(Name, Telephone, E-mail and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(b) of the Act: None
Securities registered or to be registered pursuant to Section 12(g)
of the Act:
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
Indicate the number of outstanding shares
of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As of December
31, 2016, there were 2,912,257 shares of the registrant's common stock, par value $0.01 per share, outstanding.
Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨
Yes
x
No
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
¨
Yes
x
No
Note-Checking the box above will not relieve
any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations
under those Sections.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
x
Yes
¨
No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If "Other" has been checked in response
to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
¨
Item 17
¨
Item 18
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨
Yes
x
No
This Amendment
No. 1 on Form 20-F/A (this "Amendment") to the annual report on Form 20-F for the fiscal year ended December 31, 2016,
as filed by Box Ships Inc. (the "Company" or "we") with the Securities and Exchange Commission (the "Commission")
on March 13, 2017 (the "Form 20-F"), is being filed solely to correct a clerical error, whereby the name and signature
of the auditing firm, Deloitte Certified Public Accountants S.A., was missing in the electronic version of the audit report
included in the Form 20-F (the "Audit Report").
Therefore,
we are filing this Amendment to our Form 20-F to include the corrected Audit Report together with the consolidated financial statements
to which the Audit Report was attached in Item 18 of our Form 20-F. In addition, we are filing as Exhibits 12.1, 12.2, 13.1
and 13.2, certain currently dated certifications.
This Amendment
speaks as of the date of the initial filing of the Form 20-F and, other than as described above, this Amendment does not, and does
not purport to, amend, update or restate any other information or disclosure included in the Form 20-F and does not, and does not
purport to, reflect any events that have occurred after the date of the initial filing of the Form 20-F.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
1.
|
Basis of Presentation and General Information
|
Box Ships Inc. ("Box Ships") was incorporated on May 19, 2010, under the laws of the Republic of
the Marshall Islands, as a wholly owned subsidiary of Paragon Shipping Inc. (OTCQB: PRGNF) ("Paragon"). Box Ships has
a fiscal year end of December 31, and was formed to own and employ containerships. On April 19, 2011, Box Ships completed its initial
public offering ("IPO") of its common stock on the New York Stock Exchange ("NYSE"). Since November 2015, its
common and preferred stock stopped trading on NYSE and commenced trading on the OTCQX and Other OTC Markets under the symbols "TEUFF"
and "TEUCF", respectively. Effective January 3, 2017, the Company’s common stock commenced trading on OTCQB Venture
Market under the same symbol.
On February 12, 2016, the shareholders of
the Company authorized the Company’s Board of Directors to effect one or more reverse splits of the Company’s issued
and outstanding common stock at a ratio within the range from 1-for-2 up to 1-for-50, at any time prior to February 12, 2017,
at the discretion of the Board of Directors. On January 4, 2017, the Board of Directors authorized a reverse stock split at a
ratio of 1-for-50 (the “Reverse Split”). On January 26, 2017, the Company filed an amendment to its Amended and Restated
Articles of Incorporation to effectuate a reverse stock split of the Company’s issued and outstanding shares of common stock,
par value $0.01 per share. The Reverse Split became effective with the OTC Markets at the open of business on January 31, 2017.
As a result of the Reverse Split, every 50 shares of the Company’s pre-reverse split common stock were combined and reclassified
into one share of the Company’s common stock. No fractional shares of common stock were issued as a result of the Reverse
Split. Stockholders who otherwise would be entitled to a fractional share received the next higher number of whole shares. All
share and per share amounts disclosed in the consolidated financial statements give effect to the respective stock split retroactively,
for all the periods presented.
The financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and present
the consolidated financial statements of Box Ships Inc. and its wholly-owned subsidiaries listed below:
|
Company
|
|
Vessel Acquisition Date
|
|
Vessel Sale Date
|
|
Vessel's Name
|
|
Built
|
|
TEU
4
|
|
|
Polyaristi Navigation Co.
1, 6
|
|
April 29, 2011
|
|
November 24, 2016
|
|
Box Voyager
|
|
2010
|
|
|
3,426
|
|
|
Efploias Shipping Co.
1, 6
|
|
April 29, 2011
|
|
November 24, 2016
|
|
Box Trader
|
|
2010
|
|
|
3,426
|
|
|
Tacita Oceanway Carrier Co.
1
|
|
May 19, 2011
|
|
December 13, 2016
|
|
Box Kingfish
|
|
2007
|
|
|
5,095
|
|
|
Alaqua Marine Ltd.
1
|
|
May 31, 2011
|
|
December 9, 2016
|
|
Box Marlin
|
|
2007
|
|
|
5,095
|
|
|
Aral Sea Shipping S.A.
1
|
|
May 19, 2011
|
|
October 31, 2016
|
|
Box Queen
|
|
2006
|
|
|
4,546
|
|
|
Amorita Development Inc.
1, 6
|
|
May 9, 2011
|
|
November 24, 2016
|
|
Maule
|
|
2010
|
|
|
6,589
|
|
|
Lawry Shipping Ltd
2
|
|
August 3, 2011
|
|
September 22, 2016
|
|
Box Emma
|
|
2004
|
|
|
5,060
|
|
|
Triton Shipping Limited
3
|
|
June 25, 2012
|
|
August 9, 2016
|
|
Box Hong Kong
|
|
1995
|
|
|
5,344
|
|
|
Rosetta Navigation Corp. Limited
3
|
|
July 5, 2012
|
|
August 11, 2016
|
|
Box China
|
|
1996
|
|
|
5,344
|
|
|
Ardal International Co.
5
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Incorporated in Liberia.
2
Incorporated in Marshall Islands.
3
Incorporated in Hong Kong.
4
TEU:
A 20-foot equivalent
unit, the international standard measure for containers and containership capacity.
5
Non-vessel owning subsidiary.
6
The issued and outstanding capital
stock of the company was sold on November 24, 2016 to entities affiliated to Mr. Michael Bodouroglou, the Company's Chairman, President,
Chief Executive Officer and Interim Chief Financial Officer (Notes 4 and 5).
The Company is an international shipping company
specializing in the transportation of containers and the provision of commercial management services to shipping companies. The
Company outsourced the technical and commercial management of its vessels to Allseas Marine S.A. ("Allseas") and Seacommercial
Shipping Services S.A. (“Seacommercial”), both related parties wholly owned by Mr. Michael Bodouroglou, the Company's
Chairman, President, Chief Executive Officer and Interim Chief Financial Officer.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
1.
|
Basis of Presentation and General Information - Continued
|
The following charterers individually accounted
for more than 10% of the Company's time charter revenue for the years ended December 31, 2014, 2015 and 2016:
|
|
|
% of time charter revenue
|
|
|
Charterer
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Compania Sud Americana De Vapores S.A.
|
|
|
25
|
%
|
|
|
-
|
|
|
|
-
|
|
|
CMA CGM
|
|
|
14
|
%
|
|
|
29
|
%
|
|
|
24
|
%
|
|
Chenglie Navigation Co.
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
%
|
|
Mediterranean Shipping Co. S.A.
|
|
|
16
|
%
|
|
|
11
|
%
|
|
|
26
|
%
|
|
Orient Overseas Container Line Limited
|
|
|
35
|
%
|
|
|
17
|
%
|
|
|
-
|
|
|
Hapag Lloyd
|
|
|
-
|
|
|
|
25
|
%
|
|
|
21
|
%
|
|
|
2.
|
Significant Accounting Policies
|
|
|
(a)
|
Principles of Consolidation:
The consolidated financial statements incorporate the financial statements of
the Company. Income and expenses of subsidiaries acquired or disposed of during the period
are included in the consolidated statement of comprehensive income / (loss) from the
effective date of acquisition and up to the effective date of disposal, as appropriate.
All intercompany balances and transactions have been eliminated.
|
|
|
(b)
|
Use of Estimates:
The
preparation of the 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 financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant
estimates include residual value of vessels, useful life of vessels, fair value of warrants
and the fair value of derivative instruments. Actual results could differ from those
estimates.
|
|
|
(c)
|
Foreign Currency Translation:
The functional currency of the Company is the U.S. Dollar. For other than derivative
instruments, each asset, liability, revenue, expense, gain or loss arising from a foreign
currency transaction is measured and recorded in the functional currency using the exchange
rate in effect at the date of the transaction. As of balance sheet date, monetary assets
and liabilities that are denominated in a currency other than the functional currency
are adjusted to reflect the exchange rate prevailing at the balance sheet date and any
gains or losses are included in the consolidated statement of comprehensive income /
(loss). As of December 31, 2015 and 2016, the Company had no foreign currency derivative
instruments.
|
|
|
(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:
Restricted
cash represents pledged cash deposits or minimum liquidity required to be maintained
under the Company's borrowing arrangements. Unless the total debt is presented as current,
the minimum liquidity requirements per vessel with an obligation to retain such funds
with a specific bank and pledged accounts which are not expected to be terminated within
the next twelve months are classified as non-current assets, whereas the remaining portion
of the minimum liquidity on a group level, and amounts held in retention accounts for
short-term debt service purposes, are classified as current assets.
|
|
|
(f)
|
Trade Receivables, net:
Trade receivables, net reflect receivables from time charters and commercial
services net of an allowance for doubtful accounts. At the balance sheet date, all potentially
uncollectible accounts are assessed individually for purposes of determining the appropriate
provision for doubtful accounts. As of December 31, 2015 and 2016, the provision for
doubtful accounts was $149,510 and $133,010, respectively.
|
|
|
(g)
|
Inventories:
Inventories
consist of lubricants and stores on board the vessels. Inventories may also consist of
bunkers when vessels are unemployed or are operating in the spot market. Inventories
are stated at the lower of cost or market. Cost is determined by the first in, first
out method.
|
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
2.
|
Significant Accounting Policies – Continued
|
|
|
(h)
|
Vessel Cost:
Vessels
are stated at cost, which consists of the contract price, less discounts, plus any direct
expenses incurred upon acquisition, including improvements, commission paid, delivery
expenses and other expenditures to prepare the vessel for her initial voyage. 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 expensed as incurred.
