closing balance – December 31, 2019 | | | 609 | |
| Change in fair value of Class B Warrants, included in Gain/(Loss) on derivative financial instruments in the consolidated statements of comprehensive (loss)/income | | | (543 | ) |
| Closing balance – December 31, 2020 | | | 66 | |
| Change in fair value of Class B Warrants, included in Gain/(Loss) on derivative financial instruments in the consolidated statements of comprehensive (loss)/income | | | (66 | ) |
| Closing balance – December 31, 2021 | | | - | |
Derivative Financial Instruments not designated as hedging instruments – Class B Warrants:
The major unobservable input in connection with the valuation of the Company’s Class B Warrants is the volatility used in the valuation model, which is approximated by using four-month daily historical observations of the Company’s share price. The annualized four-month daily historical volatility that had been applied in the warrant valuation as of December 31, 2020 was 109%. A 5% increase in the volatility applied would have lead to an increase of 1% in the fair value of the Class B Warrants. The fair value of the Company’s Class B Warrants is considered by the Company to be classified as Level 3 in the fair value hierarchy since it was derived by unobservable inputs.
| | | Quantitative information about Level 3 Fair Value Measurements | |
| Derivative type | | Fair Value at December 31, 2020 | | Balance Sheet Location | Valuation Technique | Significant Unobservable Input | | Input Value December 31, 2020 | |
| Class B Warrants | | | 66 | | Non-Current / Current liabilities –Derivative financial instruments | Cox, Ross and Rubinstein Binomial | Volatility | | | 109 | % |
Location and amounts of derivative financial instruments fair values:
Information on the location and amounts of derivative financial instruments fair values in the balance sheet and derivative financial instrument losses in the statement of comprehensive loss / (income) are presented below:
| | | Amount of gain/(loss) recognized in Statement of comprehensive loss / (income) located in Gain / (Loss) on derivate financial instruments | |
| | | 2019 | | | 2020 | | | 2021 | |
| Interest rate swaps- change in fair value | | | (841 | ) | | | (1,332 | ) | | | - | |
| Interest rate swaps– realized gain/(loss) | | | 139 | | | | (25 | ) | | | - | |
| 2014 Warrants- change in fair value | | | 1,915 | | | | - | | | | - | |
| Class B Warrants- change in fair value | | | 388 | | | | 543 | | | | 66 | |
| Total | | | 1,601 | | | | (814 | ) | | | 66 | |
Derivative Financial Instruments designated as hedging instruments:
The components of accumulated other comprehensive loss included in the consolidated balance sheets consist of unrealized losses on cash flow hedges and are analyzed as follows:
| | | Unrealized (Loss) on cash
flow hedges | |
| Balance, December 31, 2019 | | | (1,361 | ) |
| Termination of interest rate swap contracts | | | 1,361 | |
| Balance, December 31, 2020 | | | - | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
On January 15, January 21, March 9 and October 20, 2020 the Company terminated the time charters of M/T Eco Fleet, M/T Stenaweco Elegance, M/T Eco Palm Desert and M/T Eco California and incurred time charter termination fees amounting to $500, $1,850, $1,700 and $750 respectively.
On March 29, 2019, the Company entered into a Stock Purchase Agreement with Family Trading for the sale of 27,129 newly issued perpetual convertible preferred shares (the “Series E Shares”) at a price of one thousand dollars ($1,000) per share. The proceeds of the sale were used for the full and final settlement of all amounts due under the Further Amended Family Trading Credit Facility. The issuance of the Series E Shares was approved by a committee of the Company’s board of directors, of which all of the directors were independent.
