|
|
|
1
|
|
ITEM 1.
|
|
1
|
|
ITEM 2.
|
|
1
|
|
ITEM 3.
|
|
1
|
|
ITEM 4.
|
|
31
|
|
ITEM 4A.
|
|
51
|
|
ITEM 5.
|
|
51
|
|
ITEM 6.
|
|
63
|
|
ITEM 7.
|
|
66
|
|
ITEM 8.
|
|
69
|
|
ITEM 9.
|
|
69 |
|
ITEM 10.
|
|
69 |
|
ITEM 11.
|
|
87
|
|
ITEM 12.
|
|
88
|
|
|
|
88
|
|
ITEM 13.
|
|
88 |
|
ITEM 14.
|
|
89
|
|
ITEM 15.
|
|
89
|
|
ITEM 16.
|
|
90
|
|
ITEM 16A.
|
|
90
|
|
ITEM 16B.
|
|
90
|
|
ITEM 16C.
|
|
91 |
|
ITEM 16D.
|
|
91 |
|
ITEM 16E.
|
|
91 |
|
ITEM 16F.
|
|
91 |
|
ITEM 16G.
|
|
91
|
|
ITEM 16H.
|
|
92
|
|
ITEM 16I.
|
|
92 |
|
ITEM 16J.
|
|
92 |
|
ITEM 16K.
|
|
92 |
|
|
|
93
|
|
ITEM 17.
|
|
93
|
|
ITEM 18.
|
|
93
|
|
ITEM 19.
|
|
94
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995, or the PSLRA, provides safe harbor protections for
forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and
underlying assumptions and other statements, which are statements other than statements of historical facts.
TOP Ships Inc. desires to take advantage of the safe harbor provisions of the PSLRA and is including this cautionary statement in connection with this safe harbor legislation. This
annual report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. When used in this annual report,
statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “continue,”
“possible,” “likely,” “may,” “should,” and similar expressions identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements in this annual report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation,
management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently
subject to significant risks, uncertainties and contingencies that are described more fully in “Item 3. Key Information—D. Risk Factors”, are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve
or accomplish these expectations, beliefs or projections.
In addition to these assumptions and matters discussed elsewhere herein and in the documents incorporated by reference herein, important factors that, in our view, could cause
actual results to differ materially from those discussed in the forward-looking statements include the following:
|
● |
our ability to maintain or develop new and existing customer relationships with major refined product importers and exporters, major crude oil companies and major commodity traders, including our ability to
enter into long-term charters for our vessels;
|
|
● |
our future operating and financial results;
|
|
● |
our future vessel acquisitions, our business strategy and expected and unexpected capital spending or operating expenses, including any dry-docking, crewing, bunker costs and insurance costs;
|
|
● |
our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate activities;
|
|
● |
oil and chemical tanker industry trends, including fluctuations in charter rates and vessel values and factors affecting vessel supply and demand;
|
|
● |
our ability to take delivery of, integrate into our fleet, and employ any newbuildings we may acquire or order in the future and the ability of shipyards to deliver vessels on a timely basis;
|
|
● |
the aging of our vessels and resultant increases in operation and dry-docking costs;
|
|
● |
the ability of our vessels to pass classification inspections and vetting inspections by oil majors and big chemical corporations;
|
|
● |
significant changes in vessel performance, including increased vessel breakdowns;
|
|
● |
the creditworthiness of our charterers and the ability of our contract counterparties to fulfill their obligations to us;
|
|
● |
our ability to repay outstanding indebtedness, to obtain additional financing and to obtain replacement charters for our vessels, in each case, at commercially acceptable rates or at all;
|
|
● |
changes to governmental rules and regulations or actions taken by regulatory authorities and the expected costs thereof;
|
|
● |
our ability to comply with additional costs and risks related to our environmental, social and governance policies;
|
|
● |
potential liability from litigation and our vessel operations, including discharge of pollutants;
|
|
● |
changes in general economic and business conditions;
|
|
● |
general domestic and international political conditions, potential disruption of shipping routes due to accidents, political events, including “trade wars,” piracy, acts by terrorists or other hostilities;
|
|
● |
changes in production of or demand for oil and petroleum products and chemicals, either globally or in particular regions;
|
|
● |
the strength of world economies and currencies, including fluctuations in charterhire rates and vessel values;
|
|
● |
potential liability from future litigation and potential costs due to any environmental damage and vessel collisions;
|
|
● |
the length and severity of public health threats, epidemics and pandemics, including the global outbreak of the novel coronavirus (“COVID-19”) (and various variants that may emerge), and other disease
outbreaks and their impact on the demand for commercial seaborne transportation and the condition of the financial markets and governmental responses thereto; and
|
|
● |
and other important factors discussed “Item 3. Key Information—D. Risk Factors” or described from time to time in the reports filed by us with the U.S. Securities and Exchange Commission, or the SEC.