|
|
|
(i)
|
Impairment of Long-Lived
Assets:
The Company reviews its long-lived assets "held and used" for
impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. When the estimate of future undiscounted cash flows,
excluding interest charges, expected to be generated by the use of the asset is less
than its carrying amount, the Company evaluates the asset for an impairment loss. The
Company measures an impairment loss as the difference between the carrying value of the
asset and its fair value. In this respect, management regularly reviews the carrying
amount of the vessels in connection with the estimated recoverable amount for each of
the Company's vessels.
|
|
|
(j)
|
Vessel Depreciation:
Depreciation is computed using the straight-line method over the estimated useful life
of the vessels, after considering the estimated salvage value. Each vessel's salvage
value is equal to the product of its lightweight tonnage and estimated scrap rate, estimated
to be $300 per lightweight ton. Management estimates the useful life of the Company's
vessels to be 30 years from the date of initial delivery from the shipyard, including
secondhand vessels. Secondhand vessels are depreciated from the date of their acquisition
through their remaining estimated useful life.
|
|
|
(k)
|
Dry-Docking and Special
Survey Costs:
Dry-docking and special survey costs are expensed in the period
incurred.
|
|
|
(l)
|
Above / Below Market Acquired
Time Charters / Other Intangible Assets
:
When vessels are acquired with
time charters attached and the charter rate on such charters is above or below the prevailing
market rates at the time of acquisition, or in certain instances with attached manning
agreements below prevailing market rates, the Company allocates the purchase price of
the vessel and the attached time charter / manning agreement on a relative fair value
basis.
|
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 estimate of the then current market charter rate for an equivalent vessel at the time of acquisition.
The asset or liability recorded is amortized or accreted over the remaining period of the time charter as a reduction or addition,
respectively, to time charter revenue.
Other intangible assets relate to
attached crew manning agreements providing that the charterer will be responsible for the crew cost during the term of the charter.
The fair value of the attached manning agreements is computed as the present value of the crew cost savings. The asset recorded
is amortized over the remaining period of the time charters as an addition to vessels operating expenses.
|
|
(m)
|
Trouble Debt Restructuring:
A restructuring of a debt constitutes a troubled debt restructuring if the lender
or creditor for economic or legal reasons related to the Company's financial difficulties
grants a concession to the Company that it would not otherwise consider. Troubled debt,
that is fully satisfied by foreclosure, repossession, or other transfer of assets or
by grant of equity securities by the Company, is included in the term troubled debt restructuring
and it is accounted for as such. The difference between the fair value of the assets
granted and the carrying amount of debt settled is recognized as a gain on restructuring
of debt.
|
|
|
(n)
|
Financing Costs:
Financing fees incurred for obtaining new loans and credit facilities are deferred
and amortized to interest expense over the respective loan or credit facility using the
effective interest rate method. Any unamortized balance of costs relating to loans repaid
or refinanced is expensed in the period the repayment or refinancing is made, subject
to the accounting guidance regarding Debt – Modifications and Extinguishments.
Any unamortized balance of costs related to credit facilities repaid is expensed in the
period. Any unamortized balance of costs relating to credit facilities refinanced are
deferred and amortized over the term of the respective credit facility in the period
the refinancing occurs, subject to the provisions of the accounting guidance relating
to Debt – Modifications and Extinguishments. The unamortized financing costs are
reflected in Other Assets in the consolidated balance sheets.
|
|
|
(o)
|
Pension and Retirement
Benefit Obligations—Crew:
The vessel owning companies employ the crew on
board under short-term contracts (usually up to nine months) and, accordingly, they are
not liable for any pension or post-retirement benefits.
|
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
2.
|
Significant Accounting Policies – Continued
|
|
|
(p)
|
Revenue and Expenses:
Revenue
is recognized when a charter agreement exists, the vessel is made available to the charterer
and collection of the related revenue is reasonably assured.
|
Time Charter Revenues:
Time
charter revenues are recorded ratably over the term of the charter as service is provided, including the amortization/accretion
of the above/below market acquired time charters where applicable. Time charter revenues received in advance of the provision
of charter service are recorded as deferred income, and recognized when the charter service is rendered.
Commissions:
Charter
hire commissions are deferred and amortized over the related charter period and are presented as a separate line item in revenues
to arrive at net revenues.
Vessel Operating Expenses:
Vessel operating expenses are accounted for as incurred on the accrual basis. Vessel operating expenses include crew wages
and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores,
and other miscellaneous expenses.
|
|
(q)
|
Share Based Compensation:
Share based payments to employees and directors are determined based on their
grant date fair values and are amortized against income over the requisite service period.
|
|
|
(r)
|
Segment Reporting:
The Company reports financial information and evaluates its operations by charter revenues
and not by the length of ship employment for its customers (i.e., spot vs. time charters)
or by geographical region as the charterer is free to trade the vessel worldwide and,
as a result, the disclosure of geographical information is impracticable. The Company
does not have discrete financial information to evaluate the operating results for each
type of charter. Although revenue can be identified for these types of charters, management
cannot and does not identify expenses, profitability or other financial information for
these charters. As a result, management, including the Chief Executive Officer being
the chief operating decision maker, reviews operating results solely by revenue per day
and operating results of the fleet, and thus the Company has determined that it operates
under one reportable segment.
|
|
|
(s)
|
Derivatives:
All
derivatives are recognized at their fair value.
|
The fair value of the interest rate
derivatives is based on a discounted cash flow analysis. When such derivatives do not qualify for hedge accounting, the Company
recognizes their fair value changes in current period earnings. When the derivatives qualify for hedge accounting, the Company
recognizes the effective portion of the gain or loss on the hedging instrument directly in other comprehensive income / (loss),
while the ineffective portion, if any, is recognized immediately in current period earnings. The Company, at the inception of
the transaction, documents the relationship between the hedged item and the hedging instrument, as well as its risk management
objective and the strategy of undertaking various hedging transactions. The Company also assesses at hedge inception of whether
the hedging instruments are highly effective in offsetting changes in the cash flows of the hedged items.
The Company discontinues cash flow
hedge accounting if the hedging instrument expires or 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 current period earnings. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss
recognized in equity is transferred to current period earnings as financial income or expense.
Warrants which do not qualify as
equity instruments, are accounted for as derivative instruments if the warrant holders, could require settlement in cash under
certain conditions, that are not solely within the control of the Company. Changes in fair value of the warrants are recorded
in current period earnings.
|
|
(t)
|
Earnings per Share (EPS):
Basic earnings per share are computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during the period
determined using the two-class method of computing earnings per share. Dividends on cumulative
perpetual preferred shares reduce the income available to common shareholders, even if
not declared. Diluted earnings per share reflect the potential dilution that could occur
if securities or other contracts to issue common stock were exercised. Such dilutive
securities are excluded when the effect would be anti-dilutive.
|
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
2.
|
Significant Accounting Policies – Continued
|
|
|
(u)
|
Dividends:
The
Company records dividends to common shareholders on the date the dividends are declared.
Dividends on cumulative preferred shares are recorded on an accrual basis. Dividends
are recorded in equity against retained earnings to the extent there are retained earnings
on the date of recording, while any shortfall is recorded in additional paid-in capital.
|
|
|
(v)
|
Deconsolidation of Subsidiaries:
The Company deconsolidates a subsidiary or
derecognizes a group of assets as of the date the Company ceases to have a controlling financial interest in that subsidiary or
group of assets. The Company accounts for the deconsolidation of a subsidiary or de-recognition of a group of assets by recognizing
a gain or loss in net income attributable to the Company, measured as the difference between (a) the aggregate of all of the following:
(i) the fair value of any consideration received; (ii) the fair value of any retained noncontrolling investment in the former subsidiary
or group of assets at the date the subsidiary is deconsolidated or the group of assets is derecognized; (iii) the carrying amount
of any noncontrolling interest in the former subsidiary (including any accumulated other comprehensive income attributable to the
noncontrolling interest) at the date the subsidiary is deconsolidated and (b) the carrying amount of the former subsidiary’s
assets and liabilities or the carrying amount of the group of assets.
|
|
|
(W)
|
Recent Accounting Pronouncements:
|
Revenue from Contracts with
Customers:
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU
2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that
a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the
consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to
achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process
than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and
interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative effect adjustment
as of the date of adoption. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for annual
reporting periods beginning after that date. The FASB also permitted early adoption of the standard, but not before
the original effective date of December 15, 2016. The Company is evaluating the potential impact of this adoption on
its consolidated financial statements. Subsequent to the issuance of ASU 2014-09, the FASB issued the following ASU’s which
amend or provide additional guidance on topics addressed in ASU 2014-09. In March 2016, the FASB issued ASU No. 2016-08,
“Revenue Recognition - Principal versus Agent” (reporting revenue gross versus net). In April 2016, the FASB issued
ASU No. 2016-10, “Revenue Recognition - Identifying Performance Obligations and Licenses.” Lastly, in May 2016,
the FASB issued No. ASU 2016-12, “Revenue Recognition - Narrow Scope Improvements and Practical Expedients.” The
Company is evaluating the potential impact of this adoption on its consolidated financial statements.
Going Concern:
In
August 2014, the FASB issued ASU No 2014-15 "Presentation of Financial Statements – Going Concern (Sub-Topic 205-40):
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when
and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim
and annual assessments of an entity's ability to continue as a going concern within one year of the date that the financial statements
are issued. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods
thereafter, with early adoption permitted. The adoption of this standard did not have a material effect on the Company’s
consolidated financial statements.
Debt Issuance Costs:
In April 2015, an accounting pronouncement was issued by the FASB to update the guidance related to the presentation of debt issuance
costs, which the Company adopted in January 2016. This guidance requires debt issuance costs, related to a recognized debt liability,
be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than being
presented as an asset. The reclassification does not impact net income as previously reported or any prior amounts reported on
the consolidated statements of comprehensive income / (loss), or the consolidated statements of cash flows. The effect of the
retrospective application of this change in accounting principle on the consolidated balance sheets as of December 31, 2015 resulted
in a reduction of “Other assets, net” and “Total assets” in the amount of $486,924 with a corresponding
reduction of “Current portion of long-term debt” and “Total long-term liabilities.”