Each holder of Series E Shares, at any time, has the right, subject to certain conditions, to convert all or any portion of the Series E Shares then held by such holder into the Company’s common shares at the conversion rate then in effect. Each Series E Share is convertible into the number of the Company’s common shares equal to the quotient of one thousand dollars ($1,000) plus any accrued and unpaid dividends divided by the lesser of the following four prices (the “Series E Conversion Price”): (i) $500.00, (ii) 80% of the lowest daily VWAP of the Company’s common shares over the twenty consecutive trading days expiring on the trading day immediately prior to the date of delivery of a conversion notice, (iii) the conversion price or exercise price per share of any of the Company’s then outstanding convertible shares or warrants, (iv) the lowest issuance price of the Company’s common shares in any transaction from the date of the issuance the Series E Shares onwards, but in no event will the Series E Conversion Price be less than the floor price (currently at $0.60). The floor price is adjusted (decreased) in case of splits or subdivisions of the Company’s outstanding shares and is not adjusted in case of reverse stock splits or combinations of the Company’s outstanding shares. The holders of each Series E Share are entitled to the voting power of one thousand (1,000) common shares of the Company. Upon any liquidation, dissolution or winding up of the Company, the holders of Series E Shares shall be entitled to receive the net assets of the Company pari-passu with the common shareholders. Furthermore the Company at its option shall have the right to redeem a portion or all of the outstanding Series E Shares. The Company shall pay an amount equal to one thousand dollars ($1,000) per each Series E Share (the “Liquidation Amount”), plus a redemption premium equal to fifteen percent (15%) of the Liquidation Amount being redeemed if that redemption takes place up to and including March 29, 2020 and twenty percent (20%) of the Liquidation Amount being redeemed if that redemption takes place after March 29, 2020, plus an amount equal to any accrued and unpaid dividends on such Series E Shares (collectively referred to as the "Redemption Amount").
The Series E Shares shall not be subject to redemption in cash at the option of the holders thereof under any circumstance. Finally, the holders of outstanding Series E Shares shall be entitled to receive, semi-annual dividends payable in cash on the last day of June and December in each year (each such date being referred to herein as a "Semi Annual Dividend Payment Date"), commencing on the first Semi Annual Dividend Payment Date, being June 30, 2019 in an amount per share (rounded to the nearest cent) equal to fifteen percent (15%) per year of the liquidation amount of the then outstanding Series E Shares computed on the basis of a 365-day year and the actual days elapsed. Accrued but unpaid dividends shall bear interest at fifteen percent (15%). Dividends will not be payable in cash, if such payment violates any provision of any senior secured facility that the Company has entered or (as the case may be) will enter into, or any senior secured facility for which the Company has provided or (as the case may be) will provide a guarantee, for as long as such provisions, if any, remain in effect.
The Company determined that the Series E shares were more akin to equity than debt and that the above identified conversion feature, subject to adjustments, was clearly and closely related to the host instrument, and accordingly bifurcation and classification of the conversion feature as a derivative liability was not required. Given that the Series D and Series E preferred stock's holder (Lax Trust) controls a majority of the Company votes, the preferred equity is in essence redeemable at the option of the holder and hence has been classified in Mezzanine equity as per ASC 480-10-S99 “Distinguishing liabilities from Equity – SEC Materials”.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
On June 30, 2019, the Company issued 1,029 Series E Shares for the payment of dividends accumulated since the original issuance of the Series E Shares through June 30, 2019 and on December 31, 2019, the Company declared a dividend of $1,621 for the period July 1, 2019 through December 31, 2019, which as of December 31, 2019 remained unpaid and was included in Due to related parties in the consolidated Balance sheets. During the year ended December 31, 2019 from July 25 to December 2, 2019 the company redeemed 12,434 Series E Shares and paid a total of $14,302 to Family Trading, $1,868 of which refers to the 15% redemption premium embedded in each redemption that the Company classified as deemed dividend. On February 17, 2020 the Company issued 16,004 Series E Shares to Family Trading, as settlement of $14,350 of consideration then outstanding for the purchase of the M/T Eco City of Angels and M/T Eco Los Angeles from Mr. Evangelos J. Pistiolis, $1,621 of Series E Share dividends of the second half of 2019 and $32 of accrued interest on unpaid dividends from 2019. On September 8, 2021 the Company issued 2,188 Series E Shares to Family Trading, as partial settlement for $2,188 of the consideration payable for the VLCC Transaction (see Note 1).
At the initial issuance of Series E Shares, the Company recognized the beneficial conversion feature by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of the Company's common stock per share on the commitment date, to additional paid-in capital, resulting in a discount of $9,339 on the Series E convertible preferred stock. The Company amortized this beneficial conversion in full in the year ended December 31, 2019 as the beneficial conversion was immediately exercisable and has been recognized as a deemed dividend. As the Company is in an accumulated deficit position, the offsetting amount was amortized as a deemed dividend recorded against additional paid-in-capital. During the years ended December 31, 2020 and 2021, pursuant to issuances of Series E Shares, the Company recognized the beneficial conversion feature to additional paid-in capital, resulting in a discount of $1,067 and $900 respectively on the Series E Shares which has been recognized as a deemed dividend.