|
Should one or more of the foregoing risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those
projected in these forward-looking statements. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or
effects, on us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements All forward-looking statements in this annual report are qualified in their entirety by the cautionary
statements contained in this annual report.
Any forward-looking statements contained herein are made only as of the date of this annual report, and except to the extent required by
applicable law or regulation we undertake no obligation to publicly update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of
unanticipated events, except as may be required under applicable laws. If one or more forward-looking statements are updated, no inference should be drawn that additional updates will be made with respect to those or other forward-looking
statements. New factors emerge from time to time, and it is not possible for us to predict all or any of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to be materially different from those contained in any forward-looking statement.
Unless the context otherwise requires, as used in this annual report, the terms “Company,” “we,” “us,” and “our” refer to TOP Ships Inc. and all of its
subsidiaries, and “TOP Ships Inc.” refers only to TOP Ships Inc. and not to its subsidiaries. We use the term deadweight ton, or dwt, in describing the size of vessels. Dwt, expressed in metric tons each of which is equivalent to 1,000 kilograms,
refers to the maximum weight of cargo and supplies that a vessel can carry. References to our “Fleet Manager” or “CSI” are to Central Shipping Inc., a related party of ours, which performs the day-to-day
management of our fleet.
Throughout this annual report, the conversion from Euros, or €, to U.S. dollars, or $, is based on the U.S. dollar/Euro exchange rate of 1.1052
as of December 29, 2023, unless otherwise specified.
References in this annual report to our common shares and earnings per share amounts, as well as warrant shares eligible for purchase under our warrants and
exercise price of said warrants in this report, are adjusted to reflect the consolidation of our common shares through reverse stock splits, including the 20-to-1 reverse stock split which became effective as of September 23, 2022 and the 12-to-1
reverse stock split which became effective as of September 29, 2023.
| ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not Applicable.
| ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not Applicable.
| B. |
Capitalization and Indebtedness
|
Not Applicable.
| C. |
Reasons for the Offer and Use of Proceeds
|
Not Applicable.
The following risks relate principally to the industry in which we operate and our business in general. The occurrence of any of these risks could materially and adversely affect
our business, financial condition or operating results and the trading price of our common shares.
Summary of Risk Factors
|
● |
The international tanker industry has historically been both cyclical and volatile.
|
|
● |
The current state of the world financial market and current economic conditions could have a material adverse impact on our results of operations, financial condition and cash flows.
|
|
● |
Our financial results may be adversely affected by the outbreak of epidemic and pandemic diseases, such as COVID-19, and the related governmental responses thereto.
|
|
● |
The market value of our vessels, and those we may acquire in the future, may fluctuate significantly, which could cause us to incur losses if we decide to sell them following a decline in their market values
or we may be required to write down their carrying value, which will adversely affect our earnings.
|
|
● |
An over-supply of tanker capacity may lead to reductions in asset prices, charter hire rates and profitability.
|
|
● |
Volatility of SOFR could affect our profitability, earnings and cash flows.
|
|
● |
We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.
|
|
● |
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
|
|
● |
Increasing growth of electric vehicles and renewable fuels could lead to a decrease in trading and the movement of crude oil and petroleum products worldwide.
|
|
● |
Our vessels may suffer damage due to the inherent operational risks of the tanker industry.
|
|
● |
We are subject to international safety regulations and requirements imposed by classification societies and the failure to comply with these regulations may subject us to increased liability, may adversely
affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
|
|
● |
If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S. government or other governmental authorities, it could lead to monetary
fines or adversely affect our business, reputation and the market for our common shares.
|
|
● |
Political instability, terrorist or other attacks, war, international hostilities and public health threats can affect the tanker industry, which may adversely affect our business.
|
|
● |
Acts of piracy on ocean-going vessels could adversely affect our business.