Inventories
:
In July 2015, the FASB issued ASU No 2015-11,
Simplifying the Measurement of Inventory
to simplify the measurement of inventory
using first-in, first out (FIFO) or average cost method. According to this ASU an entity should measure inventory at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices less reasonably predictable costs of completion,
disposal and transportation. This update is effective for public entities with reporting periods beginning after December 15,
2016. Early adoption is permitted. The Company believes that the implementation of this update will not have any significant impact
on its consolidated financial statements and has not elected the early adoption.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
2.
|
Significant Accounting Policies – Continued
|
Leases:
In February
2016, the FASB issued ASU No 2016-02,
Leases
. The standard amends the existing accounting standards for lease accounting
and adds additional disclosures about leasing arrangements. The ASU requires lessees to recognize on the balance sheet the assets
and liabilities for the rights and obligations created by most leases, while lessor accounting remains largely unchanged. The
new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the
date of initial application, with an option to use certain transition relief. This update is effective for public entities with
reporting periods beginning after December 15, 2018. Early adoption is permitted for all entities. The Company has not yet evaluated
the impact, if any, of the adoption of this new standard.
Stock Compensation:
In
March 2016, the FASB issued ASU No 2016-09, Stock Compensation
,
which is intended to simplify several aspects of the accounting
for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016,
including interim periods within that year. The Company believes that the implementation of this update will not have any material
impact on its financial statements.
Statement of Cash Flows:
In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15, Statement of Cash Flows:
Classification of Certain Cash Receipts and Cash Payments. This Update addresses eight specific cash flow issues with the objective
of reducing the existing diversity in practice. The amendments are effective for public business entities for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for all entities. The Company
believes that the implementation of this update will not have any material impact on its financial statements. The Company has
not elected early adoption.
Restricted cash:
In November 2016 the FASB issued the ASU 2016-18 – Restricted
cash. This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents
and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period
and end of period total amounts shown on the statement of cash flows. This update is effective for public entities with reporting
periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted, including
adoption in an interim period. The Company believes that the implementation of this update will not have any material impact on
its financial statements.
Business Combinations:
In January 2017, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standard Update (“ASU”)
2017-01
Business Combinations to clarify the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions
should be accounted
for as acquisition (or disposals) of assets or businesses. Under current implementation guidance the existence of an integrated
set of acquired activities (inputs and processes that generate outputs) constitutes an acquisition of business. This ASU provides
a screen to determine when a set of assets and activities does not constitute a business. The screen requires that when substantially
all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group
of similar identifiable assets, the set is not a business. This update is effective for public entities with reporting periods
beginning after December 15, 2017, including interim periods within those years. The amendments of this ASU should be applied
prospectively on or after the effective date. Early adoption is permitted, including adoption in an interim period 1) for transactions
for which the acquisition date occurs before the issuance date or effective date of the ASU, only when the transaction has not
been reported in financial statements that have been issued or made available for issuance and 2) for transactions in which a
subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the
amendments, only when the transaction has not been reported in financial statements that have been issued or made available for
issuance. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.
As of December 31, 2016, the Company had no vessels and related debt outstanding and had net equity of $244,345,
inclusive of accumulated deficit of $248,390,627, mainly due to the losses suffered in the years ended December 31, 2015 and 2016,
amounting to $26,968,751 and $226,628,862, respectively. Following the sale of vessels, the Company entered into commercial services
agreements with ship-owning companies affiliated with Mr. Michael Bodouroglou which currently constitute its revenue generating
operations. General and administrative expenses are expected to exceed revenues from commercial services agreements which are expected
to approximate $140,000 over the next 12 months from the date of issuance of the financial statements, resulting in an operating
cash deficit.
Furthermore, the Company has not paid dividends to holders of its Series C Preferred Shares, commencing on
April 1, 2016, and does not expect to pay cash dividends within the next 12 months from date of issuance of the financial statements.
In addition, as of December 31, 2016, the Company was not in compliance with the net worth covenant requiring the Company to have
a net worth to preferred stock ratio of not less than 1.50, as described in the Statement of Designation
of the Rights, Preferences and Privileges of the Series C Preferred Shares. As further described in Note 11, under certain circumstances,
the Company will be faced
with an increased dividend rate, thereby further increasing its short-term liabilities, but it
does not expect that any further actions can be brought against it. These factors raise substantial doubt regarding the Company's
ability to continue as a going concern.
The Company intends to reorganize its capital and actively seek to secure new vessel acquisitions, by obtaining
new equity and debt. Furthermore, the Company intends to keep its general and administrative expenses at low levels. The continuation
of the Company as a going concern is therefore dependent upon the outcome of these plans.
These financial statements do not include
any adjustments to the recoverability and classification of recorded assets and liabilities that might be necessary should the
Company be unable to continue as a going concern.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
4.
|
Transactions with Related Parties
|
On November 24, 2016, the Company proceeded
with the sale of all of the issued and outstanding capital stock of each of the subsidiaries owning the vessels
Box Voyager
,
Box Trader
and
Maule
to entities controlled by Mr. Michael Bodouroglou, the Company’s Chairman, President,
Chief Executive Officer and Interim Chief Financial Officer based on a mutually agreed value of $0.50 per company (Note 5).
Further to the above transaction, which is
analyzed in detail in Note 5, the following transactions with related parties occurred during the years ended December 31, 2014,
2015 and 2016:
|
|
(a)
|
Granitis Glyfada Real Estate
Ltd. ("Granitis") - Leasing:
On June 1, 2011, the Company entered into
a rental agreement to lease office space in Athens, Greece, with Granitis, a company
beneficially owned by the Company's Chairman, President, Chief Executive Officer and
Interim Chief Financial Officer. The term of the lease, which commenced in June 2011,
was 1 year, and has been renewed annually. Rent expense under this lease for the years
ended December 31, 2014, 2015 and 2016 amounted to $24,924, $20,709 and $32,784, respectively,
and is included in General and administrative expenses – related party in the statements
of comprehensive income / (loss). The remaining rental commitment, as of December 31,
2016, amounts to $16,356.
|
A. Ship-Owning Companies Management
Agreements:
The Company outsourced the technical and commercial management of its vessels to Allseas, pursuant to management
agreements with each vessel owning subsidiary. Mr. Michael Bodouroglou, the Company's Chairman, President, Chief Executive Officer
and Interim Chief Financial Officer, is the sole shareholder and Managing Director of Allseas. Effective January 2, 2015, the
Company and Allseas mutually agreed to terminate a portion of the services provided by Allseas under the terms of the original
management agreements, which were taken over by Seacommercial Shipping Services S.A., on substantially similar terms, as discussed
further below. Following the sale of vessels discussed in Notes 5 and 6, the management agreements were terminated. The management
agreements, as amended, provided for the following:
(i) Management Fees
–
A fixed monthly technical management fee, adjusted annually on June 1 in accordance with the official Eurozone inflation rate,
of €646.99, €648.93 and €648.28 per vessel per day, (or $704, $706 and $682 per vessel, per day, respectively,
using an exchange rate of $1.0525:€1.00, the $/€ exchange rate as of December 30, 2016, according to Bloomberg) was
payable by the Company to Allseas during 2014, 2015 and 2016, respectively.
(ii) Pre-Delivery Services
– A lump sum fee of $15,000 was payable to Allseas, for pre-delivery services provided, during the period from the
date of the Memorandum of Agreement for the purchase of the vessel, until the date of delivery.
(iii) Superintendent Fees
– A fee of €500 per day (or $526 per day using an exchange rate of $1.0525:€1.00, the $/€ exchange
rate as of December 30, 2016, according to Bloomberg) was payable to Allseas for each day in excess of 5 days per calendar year
for which a superintendent performed on-site inspection.
Each month, the Company made an advance
payment to Allseas to cover working capital equal to one month of estimated operating expenses. At each balance sheet date, the
excess of the amount advanced to Allseas over payments made by Allseas for the Company's operating expenses was included in Due
from related parties in the consolidated balance sheets.
B. Administrative Services
Agreement:
The Company entered into an administrative services agreement with Allseas on April 19, 2011. The agreement
shall continue for as long as Allseas remains in the premises of 15 Karamanli Ave. in Voula, Greece as tenant, or under any other
capacity. Under the agreement, Allseas will provide telecommunication services, secretarial and reception personnel and equipment,
security facilities and cleaning for the Company's offices, and information technology services. The agreement provides that all
costs and expenses incurred in connection with the provision of the above services by Allseas to be reimbursed on a quarterly
basis.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
4.
|
Transactions with Related Parties
– Continued
|
C. Executive Services Agreement:
The Company entered into an executive services agreement with Allseas on April 19, 2011, pursuant to which Allseas provides
the services of the executive officers, who report directly to the Company’s Board of Directors. Pursuant to the amended
and restated Executive Services Agreement, dated May 19, 2015, the agreement shall remain in full force and effect unless terminated
in accordance with the provisions of the agreement. Under the terms of the agreement, the agreement may not be amended or otherwise
modified without the written consent of both parties. The Company’s obligations under the agreement will cease immediately
and Allseas will not be entitled to any further payments of any kind in the event Allseas engagement is terminated by the Company
for Cause (as defined in the agreement) or by Allseas other than for Good Reason (as defined in the agreement). In the event Allseas
engagement is terminated by the Company without Cause or by Allseas for Good Reason (as such terms are defined in the agreement)
or as a result of a Change of Control (as defined in the agreement), Allseas will be entitled to receive (i) its annual fee payable
under the agreement through the Termination Date (as defined in the agreement); (ii) a compensation equal to three years annual
executive services fee; and (iii) 60,000 fully vested shares of the Company’s common stock issued cash free on the date
of termination. In addition, either party has the option to terminate the agreement within six months following a Change of Control
(as defined in the agreement). Effective from January 1, 2013, the executive services fee amounted to $2,200,000 per annum, payable
in twelve monthly instalments. Effective from January 1, 2017, the executive services fee was reduced to $500,000 per annum, The
executive services fee shall be reviewed annually or occasionally by the Company's Board of Directors. For the years ended December
31, 2014 and 2015, the Company's Board of Directors granted an incentive compensation to Allseas for executive services amounting
to $739,560 and $543,150, respectively.