During the year ended December 31, 2020, but before March 29, 2020, the Company redeemed 21,364 Series E Shares and paid a total of $24,569 to Family Trading, $3,204 of which refers to the 15% redemption premium. During the year ended December 31, 2021 the Company didn’t redeem any Series E Shares.
As of December 31, 2021, upon conversion at the Series E Shares Conversion Price ($0.70) of 13,452 Series E Shares outstanding, Family Trading would receive 19,217,143 common shares.
After March 29, 2020 as per the original Series E Shares Statement of Designations all redemptions of Series E Shares will incur a redemption premium equal to twenty percent (20%) of the Liquidation Amount being redeemed instead of fifteen percent (15%). As of December 31, 2020 and 2021, the Company adjusted the carrying value of the Series E Shares to the maximum redemption amount, resulting in an increase of $2,253 and $437 respectively, which have been accounted as deemed dividend.
During the years ended December 31, 2020 and 2021 the Company declared $1,796 and $1,883 of dividends to the Series E Shares holder, out of which $900 were paid via the issuance of 900 Series E Shares and $968 remain payable and are included in Due to related parties in the consolidated Balance sheets.
| 17. | Investments in unconsolidated joint ventures |
2017 Joint Venture
During the year ended December 31, 2019 the Company recorded its proportionate share of City of Athens and Eco Nine’s other comprehensive losses of $391 as a decrease to the Company’s Investments in unconsolidated joint ventures, with a corresponding increase in other comprehensive loss, in accordance with ASC 323-10-35-18. In December 2019, the Company wrote down its Investments in the 2017 Joint Venture to their fair value less costs to sell, resulting in an impairment charge of $3,144, pursuant to the Joint Ventures' plan to sell the vessels. Their fair value was based on a market approach, which was determined using the purchase consideration in the sale agreements with buyers for the vessels of the joint venture companies.
The Joint Venture’s vessels, the M/T Holmby Hills and the M/T Palm Springs were sold on March 26 and April 17, 2020 respectively. During the year ended December 31, 2020, the Company recognized a loss on the sale of its Investments in unconsolidated joint ventures amounting to $64, which is included in Equity gains in unconsolidated joint ventures (attributed to the 2017 Joint Venture) in the Company's consolidated statements of comprehensive (loss)/income. Net proceeds from the sale of the 2017 Joint Venture amounted to $19,555. The two companies that owned the vessels (City of Athens Pte. Ltd. and Eco Nine Pte. Ltd.) are in the final stages of dissolving.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
New 2020 Joint Venture
On April 24, 2020 the Company acquired from a company affiliated with Mr. Evangelos J. Pistiolis, or the MR Seller, a 50% interest in two vessel owning companies (California 19 Inc. and California 20 Inc.) that owned two scrubber-fitted 50,000 dwt eco MR product tankers, M/T Eco Yosemite Park and M/T Eco Joshua Park respectively for $27,000, representing the Company’s share of interest in the fair value of the net assets acquired. Both vessels were delivered in March 2020 to the MR Seller from Hyundai Mipo shipyard of South Korea. The MR Seller had already entered into two joint venture agreements, for the two vessels, each with an equal ownership interest of 50%, with Just-C Limited, a wholly owned subsidiary of Gunvor Group Ltd (the other 50% owner). The abovementioned acquisition was approved by a special committee of the Company's board of directors (the “JV Special Committee”), of which all of the directors were independent and for which the JV Special Committee obtained a fairness opinion relating to the consideration of the transaction from an independent financial advisor. Sale and purchase commissions due to CSI related to these investments amounting to $454 were accounted for as part of the investment.
Out of the purchase price of $27,000, $1,646 and $1,654 were recognized as excess of the purchase price over the underlying net book value (“Basis Differences”) for California 19 Inc. and California 20 Inc. respectively, attributed to the value assigned to the attached time charter. These Basis Differences are amortized over the duration of the firm period of the charter (5 years) and their amortization is included as a reduction in Gains in unconsolidated joint ventures. Furthermore $1,963 and $1,963 were also recognized as Basis Differences for California 19 Inc. and California 20 Inc. respectively, attributed to the fair market value over the carrying value of the vessels. These Basis Differences are amortized over the useful life of the vessels (25 years) and their amortization is also included as a reduction in Gains in unconsolidated joint ventures.