|
|
● |
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
|
|
● |
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these
systems fail or become unavailable for any significant period of time, our business could be harmed.
|
|
● |
Our financing facilities contain restrictive covenants that may limit our liquidity and corporate activities, and could have an adverse effect on our financial condition and results of operations.
|
|
● |
Servicing current and future debt (including SLBs) will limit funds available for other purposes and could impair our ability to react to changes in our business.
|
|
● |
Our President, Chief Executive Officer and Director has significant influence over us, and a trust established for the benefit of his family may be deemed to beneficially own, directly or indirectly, 100% of
our Series D Preferred Shares, and thereby to control the outcome of matters on which our shareholders are entitled to vote.
|
|
● |
We have been subject to litigation in the past and may be subject to similar or other litigation in the future.
|
|
● |
Any limitation in the availability or operation of our vessels could have a material adverse effect on our business, results of operations and financial condition.
|
|
● |
We expect to be dependent on a limited number of customers for a large part of our revenues, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact
our results of operations and cash flows.
|
|
● |
If we fail to manage our planned growth properly, we may not be able to successfully expand our market share.
|
|
● |
Delays or defaults by the shipyards in the construction of newbuildings could increase our expenses and diminish our net income and cash flows.
|
|
● |
Our ability to obtain additional debt financing may be dependent on our ability to charter our vessels, the performance of our charters and the creditworthiness of our charterers.
|
|
● |
The industry for the operation of tanker vessels and the transportation of oil, petroleum products and chemicals is highly competitive and we may not be able to compete for charters with new entrants or
established companies with greater resources.
|
|
● |
We maintain cash with a limited number of financial institutions, including financial institutions that may be located in Greece, which will subject us to credit risk.
|
|
● |
We may be unable to attract and retain key management personnel and other employees in the international tanker shipping industry, which may negatively impact the effectiveness of our management and our
results of operations.
|
|
● |
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
|
|
● |
A drop in spot charter rates may provide an incentive for some charterers to default on their charters, which could affect our cash flow and financial condition.
|
|
● |
An increase in operating costs could decrease earnings and available cash.
|
|
● |
The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings.
|
|
● |
Rising fuel prices may adversely affect our profits.
|
|
● |
Unless we set aside reserves or are able to borrow funds for vessel replacement, our revenue will decline at the end of a vessel’s useful life, which would adversely affect our business, results of operations
and financial condition.
|
|
● |
Purchasing and operating secondhand vessels may result in increased operating costs and vessels off-hire, which could adversely affect our earnings.
|
|
● |
Our anticipated acquisition of an interest in a megayacht entails certain risks and uncertainties associated with our entry into ownership of a new class of vessels, and we
cannot assure you that we will complete the acquisition or manage such risks successfully. |
|
● |
We may not have adequate insurance to compensate us if we lose any vessels that we acquire.
|
|
● |
We may be subject to increased premium payments, or calls, as we obtain some of our insurance through protection and indemnity associations.
|
|
● |
Increasing regulation as well as scrutiny and changing expectations from investors, lenders and other market participants with respect to our
Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
|
|
● |
Technological innovation and quality and efficiency requirements from our customers could reduce our charter hire income and the value of our vessels.
|
|
● |
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
|
|
● |
Maritime claimants could arrest our vessels or vessels we may acquire, which could interrupt our cash flow.
|
|
● |
Governments could requisition our vessels or vessels we acquire during a period of war or emergency, resulting in loss of earnings.
|
|
● |
U.S. federal tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
|
|
● |
We may be subject to U.S. federal income tax on our U.S. source income, which would reduce our earnings.
|
|
● |
We are a “foreign private issuer,” which could make our common shares less attractive to some investors or otherwise harm our stock price.
|
|
● |
The market price and trading volume of our common shares may continue to be highly volatile, which could lead to a loss of all or part of a shareholder’s investment.
|
|
● |
There is no guarantee of a continuing public market for you to resell our common shares.
|
|
● |
Nasdaq may delist our common shares from its exchange which could limit your ability to make transactions in our securities and subject us to additional trading restrictions.
|
|
● |
We have issued common shares in the past through various transactions and we may do so in the future without shareholder approval, which may dilute our existing shareholders, depress the trading price of our
securities and impair our ability to raise capital through subsequent equity offerings.