D. Accounting Agreement:
On September 12, 2012, the Company entered into an accounting agreement with Allseas, effective from September 1, 2012, pursuant
to which Allseas provides financial, accounting and financial reporting services. Pursuant to the amended and restated accounting
agreement, dated May 19, 2015, the agreement shall remain in full force and effect, unless terminated in accordance with the provisions
of the agreement. The Company’s obligations under the agreement will immediately cease, and Allseas will not be entitled
to any further payments of any kind in the event Allseas engagement is terminated by the Company for Cause (as defined in the
agreement) or by Allseas other than for Good Reason (as defined in the agreement). In the event Allseas engagement is terminated
by the Company without Cause or by Allseas for Good Reason (as such terms are defined in the agreement) or as a result of a Change
of Control (as defined in the agreement), Allseas will be entitled to receive (i) its fee through the Termination Date (as defined
in the agreement); and (ii) a compensation equal to three years annual financial accounting services fee and financial reporting
fee. In addition, either party may terminate the agreement within six months following a Change of Control (as defined in the
agreement). Effective from January 1, 2016, in connection with the provision of financial and accounting services under the agreement,
Allseas is entitled to a financial and accounting services fee amounting to €200,000 per annum (or $210,500 per annum using
an exchange rate of $1.0525:€1.00, the $/€ exchange rate as of December 30, 2016, according to Bloomberg), payable quarterly
in arrears. Effective from January 1, 2017, the financial and accounting services fee was reduced to €60,000 per annum. In
connection with the provision of the financial reporting services under the agreement, Allseas is entitled to a financial reporting
fee of $30,000 per vessel per annum, payable quarterly in arrears. The financial and accounting services fee and the financial
reporting fee shall be reviewed annually by the Company's Board of Directors.
E. Compensation Agreement:
On September 12, 2012, as further amended and restated on January 2, 2015, the Company entered into a compensation agreement
with Allseas, whereby in the event that Allseas is involuntarily terminated as the manager of its fleet without cause (including
the termination by Allseas of the management agreements for cause), it shall compensate Allseas with an amount equal to the sum
of (i) three years of the most recent management fees, based on the fleet at the time of termination, and (ii) €3,000,000
(or $3,157,500 using an exchange rate of $1.0525:€1.00, the $/€ exchange rate as of December 30, 2016, according to
Bloomberg). Following the sale of vessels discussed in Notes 5 and 6, the compensation agreement was terminated.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
4.
|
Transactions with Related Parties – Continued
|
The following amounts charged
by Allseas are included in the consolidated statements of comprehensive income / (loss):
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
A – Charter hire commissions
|
|
$
|
685,148
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
A – Management fees
|
|
$
|
2,829,632
|
|
|
$
|
2,375,054
|
|
|
$
|
2,163,097
|
|
|
A – Superintendent fees (included in Vessels operating expenses – related party)
|
|
$
|
972,852
|
|
|
$
|
479,463
|
|
|
$
|
310,211
|
|
|
A – Superintendent fees (included in Dry-docking expenses – related party)
|
|
$
|
95,342
|
|
|
$
|
122,171
|
|
|
$
|
-
|
|
|
A – Superintendent fees (included in Loss on sale of vessels – related party)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,605
|
|
|
A – Superintendent fees (included in Gain from deconsolidation of subsidiaries – related party)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,590
|
|
|
B – Administrative fees (included in General and administrative expenses – related party)
|
|
$
|
35,520
|
|
|
$
|
30,985
|
|
|
$
|
34,754
|
|
|
C – Executive services fees (included in General and administrative expenses – related party)
|
|
$
|
2,939,560
|
|
|
$
|
2,743,150
|
|
|
$
|
2,200,000
|
|
|
D – Financial, accounting and financial reporting services fee (included in General and administrative expenses – related party)
|
|
$
|
596,350
|
|
|
$
|
545,162
|
|
|
$
|
441,425
|
|
As
of December 31, 2015 and 2016, the amounts due from Allseas were $3,322,946 and $2,700,761, respectively, and are included
in Due from related parties in the consolidated balance sheets.
|
|
(c)
|
Seacommercial Shipping Services
S.A
.
("Seacommercial" or "Broker")
: On January 2, 2015,
the Company entered into a Sale & Purchase ("S&P") and Charter Brokerage
Services Agreement with Seacommercial, a Liberian company, pursuant to agreements with
each vessel owning subsidiary. Mr. Michael Bodouroglou, the Company's Chairman, President,
Chief Executive Officer and Interim Chief Financial Officer, is the sole shareholder
and Managing Director of Seacommercial. Following the sale of vessels discussed in Notes
5 and 6, the S&P and Charter Brokerage Services Agreements were terminated. The agreements
provided for the following:
|
(i) Charter Hire Commissions
–
The Company paid Seacommercial 1.25% of the gross freight, demurrage and charter hire collected from the employment
of the vessels.
(ii) Vessel Commissions
–
A commission equal to 1% of the contract price, calculated in accordance with the relevant memorandum of agreement,
of any vessel bought or sold on behalf of the Company, was paid to Seacommercial.
In addition, on January 2, 2015,
the Company entered into a Compensation Agreement with Seacommercial, whereby in the event that Seacommercial is involuntarily
terminated as the broker of its fleet (including the termination by Seacommercial of the agreements for cause), it shall compensate
Seacommercial with an amount equal to the sum of three years of charter brokerage commissions, based on the fleet at the time
of termination, on the condition that Seacommercial will not receive this termination fee in the event that the Company terminates
its agreements with Seacommercial for cause.
Charter hire commissions charged
by Seacommercial for the years ended December 31, 2015 and 2016 amounted to $597,759 and $229,827, respectively, and are separately
reflected in Commissions – related party in the consolidated statements of comprehensive income / (loss). As of December
31, 2015 and 2016, the amounts due to Seacommercial were $46,402 and $0, respectively, and are included in Due to related parties
in the consolidated balance sheets. During 2016, six of the Company’s vessels were sold to unrelated third parties (Note
6). Vessel commissions charged by Seacommercial amounted to $353,732 and are included in Loss on sale of vessels – related
party in the consolidated statements of comprehensive income / (loss). Vessel commissions charged by Seacommercial in relation
to the sale of all of the issued and outstanding capital stock of each of the subsidiaries owning the vessels
Box Voyager
,
Box Trader
and
Maule
amounted to $397,500 and are included in Gain from deconsolidation of subsidiaries –
related party in the consolidated statements of comprehensive income / (loss).
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
4.
|
Transactions with Related Parties – Continued
|
A. Manning Agency Agreements:
Each ship-owning company had a manning agency agreement with Crewcare Inc. ("Crewcare"), a company beneficially
owned by the Company's Chairman, President, Chief Executive Officer and Interim Chief Financial Officer, based in Manila, Philippines.
Manning services were provided in exchange for a fixed monthly fee of $95 per seaman for all officers and crew who served on board
each vessel, and $120 per seaman one-time recruitment fee, increased to $140 per seaman effective from August 1, 2016. In addition,
the agreement also provided for a fee of $30 per seaman for in-house training, increased to $50 per seaman effective from August
1, 2016, and a fee of $50 per seaman for extra in-house training. The expenses incurred for the years ended December 31, 2014,
2015 and 2016, amounted to $196,321, $252,446 and $210,434, respectively, and are included in Vessels operating expenses –
related party in the consolidated statements of comprehensive income / (loss). As of December 31, 2015 and 2016, the amounts due
to Crewcare Inc. were $397,537 and $68,149, respectively, and are included in Due to related parties in the consolidated balance
sheets. Following the sale of vessels discussed in Notes 5 and 6, the manning agency agreements were terminated.
B. Cadetship Program Agreements:
Each ship-owning company had a cadetship program agreement with Crewcare, pursuant to which Crewcare, at its own cost,
was responsible for recruiting and training cadets to be assigned to the vessels. These services were provided in exchange for
a lump sum fee of $5,000 per cadet employed on board the vessel for his one year training. The expenses incurred for the years
ended December 31, 2014, 2015 and 2016, amounted to $165,000, $170,000 and $15,000, and are included in Vessels operating expenses
– related party in the consolidated statements of comprehensive income / (loss). Following the sale of vessels discussed
in Notes 5 and 6, the cadetship program agreements were terminated.
|
|
(e)
|
Mone Shipping Co. (“Mone”)
& Venet Shipping Co. (“Venet”):
On December 1, 2016, the Company
entered into commercial services agreements with Mone and Venet, both incorporated in
Liberia in September 2012, which are the owners of the Liberia flag drybulk vessels M/V
Kavala Seas and M/V Paros Seas, respectively, and are beneficially owned by Mr. Michael
Bodouroglou. These agreements have an initial term of five years and automatically extend
for successive five year term, unless, in each case, at least 30 days advance written
notice of termination is given by either party. In addition, the agreements may be terminated
by either party for cause, as set forth in the agreements, on at least 30 days advance
written notice. The agreements provide for the following:
|
(i) Chartering Commissions
–
The Company receives a commission fee of 2% on the gross freight, demurrage and charter hire collected from the
employment of the vessels.
(ii) Sale & Purchase
Commissions
–
A commission equal to 1% of the contract price, calculated in accordance with the relevant memorandum
of each agreement, of any vessel bought or sold on behalf of Mone and Venet, is payable to the Company.