On March 12, 2020, California 19 Inc. together with California 20 Inc. entered into a loan agreement with Alpha Bank for a senior debt facility of $37,660 ($18,830 for each vessel). The loan has a term of five years and is payable on maturity via a balloon payment of $18,830 per vessel. The credit facility bears interest at LIBOR plus a margin of 3.00%. The facility carries customary covenants and restrictions, including the covenant that during the life of the facility, the market value of the vessels should be at least 200% of the facility outstanding and any shortfall should be covered by partial prepayments. Vessels are to be valued three times per year, every March, July and December. Provided that there is no breach of the above-mentioned covenant and no event of default has occurred and is continuing or would occur if such dividend distribution would take place, California 19 Inc. and California 20 Inc. may distribute dividends, without any consent from Alpha Bank. The loans are guaranteed by the Company in their entirety and this guarantee is not limited to the Company’s share of the net assets of California 19 Inc. and California 20 Inc (see Note 8). On April 22, 2021 California 19 Inc. and California 20 Inc. prepaid $330 each to reduce each of the outstanding loans to $18,500.
Each of the two product tankers are on time charters that commenced in March 2020 with Clearlake Shipping Pte Ltd, a subsidiary of Gunvor Group Ltd for a firm term of five years plus two additional optional years.
The Company's exposure is limited to its share of the net assets of California 19 Inc. and California 20 Inc., proportionate to its 50% equity interest in these companies. Generally, the Company will share the profits and losses, cash flows and other matters relating to its investments in California 19 Inc. and California 20 Inc. in accordance with its ownership percentage. The vessels are managed by CSI, pursuant to management agreements. The Company accounts for investments in joint ventures using the equity method since it has joint control over the investment.
A condensed summary of the financial information for equity accounted investments 50% owned by the Company shown on a 100% basis are as follows:
| | | December 31, 2020 | | | December 31, 2021 | |
| | | California 19 Inc. | | | California 20 Inc. | | | California 19 Inc. | | | California 20 Inc. | |
| Current assets | | | 2,782 | | | | 2,824 | | | | 982 | | | | 1,059 | |
| Non-current assets | | | 37,952 | | | | 37,980 | | | | 36,532 | | | | 36,560 | |
| Current liabilities | | | 632 | | | | 626 | | | | 657 | | | | 641 | |
| Long-term liabilities | | | 18,637 | | | | 18,632 | | | | 18,350 | | | | 18,346 | |
| Net operating revenues | | | 4,955 | | | | 4,766 | | | | 6,272 | | | | 6,068 | |
| Net income | | | 1,120 | | | | 1,142 | | | | 1,760 | | | | 1,368 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
During the year ended December 31, 2020, California 19 Inc. and California 20 Inc. didn’t declare nor pay any dividends. On May 6 and November 4, 2021 the Company received $1,500 and $859 of dividend from California 19 Inc and on May 6 and November 4, 2021 the Company received $1,500 and $641 of dividend from California 20 Inc..
Recognition of Gains in unconsolidated joint ventures for the 2020 Joint Venture for the years ended December 31, 2020 and 2021 are summarized below:
| | | December 31, 2020 | | | December 31, 2021 | |
| | | California 19 Inc. | | | California 20 Inc. | | | California 19 Inc. | | | California 20 Inc. | |
| Net profit attributable to the Company | | | 652 | | | | 670 | | | | 880 | | | | 684 | |
| Amortization of Basis Differences | | | (272 | ) | | | (273 | ) | | | (408 | ) | | | (409 | ) |
| Equity gains in unconsolidated joint ventures (attributed to the 2020 Joint Venture) | | | 380 | | | | 397 | | | | 472 | | | | 275 | |
Revenues are comprised of the following:
| | | 2019 | | | 2020 | | | 2021 | |
| Time charter revenues | | | 61,695 | | | | 60,222 | | | | 56,367 | |
| Time charter revenues from related parties | | | 1,311 | | | | - | | | | - | |
| Voyage charter revenue | | | 3,082 | | | | - | | | | - | |
| Total | | | 66,088 | | | | 60,222 | | | | 56,367 | |
The Company typically enters into time charters for periods ranging between three to five years and includes a charterer’s option to renew for a further two one-year periods at predetermined daily rates. Due to the volatility of the charter rates, the Company only accounts for the options when the charterer gives notice that the option will be exercised. In addition, the time charter agreements may contain variable consideration in terms of profit share. The profit share is paid on a quarterly basis and consists of 50% of the difference (if that is positive) between the average Timecharter equivalent rates for MR2 Product Tankers of a number of publicly listed shipping companies to the agreed base fixed rate of the respective time charter. In a time charter contract, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. The charterer has the full discretion over the ports visited, shipping routes and vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance of the vessel. The charter party generally has some owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws, and carry only lawful or non-hazardous cargo. In a time charter contract, the Company is responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges and canal tolls during the hire period. The charterer generally pays the charter hire in advance of the upcoming contract period.