|
|
● |
We may be unable to successfully consummate a planned spin-off of certain of our assets or to achieve some or all of the benefits that we expect to achieve from the spin-off,
and may incur significant risks associated with the spin-off. |
|
● |
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and as a result, shareholders may have fewer rights and protections under Marshall
Islands law than under a typical jurisdiction in the United States.
|
|
● |
It may not be possible for investors to serve process on or enforce U.S. judgments against us.
|
|
● |
Our By-laws provide that the High Court of the Republic of Marshall Islands shall be the sole and exclusive forum for certain disputes between us and our shareholders, which could limit our shareholders’
ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
|
|
● |
We may not achieve the intended benefits of having a forum selection provision if it is found to be unenforceable.
|
|
● |
Anti-takeover provisions in our organizational documents could have the effect of discouraging, delaying or preventing a merger, amalgamation or acquisition, which could reduce the market price of our common
shares.
|
|
● |
Our Fleet Manager, on whom we are dependent to perform the day-to-day management of our fleet, may have conflicts of interest between us and its other clients and is a privately held company and there may be
limited or no publicly available information about it.
|
RISKS RELATED TO OUR INDUSTRY
The international tanker industry has historically been both cyclical and volatile.
The international tanker industry in which we operate
is cyclical, with attendant volatility in charter hire rates, vessel values and industry profitability. For tanker vessels, the degree of charter rate volatility has varied widely. The Baltic Dirty Tanker Index, or the BDTI, a U.S. dollar daily
average of charter rates issued by the Baltic Exchange that takes into account input from brokers around the world regarding crude oil fixtures for various routes and oil tanker vessel sizes, has been volatile. In 2023, the BDTI reached a high
of 1,642 and a low of 713. The Baltic Clean Tanker Index, or BCTI, a comparable index to the BDTI but for petroleum product fixtures, has similarly been volatile. In 2023, the BCTI reached a high of 1,250 and a low of 563. Although the BDTI and BCTI were 1,159 and 1,194, respectively, as of March 25,
2024, there can be no assurance that the crude oil and petroleum products charter market will continue to increase, and the market could again decline. Recent heightened volatility in charter prices has resulted primarily from the war in
Ukraine and sanctions on Russian exports of crude oil and petroleum products, and there is great uncertainty about the future impact of those events. More recently, the war between Israel and Hamas has resulted in increased tensions in the
Middle East region, including missile attacks by the Houthis on vessels in the Red Sea and Gulf of Aden. Such circumstances have had and could in the future result in adverse consequences for the tanker industry. In general, volatility in
charter rates depends, among other factors, on (i) supply and demand for tankers, (ii) the demand for crude oil and petroleum products, (iii) the inventories of crude oil and petroleum products in the United States and in other industrialized
nations, (iv) oil refining volumes, (v) oil prices, and (vi) any restrictions on crude oil production imposed by the Organization of the Petroleum Exporting Countries, or OPEC, and non-OPEC oil producing countries.
Currently, all of our vessels are employed on time charters. However, changes in spot rates and time charter rates can affect the revenues we receive from operations in the event
our charterers default or seek to renegotiate the charter hire, as well as the value of our vessels, even if our vessels are employed under long-term time charters. Our ability to re-charter our vessels on the expiration or termination of their
time or bareboat charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, economic conditions in the tanker markets and several other factors outside of our control and we cannot
guarantee that any renewal or replacement charters we enter into will be sufficient to allow us to operate our vessels profitably. If we are not able to obtain new contracts in direct continuation with existing charters or for newly acquired
vessels, or if new contracts are entered into at charter rates substantially below the existing charter rates or on terms otherwise less favorable compared to existing contracts terms, our revenues and profitability could be adversely affected and
we may not be able to comply with the financial covenants in our loan agreements. A decline in charter hire rates will also likely cause the value of our vessels to decline which could lead us to record impairment adjustments to the carrying values
of our fleet.
Fluctuations in charter rates and vessel values result from changes in the supply and demand for vessels and changes in the supply and demand for oil, chemicals and other liquids
our vessels carry. Factors affecting the supply and demand for our vessels are outside of our control and are unpredictable. The nature, timing, direction and degree of changes in the tanker industry conditions are also unpredictable.