Commercial services fees charged
by the Company for the year ended December 31, 2016 amounted to $11,542 and are separately reflected in Commercial services fees
– related party in the consolidated statements of comprehensive income / (loss). As of December 31, 2016, the amounts due
from Mone and Venet were $11,542 and are included in Due from related parties in the consolidated balance sheets.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
5.
|
Deconsolidation of Subsidiaries
|
The Company experienced difficulties to serve its debt obligations under the $100 million loan agreement
with ABN AMRO Bank N.V and in November 2016, a special committee consisting of the Company’s independent directors (“Special
Committee”) was established to evaluate the potential transfer of ownership of the companies owning the vessels
Box Voyager
,
Box Trader
and
Maule
to entities affiliated with Mr. Michael Bodouroglou, the Company’s
Chairman,
President, Chief Executive Officer and Interim Chief Financial Officer. The Special Committee determined it was in the best interest
of the Company and its shareholders to sell the vessel-owning subsidiaries to entities controlled by Mr. Michael Bodouroglou, and
the Company was released from its obligations under the loan agreement in connection therewith.
On November 24, 2016 (the “Closing Date”),
the Company (the “Seller”) sold of all of the issued and outstanding capital stock of the companies owning the vessels
Box Voyager
,
Box Trader
and
Maule
at a sale price of $0.50 per company to entities affiliated with Mr. Michael
Bodouroglou (the “Buyer”). The sale price was determined based on a financial analysis performed by an independent
third party. The transaction included the transfer of all assets and liabilities, while any revenues generated and expenses incurred
prior to that date are included in the consolidated statements of comprehensive income / (loss). Pursuant to the share purchase
agreement the Buyer granted to the Seller a right to buy back the shares (“Call Option”) at the same consideration
for a period of 90 days from the Closing Date, subject to lender’s approval and reimbursement by the Seller of all payments
and/or repayments under the loan agreement (including but not limited to any principal and accrued interest) from the Closing
Date until the Call Option date.
The above transaction resulted in a gain from
deconsolidation of subsidiaries of $17,865,874, net of $403,090 related party fees discussed in Note 4, which is separately reflected
in the consolidated statements of comprehensive income / (loss).
|
|
6.
|
Vessels, Net and Other Fixed Assets, Net
|
The amounts shown in the consolidated balance
sheets are analyzed as follows:
|
|
|
Vessel Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
|
Balance, January 1, 2015
|
|
$
|
424,105,871
|
|
|
$
|
(53,151,629
|
)
|
|
$
|
370,954,242
|
|
|
Depreciation
|
|
|
-
|
|
|
|
(15,075,915
|
)
|
|
|
(15,075,915
|
)
|
|
Impairment loss
|
|
|
(30,879,525
|
)
|
|
|
9,237,436
|
|
|
|
(21,642,089
|
)
|
|
Balance, December 31, 2015
|
|
$
|
393,226,346
|
|
|
$
|
(58,990,108
|
)
|
|
$
|
334,236,238
|
|
|
Improvements
|
|
|
134,140
|
|
|
|
-
|
|
|
|
134,140
|
|
|
Depreciation
|
|
|
-
|
|
|
|
(7,611,425
|
)
|
|
|
(7,611,425
|
)
|
|
Impairment loss
|
|
|
(306,239,306
|
)
|
|
|
66,241,016
|
|
|
|
(239,998,290
|
)
|
|
Disposals
|
|
|
(87,121,180
|
)
|
|
|
360,517
|
|
|
|
(86,760,663
|
)
|
|
Balance, December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
During 2016, six of the Company’s vessels
were sold to unrelated third parties for demolition purposes, while the companies owning the vessels Box Voyager, Box Trader and
Maule were sold to entities affiliated with Mr. Michael Bodouroglou, as mentioned in Note 5 above.
The vessels were sold at the sale prices presented
below. The loss on sales which was recognized and is separately reflected in the consolidated statements of comprehensive income
/ (loss) and the vessels’ delivery dates to their new owners are analyzed as follows:
|
Vessel
|
|
Sale Price (Gross)
|
|
|
Loss on Sale of Vessels
|
|
|
Delivery Date
|
|
Box Hong Kong
|
|
|
6,275,462
|
|
|
|
767,039
|
|
|
August 9, 2016
|
|
Box China
|
|
|
6,278,592
|
|
|
|
804,676
|
|
|
August 11, 2016
|
|
Box Emma
|
|
|
5,461,954
|
|
|
|
3,930,277
|
|
|
September 22, 2016
|
|
Box Queen
|
|
|
5,927,866
|
|
|
|
2,501,509
|
|
|
October 31, 2016
|
|
Box Marlin
|
|
|
5,718,140
|
|
|
|
3,399,675
|
|
|
December 9, 2016
|
|
Box Kingfish
|
|
|
5,711,213
|
|
|
|
3,379,758
|
|
|
December 13, 2016
|
|
|
|
|
35,373,227
|
|
|
|
14,782,934
|
|
|
|
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
6.
|
Vessels, Net and Other Fixed Assets, Net – Continued
|
Following the sale of vessels, the carrying
amount of other fixed assets was written-off. Depreciation charged for each of the years ended December 31, 2014, 2015 and 2016
amounted to $59,982, $59,982 and $39,187.
|
|
7.
|
Above / Below Market Acquired Time Charters / Other
Intangible Assets
|
The Company acquired five vessels with attached
time charter contracts having rates, which were above the market rates, while another two vessels were acquired with attached
time charter contracts having rates which were below the market rates. The above and below market acquired time charters were
amortized / accreted over the remaining period of the time charters as a reduction or addition, respectively, to time charter
revenues. Such amortization and accretion to time charter revenues for the above and below market acquired time charters amounted
to $5,198,574 and $453,248, for the year ended December 31, 2014, $2,886,080 and $0, for the year ended December 31, 2015, and
$446,401 and $0, for the year ended December 31, 2016, respectively.
The carrying value of the above market acquired
time charters amounting to $446,401 as of December 31, 2015 was fully amortized in 2016.
The carrying
value of the below market acquired time charters was fully amortized in 2014.
In addition, in relation to the acquisition
of
Box Hong Kong
and
Box China,
the Company recorded other intangible assets relating to the attached manning agreements
at below market rates. Such amortization for the years ended December 31, 2014, 2015 and 2016 amounted to $1,056,338, $520,588
and $0, respectively. Other intangible assets were amortized over the three-year time charter period as an addition, to crew costs,
which are included in Vessels Operating Expenses in the consolidated statements of comprehensive income / (loss).
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Accrued loan and swap interest
|
|
$
|
665,707
|
|
|
$
|
-
|
|
|
Accrued vessel voyage and operating expenses
|
|
|
1,135,747
|
|
|
|
112,243
|
|
|
Accrued professional fees
|
|
|
226,963
|
|
|
|
154,565
|
|
|
Accrued finance expenses
|
|
|
50,000
|
|
|
|
-
|
|
|
Other sundry liabilities and accruals
|
|
|
49,119
|
|
|
|
53,208
|
|
|
Total
|
|
$
|
2,127,536
|
|
|
$
|
320,016
|
|
During 2016, the Company entered into agreements
with all of its lenders for the full and final satisfaction of all amounts outstanding under the loan agreements in exchange for
the net sale proceeds of the mortgaged vessels. A gain from debt extinguishment of $24,716,766 or approximately $16.91 per common
share, was recognized and is separately reflected in the consolidated statements of comprehensive income / (loss).
The weighted average interest rates for the
years ended December 31, 2014, 2015 and 2016 were 3.50%, 3.55% and 3.39%, respectively.
On April 7, 2016, the Company entered into
a securities purchase agreement with an unrelated third party, pursuant to which it authorized and issued a convertible note in
the original principal amount of $250,000, which was convertible into common shares at the option of the holder at a conversion
price equal to 65% of the lowest volume weighted average price of the common shares during the 21 trading days prior to the conversion
date. The note bore interest at the rate of 8% per annum. The original principal amount along with accrued interest was converted
in full into
1,171,769 shares of common stock.
On August 5, 2016, the Company entered into
a securities purchase agreement with an unrelated third party, pursuant to which it authorized and issued a convertible note in
the original principal amount of $250,000, which was convertible into common shares at the same terms discussed above. The original
principal amount along with accrued interest was converted in full into 870,758 shares of common stock.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
10.
|
Fair Value Disclosures
|
The principal financial assets of the Company consist of cash and cash equivalents, restricted cash, amounts
due from related parties, and prepaid expenses and other receivables. The principal financial liabilities of the Company consist
of accounts payable, amounts due to related parties, accrued liabilities, warrant liability and dividends on preferred shares payable.
(a) Interest rate risk:
Following
the settlement agreements with all lenders, the Company is not exposed to interest rate fluctuations.
(b) Concentration of credit risk:
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally
of trade accounts receivable, amounts due from related parties and cash and cash equivalents. The Company limits its credit risk
with accounts receivable by performing ongoing credit evaluations of its customers' financial condition and generally does not
require collateral for its trade accounts receivable. The amounts due from related parties mainly relate to advance payments to
Allseas to cover working capital equal to one month of estimated operating expenses, which will be either be refunded to the Company
after settlement of all remaining liabilities or will be used to settle any fees payable to Allseas under the contractual agreements.
The Company places its cash and cash equivalents, with high credit quality financial institutions. The Company performs periodic
evaluations of the relative credit standing of those financial institutions.
(c) Fair value:
In accordance
with the requirements of accounting guidance relating to Fair Value Measurements, the Company classifies and discloses its assets
and liabilities carried at fair value in one of the following three categories:
(i) Level 1: Quoted market prices
in active markets for identical assets or liabilities;
(ii) Level
2: Observable market based inputs or unobservable inputs that are corroborated by market data; and
(iii) Level
3: Unobservable inputs that are not corroborated by market data.
The carrying values of cash and cash equivalents, restricted cash, prepaid expenses and other receivables,
due from related parties, trade accounts payable, accrued expenses and amounts due to related parties are reasonable estimates
of their fair value due to the short-term nature of these financial instruments. Cash and cash equivalents and restricted cash
are considered Level 1 items as they represent liquid assets with short-term maturities.
T
he warrant liability, discussed below, is stated
at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability,
an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs
and minimize the use of unobservable inputs.
Assets and Liabilities Measured at Fair
Value on a Recurring Basis
Interest rate swap agreements:
Following
the settlements agreements with all lenders, discussed in Note 9 above, all interest rate swap agreements were terminated.