Included in Voyage charter revenue for the year ended December 31, 2019 is demurrage earned by the Company of $687. As of December 31, 2021, all of the Company’s vessels are employed under time charters.
| 19. | Loss on sale of vessels: |
During 2020 the Company sold the following vessels to unaffiliated third parties and collected the following gross proceeds:
| Vessel | Date Sold | | Selling Price (Gross) | |
| M/T Stenaweco Energy | 29-Oct-20 | | $ | 25,150 | |
| M/T Stenaweco Evolution | 03-Nov-20 | | $ | 26,150 | |
| M/T Ecofleet | 21-Jan-20 | | $ | 21,000 | |
| M/T Eco Revolution | 14-Jan-20 | | $ | 23,000 | |
| M/T SW Excellence | 14-Oct-20 | | $ | 27,008 | |
| M/T Stenaweco Elegance | 21-Feb-20 | | $ | 33,500 | |
| M/T Eco Palm Desert | 19-Mar-20 | | $ | 34,800 | |
| M/T Eco California | 09-Nov-20 | | $ | 30,600 | |
| M/T Eco Bel Air | 10-Dec-20 | | $ | 50,830 | |
| M/T Eco Beverly Hills | 01-Dec-20 | | $ | 50,830 | |
| Total | | $ | 322,868 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020 AND 2021
AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
The net proceeds from the abovementioned sales amounted to $310,016, after deducting $10,852 of expenses and $2,000 of maintenance deposits (please see below). Out of the abovementioned vessels, the M/T Eco Revolution and M/T Eco Fleet were presented under Assets held for sale in the Company’s December 31, 2019 Balance sheet and were written down to their fair value less costs to sell. As a result of the abovementioned sales the Company recognized a loss from the disposal of vessels amounting to $12,355, which is separately presented in the Company's consolidated statements of comprehensive (loss)/income. For each of the vessels M/T Eco Bel Air and M/T Eco Beverly Hills that were sold and leased back (see Note 6) the buyer withheld $1,000 as a maintenance deposit, accounted for as a deposit asset, to be released at the end of the lease term, in accordance with ASC 840-10-25-39B. The Company evaluated these maintenance deposits and has not assigned any probability of them not being returned.
On September 1, 2021 the Company sold M/T Nord Valliant, its last non-scrubber fitted tanker, to an unaffiliated third party for net proceeds of $25,887. During the six months ended June 30, 2021, in accordance with the provisions of relevant guidance, the Company recognized the vessel, the carrying amount of which as of June 30, 2021 amounted to $27,047, as held for sale and wrote it down to its fair value of $25,887, resulting in an impairment charge of $1,160, which is included in the consolidated statements of comprehensive (loss) / income for the year ended December 31, 2021. Since the value of the held for sale vessel (after it was written down to its fair value less costs to sell) was the same with the net proceeds from the sale, the Company didn’t recognize any losses from the sale of the M/T Nord Valiant.
Following the sale of the above product tankers, the Company as of December 31, 2021 has been left with only scrubber fitted vessels and only employs one product tanker vessel (the M/T Eco Marina Del Ray, the sale and lease back agreement with no option to purchase), thereby demonstrating its commitment towards larger crude oil carriers and latest technology scrubber fitted-vessels. Regarding the transaction of the M/T’s Eco Bel Air and Beverly Hills, the Company released equity while at the same time maintained its presence in the crude oil market, via the five-year Navigare Lease.