Factors that influence demand for tanker vessel capacity include:
|
● |
supply and demand for oil, petroleum products and chemicals carried;
|
|
● |
changes in oil production and refining capacity resulting in shifts in trade flows for oil products;
|
|
● |
the distance oil, petroleum products and chemicals are to be moved by sea;
|
|
● |
any restrictions on crude oil production imposed by the OPEC and non-OPEC oil producing countries;
|
|
● |
global and regional economic and political conditions, including “trade wars” and developments in international trade, national oil reserves policies, fluctuations in industrial and agricultural production,
armed conflicts and work stoppages;
|
|
● |
increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing, or the development of new pipeline systems in markets we may serve, or the conversion of existing
non-oil pipelines to oil pipelines in those markets;
|
|
● |
worldwide and regional availability of refining capacity and inventories;
|
|
● |
environmental and other legal and regulatory developments;
|
|
● |
economic slowdowns caused by public health events such as the COVID-19 pandemic and its variants and efforts throughout the world to contain their spread, or inflationary pressures and resultant governmental
responses;
|
|
● |
currency exchange rates;
|
|
● |
weather, natural disasters and other acts of God;
|
|
● |
increased use of renewable and alternative sources of energy;
|
|
● |
competition from alternative sources of energy, other shipping companies and other modes of transportation; and
|
|
● |
international sanctions, embargoes, import and export restrictions, nationalizations, piracy and wars or other conflicts, including the war in Ukraine, the war between Israel and Hamas or the Houthi crisis in
and around the Red Sea.
|
The factors that influence the supply of tanker capacity include:
|
● |
the number of newbuilding deliveries;
|
|
● |
current and expected newbuilding orders for vessels;
|
|
● |
the scrapping rate of older vessels;
|
|
● |
the availability of financing for new or secondhand tankers;
|
|
● |
speed of vessel operation;
|
|
● |
vessel freight rates, which are affected by factors that may affect the rate of newbuilding, swapping and laying up of vessels;
|
|
● |
the price of steel and vessel equipment;
|
|
● |
technological advances in the design, capacity, propulsion technology, and fuel consumption efficiency of vessels;
|
|
● |
potential conversion of vessels for alternative use;
|
|
● |
changes in environmental and other regulations that may limit the useful lives of vessels;
|
|
● |
port or canal congestion;
|
|
● |
national or international regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnage;
|
|
● |
environmental concerns and regulations, including ballast water management, low sulfur fuel consumption regulations, and reductions in CO2 emissions;
|
|
● |
the number of vessels that are out of service at a given time, namely those that are laid-up, drydocked, awaiting repairs or otherwise not available for hire, including those that are in drydock for the
purpose of installing exhaust gas cleaning systems, known as scrubbers; and
|
|
● |
changes in global petroleum and chemical production.
|
The factors affecting the supply and demand for tankers have been volatile and are outside of our control, and the nature, timing and degree of changes in industry conditions are
unpredictable. Market conditions have been volatile in recent years and continued volatility may reduce demand for transportation of oil, petroleum products and chemicals over longer distances and increase the supply of tankers, which may have a
material adverse effect on our business, financial condition, results of operations, cash flows, ability to pay dividends and existing contractual obligations.
The current state of the world financial market and current economic conditions could have a material adverse impact on our results of operations, financial
condition and cash flows.
Various macroeconomic factors, including rising inflation, higher interest rates, global supply chain constraints, and the effects of overall economic conditions and uncertainties
such as those resulting from the current and future conditions in the global financial markets, could adversely affect our results of operations, financial condition and ability to pay dividends. Inflation and rising interest rates may negatively
impact us by increasing our operating costs and our cost of borrowing. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital on
favorable terms, or at all. Adverse economic conditions also affect demand for goods and oil. Reduced demand for these or other products could result in significant decreases in rates we obtain for chartering our vessels. In addition, the cost for
crew members, oils and bunkers, and other supplies may increase. Furthermore, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also
result in a higher rate of losses on our accounts receivable due to credit defaults. As a result, downturns in the worldwide economy could have a material adverse effect on our business, results of operations, financial condition, and ability to
pay dividends.