Warrant liability
On April 15, 2014, the Company completed the
public offering of 100,000 units, each consisting of one common share and one warrant to purchase 0.40 common shares (the "Units")
at a public offering price of $102.5 per unit (Note 11), of which $15.5 was allocated to each warrant, based on its estimated
fair value. Additionally, a portion of the over-allotment option was exercised for 12,950 warrants at a price of $0.5 per warrant.
The warrants have an exercise price of $132.5 per share, are exercisable immediately upon issuance, and will expire on April 10,
2019. In addition, the Company has the right, commencing one year after issuance of the warrants, to call all of the outstanding
warrants for redemption at a price of $0.5 for each warrant and upon not less than 30 days prior written notice of redemption
to each warrant holder, subject to certain conditions, including that the reported last sale price of the Company's common shares
is at least $250.00 for any 20 trading days within a 30 consecutive trading day period ending on the third business day prior
to the notice of redemption to warrant holders.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
10.
|
Fair Value Disclosures – Continued
|
As of December 31, 2015 and 2016, the Company
had 112,950 warrants outstanding that are exercisable into 45,180 common shares. Under certain circumstances that are not solely
within the control of the Company, the Company may be required to settle these warrants by delivering cash to the holder and hence
based on the guidance contained in ASC 815 "Derivatives and Hedging", management has classified these warrants as a
derivative liability and has recorded the liability at fair value. There was no warrant activity during the period from April
15, 2014 to December 31, 2016.
Information on the location and amounts of
derivative fair values in the consolidated balance sheets and derivative gains / (losses) in the Consolidated Statement of Stockholders'
Equity or Consolidated Statement of Comprehensive Income / (Loss) are shown below:
Derivative Instruments designated as hedging instruments
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Interest rate swaps
|
|
Current assets – Interest rate swaps
|
|
|
(37,710
|
)
|
|
|
-
|
|
|
Total derivatives
|
|
|
|
$
|
(37,710
|
)
|
|
$
|
-
|
|
Derivative Instruments not designated as hedging instruments
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Interest rate swaps
|
|
Current liabilities – Interest rate swaps
|
|
$
|
42,479
|
|
|
$
|
-
|
|
|
Interest rate swaps
|
|
Current assets – Interest rate swaps
|
|
|
(483
|
)
|
|
|
-
|
|
|
Warrant liability
|
|
Long-term liabilities – Warrant liability
|
|
|
3,388
|
|
|
|
960
|
|
|
Total derivatives
|
|
|
|
$
|
45,384
|
|
|
$
|
960
|
|
The following table presents the impact of
derivative instruments and their location within the consolidated statements of comprehensive income / (loss):
Derivative Instruments designated as hedging instruments
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
Location of Gain/(Loss) Recognized
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Interest rate swaps
|
|
Interest and finance costs
|
|
$
|
(374,843
|
)
|
|
$
|
(105,058
|
)
|
|
$
|
(10,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments not designated as hedging instruments
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
Location of Gain/(Loss) Recognized
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Interest rate swaps
|
|
(Loss) / gain on derivatives
|
|
$
|
(82,160
|
)
|
|
$
|
17,053
|
|
|
$
|
29,761
|
|
|
Warrant liability
|
|
Fair value change of warrants
|
|
|
1,274,100
|
|
|
|
278,987
|
|
|
|
2,428
|
|
|
|
|
|
|
$
|
1,191,940
|
|
|
$
|
296,040
|
|
|
$
|
32,189
|
|
The fair value of the interest rate swaps
was determined using a discounted cash flow approach based on market-based LIBOR swap yield rates. LIBOR swap rates are observable
at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items in accordance with the
fair value hierarchy. The fair value of the interest rate swap agreements approximates the amount that the Company would have
to pay for the early termination of the agreements.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
10.
|
Fair Value Disclosures – Continued
|
The Company uses the Cox-Rubinstein Trinomial
methodology to measure the warrant liability. The assumptions used to calculate the fair value of the warrants on December 31,
2014, 2015 and 2016, were as follows:
|
|
a.
|
Underlying stock price of $43.00,
$8.0 and $0.5 being the closing share prices on December 31, 2014, 2015 and 2016, respectively
|
|
|
b.
|
Exercise price of $132.5 based
upon agreement
|
|
|
c.
|
Volatility of 54.84%, 62.43% and
151.67% on December 31, 2014, 2015 and 2016, respectively based on the Company's share
price performance
|
|
|
d.
|
Time to expiration based upon the
contractual life or expected term if applicable
|
|
|
e.
|
Short-term (risk-free) interest
rate based on the treasury securities with a similar expected term
|
|
|
f.
|
No dividend distributions
|
The Company considers the warrant liability
to be Level 3 because the share price volatility and the expected life of the contract are neither directly nor indirectly observable.
At December 31, 2015 and 2016, a 10% increase in the share price volatility would increase the warrant liability by approximately
100% and 65%, respectively, while a 10% decrease in the share price volatility would decrease the warrant liability by approximately
67% and 59%, respectively. A 10% decrease in the expected life of the contract would decrease the warrant liability by approximately
33% and 29% at December 31, 2015 and 2016, respectively. The Company did not perform a sensitivity analysis for an increase in
the expected life of the contract, since the fair value was determined assuming the warrants are held until expiration.
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, 2014, 2015 and 2016:
|
Beginning balance
|
|
$
|
-
|
|
|
Issuances
|
|
|
1,556,475
|
|
|
Fair value change of warrants, included in earnings
|
|
|
(1,274,100
|
)
|
|
Balance, December 31, 2014
|
|
|
282,375
|
|
|
Fair value change of warrants, included in earnings
|
|
|
(278,987
|
)
|
|
Balance, December 31, 2015
|
|
|
3,388
|
|
|
Fair value change of warrants, included in earnings
|
|
|
(2,428
|
)
|
|
Balance, December 31, 2016
|
|
$
|
960
|
|
Assets Measured at Fair Value on a Non-recurring Basis
During 2016, the Company reviewed
the carrying amount in connection with the estimated recoverable amount for each of its vessels. Mainly due to the continued poor
performance of the containership charter market, the review indicated that such carrying amount was not recoverable. The Company
recorded an impairment loss, which is separately reflected in the consolidated statements of comprehensive income / (loss), as
presented in the table below:
|
Vessel
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Loss
|
|
|
Box Hong Kong
|
|
$
|
6,496,470
|
|
|
$
|
2,532,694
|
|
|
Box China
|
|
$
|
6,499,710
|
|
|
$
|
2,770,036
|
|
|
Box Emma
|
|
$
|
8,875,000
|
|
|
$
|
33,208,877
|
|
|
Box Kingfish
|
|
$
|
8,750,000
|
|
|
$
|
32,193,244
|
|
|
Box Marlin
|
|
$
|
8,750,000
|
|
|
$
|
31,183,496
|
|
|
Box Queen
|
|
$
|
8,000,000
|
|
|
$
|
38,326,942
|
|
|
Maule
|
|
$
|
21,250,000
|
|
|
$
|
39,571,678
|
|
|
Box Voyager
|
|
$
|
9,250,000
|
|
|
$
|
30,099,912
|
|
|
Box Trader
|
|
$
|
9,250,000
|
|
|
$
|
30,111,411
|
|
|
TOTAL
|
|
$
|
87,121,180
|
|
|
$
|
239,998,290
|
|
The fair value was based on the Company’s
best estimate of the value of each vessel on a time charter free basis, and was supported by vessel valuations of independent shipbrokers,
which were mainly based on recent sales and purchase transactions of similar vessels.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
The Company did not have any other assets
or liabilities measured at fair value on a non-recurring basis during the years ended December 31, 2014, 2015 and 2016. As of
December 31, 2015 and 2016, no fair value measurements for assets or liabilities under Level 1 were recognized in the Company's
consolidated balance sheets, except for cash and cash equivalents and restricted cash.
Under the amended and restated articles of
incorporation effective April 11, 2011, the Company's authorized capital stock consists of 500,000,000 registered shares, par
value $0.01 per share, of which 475,000,000 shares are designated as common shares and 25,000,000 shares are designated as preferred
shares.
Box Ships Inc. was incorporated with authorized
100 shares of capital stock at no par value, all of which had been issued to Paragon. On April 11, 2011, the authorized share
capital of the Company was increased to 500,000,000 registered shares, comprised of 475,000,000 shares of common stock and 25,000,000
shares of preferred stock, each with a par value of $0.01 per share. The 100 shares of capital stock, no par value, held by Paragon
were converted to 100 shares of common stock, par value $0.01 per share, and were subsequently cancelled.
Each holder of common shares is entitled to
one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding
shares of preferred stock, holders of common shares are entitled to share equally in any dividends that the Company's Board of
Directors may declare from time to time, out of funds legally available for dividends. Upon dissolution, liquidation or winding-up,
the holders of common shares will be entitled to share equally in all assets remaining after the payment of any liabilities and
the liquidation preferences on any outstanding preferred stock. Holders of common shares do not have conversion, redemption or
pre-emptive rights.
On April 15, 2014, the Company completed the
public offering of 100,000 Units, as discussed in Note 10 above. In a concurrent private placement, Neige International Inc. ("Neige
International"), a Company controlled by Mr. Michael Bodouroglou, the Company’s Chairman, President, Chief Executive
Officer and Interim Chief Financial Officer, purchased directly from the Company 10,000 Units at the public offering price. The
proceeds from the offering and the concurrent private placement of the Units, after underwriting discounts and commissions were
$10,753,000, including $1,550,000 allocated to the warrant liability. Other offering expenses amounted to $197,410.
On May 12, 2014, the Company's Board of Directors
authorized a share buyback program of up to $5,000,000 for a period of twelve months. No shares were repurchased by the Company
during this period.
During 2016, pursuant to the securities purchase
agreement, discussed above (Note 9), an amount of $500,000 along with accrued interest was converted to 2,042,527 shares of common
stock. In addition, pursuant to the securities exchange agreement, the Company entered into on March 3, 2016, discussed further
below, 36,500 Series C Preferred Shares were exchanged for 244,119 shares of common stock.