On January 5, 2022 the Company entered into an unsecured credit facility for up to $20,000 with Central Mare (the “Central Mare Bridge Loan”) in order to finance part of the cost of its newbuilding program. On January 6, 2022 the Company drew down $9,000. The facility’s maturity was December 31, 2022. The principal terms of the loan included an arrangement fee of 2%, interest of 12% per annum and a commitment fee of 1.00% on the undrawn part of the facility
On January 17, 2022, the Company entered into a stock purchase agreement with Africanus Inc., an affiliate of Evangelos J. Pistiolis for the sale of up to 7,560,759 newly-issued Series F Non-Convertible Perpetual Preferred Shares (“Series F Preferred Shares”), in exchange for (i) the assumption by Africanus Inc. of an amount of $47,630 of shipbuilding costs for its newbuilding vessels M/T Eco Oceano CA (Hull No. 871), M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214), and (ii) settlement of the Company’s remaining payment obligations relating to the VLCC Transaction, in an amount of up to $27,978. As of the date hereof, 7,200,000 Series F Preferred Perpetual Shares have been issued, in connection with the deliveries of M/T Julius Caesar, M/T Legio X Equestris and M/T Eco Oceano Ca and as a consideration for the settlement of $24,370 of Due to related parties. The holders of Series F Preferred Perpetual Shares are entitled to the voting power of ten of the Company’s common shares per Series F Preferred Perpetual Share. Upon any liquidation, dissolution or winding up of the Company, the holders of Series F Preferred Perpetual Shares shall be entitled to receive the net assets of the Company pari passu with the Company’s common shares. The Company at its option shall have the right to redeem a portion or all of the outstanding Series F Preferred Perpetual Shares at an amount equal to $10 per Series F Preferred Perpetual Share redeemed (the “Liquidation Amount”), plus a redemption premium of 20% of the Liquidation Amount. The Series F Preferred Perpetual Shares include a mandatory redemption provision tied to minimum voting requirements for the Company’s major shareholders, including affiliates of the CEO, pursuant to which if such minimum voting rights fall below 50% the Company is obliged to redeem the full amount of the then outstanding Series F Preferred Perpetual Shares at a redemption premium of 40%. The holders of outstanding Series F Preferred Perpetual Shares shall be entitled to receive semi-annual dividends payable in cash at a rate of 13.5% per year of the Liquidation Amount of the then outstanding Series F Preferred Perpetual Shares. In addition, a one-time cash dividend equal to 4.0% of the Liquidation Amount is payable days following each issuance of Series F Preferred Perpetual Shares. Finally the Series F Preferred Perpetual Shares are not convertible into the Company’s common shares under any circumstances.
On January 17, 2022 the Company took delivery of the vessel M/T Julius Caesar from the Hyundai Heavy Industries shipyard in South Korea.
On February 14, 2022, the Company entered into time charter employment agreements with a major oil trader for M/T Eco Beverly Hills and for M/T Eco Bel Air, according to which upon completion of their current charters, the M/T Eco Beverly Hills and M/T Eco Bel Air will enter into a time charter for a minimum period of 20 months and a maximum period of 26 months (at charterers option) at daily rate of $24,000 per vessel. Charterers also have the option to further extend the time charter until December 1, 2025 for M/T Eco Beverly Hills and December 10, 2025 for M/T Eco Bel Air.
On February 22, 2022, the Company amended a previously-agreed time charter with an affiliate of Evangelos J. Pistiolis which commenced upon delivery of M/T Eco Oceano (Hull No. 871). According to the amendment, the firm period of the time charter employment is increased from 5 years to 15 years and the daily rate is reduced from $32,450 to $24,500.
On February 28 and March 15, 2022 the Company sold the M/T Eco Los Angeles and M/T Eco City of Angels respectively to unaffiliated third parties for net proceeds after debt repayment of $18,640. The net proceeds after senior debt repayment relating to the vessels were used to fund the Company’s newbuilding program and to repay the outstanding Central mare Bridge Loan facility, which was subsequently terminated.
On March 2, 2022, the Company took delivery of the vessel M/T Legio X Equestris from the Hyundai Heavy Industries shipyard in South Korea.
On March 2, 2022 the Company entered into a sale and leaseback with AVIC, for our newbuilding vessel Eco Oceano Ca (Hull No. 871) for total proceeds of $ 48,200. Consummation of the sale and leaseback took place on March 4, 2022. Following the sale, the Company has bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of 40 consecutive quarterly installments of $678 and a balloon payment of $21,087 payable together with the last installment, plus interest based on the three months LIBOR plus 3.50%. As part of this transaction, the Company has continuous options to buy back the vessel at a purchase price stipulated in the bareboat agreement depending on when the option is exercised and at the end of the ten year period the Company has an obligation to buy back the vessel at a cost represented by the balloon payment.
On March 4, 2022, the Company took delivery of the vessel M/T Eco Oceano Ca from the Hyundai Samho shipyard in South Korea.