The world economy continues to face a number of challenges, including the war between Ukraine and Russia and between Israel and Hamas, tensions in and around the Red Sea or Russia
and NATO tensions, China and Taiwan disputes, United States and China trade relations, instability between Iran and the West, hostilities between the United States and North Korea, political unrest and conflict in the Middle East, the South China
Sea region, and other geographic countries and areas, terrorist or other attacks (including threats thereof) around the world, war (or threatened war) or international hostilities, and epidemics or pandemics, such as COVID-19 and its variants, and
banking crises or failures, such as the recent Silicon Valley Bank, Signature Bank, and First Republic Bank failures. See also “—Our financial results may be adversely affected by the outbreak epidemic and pandemic diseases, including COVID-19, and
the related governmental responses thereto.” In addition, the continuing war in Ukraine, the length and breadth of which remains highly unpredictable, has led to increased economic uncertainty amidst fears of a more generalized military conflict or
significant inflationary pressures, due to the increases in fuel and grain prices following the sanctions imposed on Russia. Furthermore, it is difficult to predict the intensity and duration of the war between Israel and Hamas or the Houthi rebel
attacks on shipping in and around the Red Sea and their impact on the world economy is uncertain. If such conditions are sustained, the longer-term net impact on our business would be difficult to predict with any degree of accuracy. Such events
may have unpredictable consequences and contribute to instability in the global economy or cause a decrease in worldwide demand for certain goods and, thus, shipping.
In Europe, concerns regarding the possibility of sovereign debt defaults by European Union, or EU, member countries, although generally alleviated, have in the past disrupted
financial markets throughout the world, and may lead to weaker consumer demand in the European Union, the U.S. and other parts of the world. The withdrawal of the UK from the European Union, or Brexit, further increases the risk of additional trade
protectionism. Brexit, or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could
in turn adversely impact our business, operating results, cash flows and financial condition.
In addition, the recent economic slowdown in the Asia Pacific region, particularly in China, may exacerbate the effect of the weak
economic trends in the rest of the world. Before the global economic financial crisis that began in 2008, China had one of the world’s fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on
shipping demand. China’s GDP growth rate for the year ended December 31, 2022, was approximately 3.0%, one of its lowest rates in 50 years, thought to be mainly caused by the country’s zero-COVID policy and strict lockdowns. For the year ended
December 31, 2023, China reported that its GDP growth rate recovered to 5.2%, but the economy continues to be weighed down by the ongoing crisis in the property market. It is possible that China and other countries in the Asia Pacific region will
continue to experience volatile, slowed or even negative economic growth in the near future. Changes in the economic conditions of China, and changes in laws or policies adopted by its government or the implementation of these laws and policies
by local authorities, including with regards to tax matters and environmental concerns (such as achieving carbon neutrality), could affect vessels that are either chartered to Chinese customers or that call to Chinese ports, vessels that undergo
drydocking at Chinese shipyards and Chinese financial institutions that are generally active in ship financing, and could have a material adverse effect on our business, operating results, cash flows and financial condition.
Furthermore, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. There is significant
uncertainty about the future relationship between the United States, China, and other exporting countries, including with respect to trade policies, treaties, government regulations, and tariffs. Protectionist developments, or the perception that
they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (i) the cost of goods exported from regions globally,
particularly from the Asia-Pacific region, (ii) the length of time required to transport goods and (iii) the risks associated with exporting goods. Such increases may further reduce the quantity of goods to be shipped, shipping time schedules,
voyage costs and other associated costs, which could have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to employ our
vessels. This could have a material adverse effect on our business, operating results, cash flows and financial condition.
Credit markets in the United States and Europe have in the past experienced significant contraction, deleveraging and reduced liquidity, and there is a risk that the U.S.
federal government and state governments and European authorities may continue to implement a broad variety of governmental action and/or introduce new financial market regulations. Global financial markets and economic conditions have been, and
continue to be, volatile and we face risks associated with the trends in the global economy, such as changes in interest rates, instability in the banking and securities markets around the world, the risk of sovereign defaults, and reduced levels
of growth, among other factors. Major market disruptions and the current adverse changes in market conditions and regulatory climate worldwide may adversely affect our business, results or operations or impair our ability to borrow under any future
financial arrangements we may enter into contemplating borrowing from the public and/or private equity and debt markets. Many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on
terms similar to current debt and reduced (or in some cases ceased to provide) funding to borrowers and other market participants, including equity and debt investors and, in some cases, have been unwilling to provide financing on attractive terms
or even at all. Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, on acceptable terms or at all. In the absence of available financing or financing in favorable terms, we may be unable
to complete vessel acquisitions, take advantage of business opportunities or respond to competitive pressures.