During 2014 and 2015, 6,800 and 7,600
common shares, respectively, were issued under the Company's equity incentive plan (Note 13). During 2014 and 2015, 20 and
440 non-vested shares, respectively, were cancelled.
As of December 31, 2016, the Company had a
total of 2,912,257 common shares outstanding, of which 2,800 shares are not vested and were issued under the Company’s Equity
Incentive Plan.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
11.
|
Capital Structure – Continued
|
The authorized preferred stock of the Company
consists of 25,000,000 preferred shares, par value $0.01 per share, of which 1,000,000 shares are designated as Series A Participating
Preferred Stock which is issuable upon exercise of the preferred stock purchase rights attached to our common shares in accordance
with the terms of the Company's stockholders rights agreement, 2,500,000 shares are designated as Series B Preferred Shares, 2,500,000
shares are designated as Series B-1 Preferred Shares and 2,500,000 shares are designated as Series C Preferred Shares.
In 2013, the Company completed the public
offering of 916,333 shares of its 9.00% Series C Preferred Shares at a public offering price of $24.00 per share. Neige International
purchased 208,333 shares, sold in the offering, at the public offering price. The Series C Preferred Shares are trading on the
Other OTC Market under the symbol "TEUCF".
Holders of the Series C Preferred Shares are
entitled to receive cumulative dividends from the original date of issuance, or for any subsequently issued and newly outstanding
shares, from the dividend payment date immediately preceding the issue date of such shares. Dividends on Series C Preferred Shares
shall accrue and be cumulative, on a 30/360 day count basis, at a rate of 9.00% per annum per $25.00 liquidation preference per
Series C Preferred Share, subject to adjustment under certain circumstances as described in the Statement of Designation of the
Rights, Preferences and Privileges of the Series C Preferred Shares, and are payable quarterly on January 1, April 1, July 1 and
October 1 of each year, when, as and if declared by the Company's Board of Directors, commencing on October 1, 2013.
The Series C Preferred Shares are not subject
to mandatory redemption. At any time on or after July 29, 2016 and prior to July 29, 2018, the Company, at its option, may redeem,
in whole or in part, the Series C Preferred Shares at a redemption price equal to 101% of the liquidation preference of $25.00
per share and at any time thereafter at a redemption price equal to the liquidation preference of $25.00 per share, in each case
plus an amount equal to all accumulated and unpaid dividends. The Series C Preferred Shares are not convertible into common shares,
except under certain conditions upon a change of control of the Company.
On March 3, 2016, the Company entered into
a securities exchange agreement (the "Exchange Agreement") with an unrelated third party (the "Buyer"). Pursuant
to the Exchange Agreement, the Buyer had the option to purchase shares of the Company’s Series C Preferred Shares with an
aggregate purchase price of up to $350,000. The Company agreed with the Buyer to exchange any of such Series C Preferred Shares
for a number of shares of the Company’s common stock pursuant to a formula set forth in the Exchange Agreement. The Exchange
Agreement expired on June 30, 2016. During the six months ended June 30, 2016, the Company exchanged 36,500 Series C Preferred
Shares for 244,119 common shares.
During 2014, 2015 and 2016, the Company paid
to holders of the Series C Preferred Shares, dividends of $2,061,749, $2,061,749 and $515,437, respectively, and declared and
accrued dividends of $1,994,812, which remain unpaid.
The
Company’s Board of Directors, considering the Company’s liquidity needs decided to refrain from paying the dividends
on Series C Preferred Shares, originally due on April 1, July 1, October 1, 2016 and January 2, 2017. In the event the Company
is unable to make dividend payments to the holders of the Series C Preferred Shares for six quarters, whether consecutive or not,
it will constitute a dividend payment default (the “Dividend Payment Default”). Upon occurrence of a Dividend Payment
Default, the dividend rate shall increase to a number that is 1.25 times the dividend rate payable on the day immediately preceding
the date of such default and shall continue to increase until no default exists, but in no event dividends shall accrue at a rate
greater than 25% per annum. As of December 31, 2016, the Company was not in compliance with the net worth covenant, requiring
the Company to have a net worth to preferred stock ratio of not less than 1.50, as described in the Statement of Designation of
the Rights, Preferences and Privileges of the Series C Preferred Shares. The failure to comply with such covenant, if such failure
continues unremedied for 120 days, constitutes a covenant default (the “Covenant Default”). Upon occurrence of a Covenant
Default, the dividend rate shall increase to a number that is 1.25 times the dividend rate payable on the day immediately preceding
the date of such default and shall continue to increase until no default exists, but in no event dividends shall accrue at a rate
greater than 25% per annum, without duplication if more than one default has occurred.
As of December 31, 2016, the Company had a
total of 879,833 Series C Preferred Shares outstanding.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
11.
|
Capital Structure – Continued
|
The 10,000 warrants issued in April 2014 and
purchased directly by Neige International in the concurrent private placement discussed above, have an exercise price of $132.5
per share, are exercisable immediately upon issuance, and will expire on April 10, 2019. In addition, the Company has the right,
commencing one year after issuance of the warrants, to call all of the outstanding warrants for redemption at a price of $0.5
for each warrant and upon not less than 30 days prior written notice of redemption to each warrant holder, subject to certain
conditions, including that the reported last sale price of the Company's common shares is at least $250.00 for any 20 trading
days within a 30 consecutive trading day period ending on the third business day, prior to the notice of redemption to warrant
holders.
The fair value of the warrants at inception,
was estimated at $15.50, using the Cox-Rubinstein Trinomial methodology. The assumptions used to calculate the fair value of the
warrants at inception were as follows:
|
|
a.
|
Underlying stock price of $119.00
being the closing share prices on April 9, 2014
|
|
|
b.
|
Exercise price of $132.5 based
upon agreement
|
|
|
c.
|
Volatility of 54.05% on April 9,
2014 based on the Company's share price performance
|
|
|
d.
|
Time to expiration based upon the
contractual life or expected term if applicable
|
|
|
e.
|
Short-term (risk-free) interest
rate based on the treasury securities with a similar expected term
|
|
|
f.
|
No dividend distributions
|
The warrants attached to the Units issued
to Neige International, provide for physical settlement requiring the Company to deliver shares to the holder of the warrants
in exchange of cash and do not contain any provisions requiring settlement in cash. As a result, the fair value of the warrants
issued to Neige International, was classified into permanent equity and subsequent changes in fair value are not recognized in
the consolidated financial statements.
In September 2015, the Company’s Board
of Directors approved a share repurchase program for up to 10% of the Company’s common shares outstanding during the twelve-month
period ending on September 29, 2016 in open market transactions at prevailing market rates. Under the share repurchase program,
during the fourth quarter of 2015, the Company repurchased 4,164 shares of its common stock for a total consideration of $113,667,
which were cancelled in January 2016.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
12.
|
Accumulated Other Comprehensive Income / (Loss)
|
The components of AOCI included in the consolidated
balance sheets consist of unrealized gain / (loss) on cash flow hedges and are analyzed as follows:
Changes in AOCI by Component
|
|
|
Unrealized Gain / (Loss) on
cash flow hedges
|
|
|
AOCI — Balance, January 1, 2014
|
|
$
|
(84,150
|
)
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
|
521,002
|
|
|
Amounts reclassified from AOCI
|
|
|
(374,843
|
)
|
|
Net current-period OCI
|
|
|
146,159
|
|
|
|
|
|
|
|
|
AOCI — Balance, December 31, 2014
|
|
$
|
62,009
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
|
80,759
|
|
|
Amounts reclassified from AOCI
|
|
|
(105,058
|
)
|
|
Net current-period OCI
|
|
|
(24,299
|
)
|
|
|
|
|
|
|
|
AOCI — Balance, December 31, 2015
|
|
$
|
37,710
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
|
(27,144
|
)
|
|
Amounts reclassified from AOCI
|
|
|
(10,566
|
)
|
|
Net current-period OCI
|
|
|
(37,710
|
)
|
|
|
|
|
|
|
|
AOCI — Balance, December 31, 2016
|
|
$
|
-
|
|
Reclassifications out of AOCI
|
Details about AOCI Components
|
|
Amount Reclassified from AOCI
|
|
|
Affected
Line Item in the
Statement
Where Net Income is Presented
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
374,843
|
|
|
Interest and finance costs
|
|
Total reclassifications for 2014
|
|
$
|
374,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
105,058
|
|
|
Interest and finance costs
|
|
Total reclassifications for 2015
|
|
$
|
105,058
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
10,566
|
|
|
Interest and finance costs
|
|
Total reclassifications for 2016
|
|
$
|
10,566
|
|
|
|
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
13.
|
Share Based Compensation
|
Equity incentive plan
On April 19, 2011, the Company adopted an
equity incentive plan, under which the officers, key employees and directors of the Company will be eligible to receive awards
in the form of (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) restricted stock units and (e) unrestricted
stock. A total of 40,000 shares, as amended in February 2013, were reserved for issuance under the plan. The Board of Directors
administers the plan. Under the terms of the plan, the Board of Directors is able to grant options exercisable at a price per
common share to be determined by the Board of Directors but in no event less than fair market value as of the date of grant. As
of December 31, 2016, there were 5,940 shares of common stock available for issuance under the equity incentive plan.
Non-vested share awards
Until the forfeiture of any non-vested share awards, all non-vested share awards give the grantee the
right to vote such non-vested share awards and to receive and retain all regular cash dividends paid on such non-vested share awards
with no obligation to return the dividend if employment ceases and to exercise all other rights provided that the Company will
retain custody of all distributions other than regular cash dividends made or declared with respect to the non-vested share awards.
All share awards are conditioned upon the option holder's continued service as an employee of the Company, or a director through
the applicable vesting date. The Company estimates the forfeitures of non-vested share awards to be immaterial and hence the Company
accounts for forfeitures as they occur.
The accounting guidance relating to the share
based payments describes two generally accepted methods of accounting for non-vested share awards with a graded vesting schedule
for financial reporting purposes: 1) the "accelerated method", which treats an award with multiple vesting dates as
multiple awards and results in a front-loading of the costs of the award and 2) the "straight-line method" which treats
such awards as a single award. Management has selected the straight-line method with respect to the non-vested share awards because
it considers each non-vested share award to be a single award and not multiple awards, regardless of the vesting schedule. Additionally,
the "front-loaded" recognition of compensation cost that results from the accelerated method implies that the related
employee services become less valuable as time passes, which management does not believe to be the case.
The details of the non-vested share awards
granted are outlined as follows:
|
|
|
Grant date
|
|
Final vesting date
|
|
Total shares
granted
|
|
|
Grant Date
Fair Value
|
|
|
A.
|
|
April 19, 2011
|
|
April 19, 2014
|
|
|
2,000
|
|
|
$
|
552.50
|
|
|
B.
|
|
July 14, 2011
|
|
April 19, 2014
|
|
|
160
|
|
|
$
|
536.75
|
|
|
C.
|
|
December 5, 2011
|
|
December 31, 2014
|
|
|
4,180
|
|
|
$
|
511.50
|
|
|
D.
|
|
January 2, 2012
|
|
December 31, 2014
|
|
|
160
|
|
|
$
|
433.00
|
|
|
E.
|
|
February 3, 2012
|
|
December 31, 2014
|
|
|
20
|
|
|
$
|
413.75
|
|
|
F.
|
|
November 14, 2012
|
|
December 31, 2014
|
|
|
6,300
|
|
|
$
|
267.25
|
|
|
G.
|
|
February 4, 2013
|
|
December 31, 2014
|
|
|
680
|
|
|
$
|
305.50
|
|
|
H.
|
|
November 22, 2013
|
|
December 31, 2015
|
|
|
6,300
|
|
|
$
|
158.75
|
|
|
I.
|
|
December 19, 2013
|
|
December 31, 2015
|
|
|
320
|
|
|
$
|
145.50
|
|
|
J.
|
|
November 10, 2014
|
|
December 31, 2016
|
|
|
6,800
|
|
|
$
|
45.50
|
|
|
K.
|
|
February 26, 2015
|
|
December 31, 2016
|
|
|
1,400
|
|
|
$
|
42.25
|
|
|
L.
|
|
March 17, 2015
|
|
December 31, 2016
|
|
|
600
|
|
|
$
|
41.75
|
|
|
M.
|
|
December 15, 2015
|
|
December 31, 2017
|
|
|
5,600
|
|
|
$
|
9.25
|
|
A summary of the activity for non-vested share
awards for the year ended December 31, 2016, is as follows:
|
|
|
Number of
shares
|
|
|
Weighted
Average Fair
Value
|
|
|
Non-vested, January 1, 2016
|
|
|
9,780
|
|
|
$
|
37.20
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(6,980
|
)
|
|
|
40.55
|
|
|
Non-vested, December 31, 2016
|
|
|
2,800
|
|
|
$
|
9.25
|
|
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
13.
|
Share Based Compensation – Continued
|
The non-vested share awards under M above,
vest ratably in annual instalments over a two-year period commencing on December 31, 2016 and ending on December 31, 2017. The
remaining unrecognized compensation cost amounting to $25,310 as of December 31, 2016, is expected to be recognized over the remaining
period of 1 year, according to the contractual terms of those non-vested share awards.
The total fair value on the vesting date of
shares that vested under the equity incentive plan during the years ended December 31, 2014, 2015 and 2016, was $423,316, $61,793
and $3,490, respectively.
Share based compensation for the years ended
December 31, 2014, 2015 and 2016, amounted to $2,247,002, $678,721 and $200,205, respectively, and is included in general and
administrative expenses in the consolidated statements of comprehensive income / (loss).
|
|
14.
|
Vessels Operating Expenses
|
Vessels operating expenses, including related
party amounts, are comprised as follows:
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Crew wages and related costs
|
|
$
|
8,566,126
|
|
|
$
|
8,572,724
|
|
|
$
|
6,701,550
|
|
|
Insurance
|
|
|
1,643,196
|
|
|
|
1,399,727
|
|
|
|
936,560
|
|
|
Repairs and maintenance
|
|
|
1,056,599
|
|
|
|
705,225
|
|
|
|
966,543
|
|
|
Spares and consumable stores
|
|
|
5,867,906
|
|
|
|
5,011,717
|
|
|
|
3,970,350
|
|
|
Tonnage taxes
|
|
|
232,517
|
|
|
|
290,477
|
|
|
|
258,952
|
|
|
Miscellaneous expenses
|
|
|
904,012
|
|
|
|
568,935
|
|
|
|
421,375
|
|
|
Total
|
|
$
|
18,270,356
|
|
|
$
|
16,548,805
|
|
|
$
|
13,255,330
|
|
|
|
15.
|
General and Administrative Expenses
|
General and administrative expenses, including
related party amounts, are comprised as follows:
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Share based compensation
|
|
$
|
2,247,002
|
|
|
$
|
678,721
|
|
|
$
|
200,205
|
|
|
Executive services
|
|
|
2,939,560
|
|
|
|
2,743,150
|
|
|
|
2,200,000
|
|
|
Non-executive directors' remuneration
|
|
|
210,637
|
|
|
|
211,031
|
|
|
|
120,000
|
|
|
Office rent
|
|
|
24,924
|
|
|
|
20,709
|
|
|
|
32,784
|
|
|
Travel expenses
|
|
|
61,114
|
|
|
|
47,132
|
|
|
|
65,441
|
|
|
Personnel and other expenses
|
|
|
89,031
|
|
|
|
46,284
|
|
|
|
114,166
|
|
|
Professional services
|
|
|
1,227,830
|
|
|
|
1,114,104
|
|
|
|
868,804
|
|
|
Directors and officers insurance
|
|
|
84,405
|
|
|
|
69,011
|
|
|
|
93,169
|
|
|
Stock market annual fees
|
|
|
123,216
|
|
|
|
128,438
|
|
|
|
45,439
|
|
|
Other expenses
|
|
|
224,670
|
|
|
|
164,501
|
|
|
|
150,816
|
|
|
Total
|
|
$
|
7,232,389
|
|
|
$
|
5,223,081
|
|
|
$
|
3,890,824
|
|
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
16.
|
Other operating (income) / expenses, net
|
Other operating income in 2016 includes: (a)
settlement of insurance claims of $1,780,057, in relation to the
Box China
and
Box Kingfish
, (b) special solidarity
contribution to the Greek economy of $235,952 and (c) other operating income of $172,499 due to partial reversal of the provision
recognized in 2014 for damages made in relation to Box Hong Kong, discussed below. Other operating expenses in 2015 relate to
special solidarity contribution to the Greek economy. Other operating expenses in 2014 include: (a) in October 2014, the
Box
Hong Kong
while carrying out cargo operations at Sydney Container Terminal ("Terminal") collided with another vessel.
The collision caused several damages to the
Box
Hong Kong
and the Terminal, for which a provision of $315,498 was
made, (b) special solidarity contribution to the Greek economy of $195,499.
|
|
17.
|
Earnings / (Loss) Per Share (EPS)
|
Basic and Diluted EPS – Common Shares:
|
Numerator
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Net income / (loss)
|
|
$
|
2,623,515
|
|
|
$
|
(26,968,751
|
)
|
|
$
|
(226,628,862
|
)
|
|
Less: Series C Preferred Shares dividends
|
|
|
(2,061,749
|
)
|
|
|
(2,061,749
|
)
|
|
|
(1,994,812
|
)
|
|
Plus: Partial Redemption of Series C Preferred Shares
|
|
|
-
|
|
|
|
-
|
|
|
|
565,656
|
|
|
Less: (Income) / loss attributable to non-vested share awards
|
|
|
(12,208
|
)
|
|
|
556,088
|
|
|
|
1,512,734
|
|
|
Net income / (loss) available to common shareholders
|
|
$
|
549,558
|
|
|
$
|
(28,474,412
|
)
|
|
$
|
(226,545,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
572,738
|
|
|
|
611,746
|
|
|
|
1,461,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) per common share, basic and diluted
|
|
$
|
0.96
|
|
|
$
|
(46.55
|
)
|
|
$
|
(154.98
|
)
|
Weighted Average Number of Shares –
Basic -
In calculating basic EPS, the Company includes the effect of vested share awards from their vesting date.
Weighted Average Number of Common Shares
– Diluted -
In calculating diluted EPS the Company includes the potential dilution that could occur if securities or
other contracts to issue common stock were exercised. In calculating diluted EPS for the common shares, the unvested share awards
outstanding under the Company's Stock Incentive Plan, common shares issuable upon exercise of the Company's outstanding warrants
and common shares issuable upon conversion of all outstanding convertible preferred shares, are included in the shares outstanding
under the treasury stock method, unless their effect is anti-dilutive.
The Company excluded the dilutive effect of
2,800 (2015: 9,780, 2014: 10,110) non-vested share awards and 149,617 (2015: 149,617, 2014: 149,617) warrants in calculating dilutive
EPS for its common shares as of December 31, 2016, as they were anti-dilutive.
Box Ships and certain of its subsidiaries
are incorporated either in the Marshall Islands or Liberia and under the laws of the Marshall Islands and Liberia, are not subject
to income taxes.
Two of the subsidiaries are incorporated in
Hong Kong and their vessels were flying a Liberian flag. Pursuant to the relevant provisions of the Hong Kong Inland Revenue Ordinance,
the related charter hire income should not be subject to Hong Kong profits tax since the vessels did not navigate solely or mainly
within Hong Kong waters during 2014, 2015 and 2016.
For the years ended December 31, 2014, 2015
and 2016, the Company was not subject to United States federal income taxation in respect of income that was derived from the
international operation of ships and the performance of services directly related as it qualified for the exemption of Section
883.
BOX SHIPS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars, except for share data)
|
|
19.
|
Commitments and Contingencies
|
From time to time the Company expects to be
subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty
claims. Such claims, even if lacking in merit, could result in the expenditure of significant financial and managerial resources.
The Company is not aware of any claim or contingent liability, which is reasonably possible and should be disclosed, or probable
and for which a provision should be established in the financial statements.