Our financial results may be adversely affected by the outbreak epidemic and pandemic diseases, including COVID-19, and the related governmental
responses thereto.
Global public health threats, such as the COVID-19 outbreak, influenza and other highly communicable diseases or viruses, outbreaks which have from time to time occurred in various
parts of the world in which we operate, including China, could disrupt global financial markets and economic conditions and adversely impact our operations, the timing of completion of any outstanding or future newbuilding projects, as well as the
operations of our customers.
For example, the outbreak of COVID-19 caused severe global disruptions, with governments in affected countries imposing travel bans, quarantines and other emergency public health
measures. Companies have also taken precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses. Although the incidence and severity of COVID-19 and its variants have diminished over
time, similar restrictions, and future prevention and mitigation measures against outbreaks of epidemic and pandemic diseases, are likely to have an adverse impact on global economic conditions, which could materially and adversely affect our
future operations. As a result of such measures, our vessels may not be able to call on, or disembark from ports located in regions affected by the outbreak. In addition, we may experience severe operational disruptions and delays, unavailability
of normal port infrastructure and services including limited access to equipment, critical goods and personnel, disruptions to crew changes, quarantine of ships and/or crew, counterparty solidity, closure of ports and custom offices, as well as
disruptions in the supply chain and industrial production, which may lead to reduced cargo demand, among other potential consequences attendant to epidemic and pandemic diseases.
The extent to which our business, operating results, cash flows, financial condition, financings, value of our vessels or vessels we may acquire and ability to pay dividends may be
negatively affected by a resurgence of COVID-19 or future pandemics, epidemics or other outbreaks of infectious diseases is highly uncertain and will depend on numerous evolving factors that we cannot predict, including, but not limited to (i) the
duration and severity of the infectious disease outbreak; (ii) the imposition of restrictive measures to combat the outbreak and slow disease transmission; (iii) the introduction of financial support measures to reduce the impact of the outbreak on
the economy; (iv) shortages or reductions in the supply of essential goods, services or labor; and (v) fluctuations in general economic or financial conditions tied to the outbreak, such as a sharp increase in interest rates or reduction in the
availability of credit. We cannot predict the effect that an outbreak of a new COVID-19 variant or strain, or any future infectious disease outbreak, pandemic or epidemic may have on our business, operating results, cash flows and financial
condition, which could be material and adverse.
The market value of our vessels, and those we may acquire in the future, may fluctuate significantly, which could cause us to incur losses if
we decide to sell them following a decline in their market values or we may be required to write down their carrying value, which will adversely affect our earnings.
The fair market value of our vessels, or vessels we may acquire, may increase and decrease depending on the following factors:
|
● |
general economic and market conditions affecting the shipping industry;
|
|
● |
prevailing level of charter rates;
|
|
● |
competition from other shipping companies;
|
|
● |
types, sizes and ages of vessels;
|
|
● |
the availability of other modes of transportation;
|
|
● |
supply and demand for vessels;
|
|
● |
shipyard capacity and slot availability;
|
|
● |
number of tankers scrapped;
|
|
● |
governmental or other regulations; and
|
|
● |
technological advances and the development, availability, and cost of nuclear power, natural gas, coal, renewable energy, and other alternative sources of energy.
|
Dislocations in the supply of and demand for tankers as a result of the war in Ukraine and sanctions on Russian exports have resulted in greatly increased volatility in tanker asset
prices. Furthermore, the ongoing war between Israel and Hamas and the Houthi rebel attacks on shipping in the Red Sea have an uncertain impact on the supply and demand for tankers. If we sell any of our vessels, or any vessel we may acquire, at a
time when vessel prices have fallen, the sale price may be less than the vessel’s carrying amount in our financial statements, in which case we will realize a loss. Vessel prices can fluctuate significantly, and in the case where the market value
falls below the carrying amount, we will evaluate the vessel for a potential impairment adjustment. If the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the vessel is less than its carrying
amount, we may be required to write down the carrying amount of the vessel to its fair value less costs to sell in our financial statements and incur a loss and a reduction in earnings even if we do not immediately sell the vessel. See “Item 5.
Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Estimates—Impairment of Vessels.”
. In addition, our financing arrangements require us to satisfy financial covenants, including requirements based on the market value of our vessels and our liquidity. Declines of
market values of our vessels may affect our ability to comply with various covenants and could also limit the amount of funds we are permitted to borrow under our current or future loan arrangements. If we breach the financial and other covenants
under any of our financing arrangements, our financiers could accelerate our indebtedness and foreclose on vessels in our fleet, which would significantly impair our ability to continue to conduct our business. If our indebtedness were accelerated
in full or in part, it may be very difficult for us to refinance our debt or obtain additional financing and we could lose our vessels if our financiers foreclose upon their liens, which would adversely affect our business, financial condition, and
ability to continue our business and pay dividends.
An over-supply of tanker capacity may lead to reductions in asset prices, charter hire rates and profitability.
The market supply of tankers is affected by a number of factors such as demand for energy resources, crude oil, petroleum products and chemicals, as well as strong
overall economic growth of the world economy. In recent years, shipyards have produced a large number of new tankers. As of March 22, 2024, newbuilding orders have been placed for an aggregate of approximately 8.2% of the existing global tanker
fleet, with the bulk of deliveries expected during 2026. If the capacity of new tankers delivered exceeds the capacity of tankers being scrapped and converted to non-trading tankers, tanker capacity will
increase. If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline, resulting in a decrease in the value of our vessels and the charter rates that we
can obtain. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations, our ability to pay dividends, and our compliance with current or future covenants with respect to any of our
financing arrangements.
The impact of the sanctions on Russian exports of crude oil and petroleum products is uncertain and has generated increased volatility in the supply of tankers available for
worldwide trade. If this volatility persists, we may not be able to find profitable charters for our vessels, or vessels we may acquire, which could have a material adverse effect on our business, results of operations, cash flows, financial
condition, our ability to pay dividends and our compliance with current or future covenants with respect to any of our financing arrangements.
Volatility of SOFR could affect our profitability, earnings, and cash flows.
The calculation of interest in most financing agreements in our industry has been historically based on the London Interbank Offered Rate (“LIBOR”). LIBOR has been the subject
of national, international, and other regulatory guidance and proposals for reform. In response thereto, the Alternative Reference Rate Committee, a committee convened by the Federal Reserve Board that includes major market participants, proposed
the Secured Overnight Financing Rate, or “SOFR,” as an alternative rate to replace U.S. Dollar LIBOR. While our financing arrangements previously used LIBOR, including during the fiscal years ended December 31, 2023, 2022 and 2021, in 2023 we
amended such arrangements to transition from LIBOR to SOFR. As a result, none of our financing arrangements currently utilizes LIBOR, and those that have a reference rate use SOFR, in line with current market practice.
An increase in SOFR, including as a result of the interest rate increases effected by the United States Federal Reserve and the United States Federal Reserve’s recent hike of U.S.
interest rates in response to rising inflation, would affect the amount of interest payable under our existing loan agreements, which, in turn, could have an adverse effect on our profitability, earnings, cash flow and ability to pay dividends.
Furthermore, as a secured rate backed by government securities, SOFR may be less likely to correlate with the funding costs of financial institutions. As a result, parties may seek to adjust spreads relative to SOFR in underlying contractual
arrangements. Therefore, the use of SOFR-based rates may result in interest rates and/or payments that are higher or lower than the rates and payments that were expected when interest was based on LIBOR. If SOFR performs differently than expected
or if our lenders insist on a different reference rate to replace SOFR, that could increase our borrowing costs (and administrative costs to reflect the transaction), which would have an adverse effect on our profitability, earnings, and cash
flows. Alternative reference rates may behave in a similar manner or have other disadvantages or advantages in relation to our future indebtedness and the transition to SOFR or other alternative reference rates in the future could have a material
adverse effect on us.
In order to manage any future exposure to interest rate fluctuations, we may from time-to-time use interest rate derivatives to effectively fix any floating rate debt obligations. No
assurance can, however, be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of
these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position, and have the potential to cause us to breach covenants in our loan agreements that require
maintenance of certain financial positions and ratios.
We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility
of doing business.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international
regulations in force in the jurisdictions in which our vessels will operate or are registered, which can significantly affect the operation of our vessels. These regulations include, but are not limited to the International Convention for the
Prevention of Pollution from Ships of 1973, as from time to time amended and generally referred to as MARPOL, including the designation of Emission Control Areas, or ECAs, thereunder, the International Convention on Load Lines of 1966, the
International Convention on Civil Liability for Oil Pollution Damage of 1969, generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or Bunker Convention, the International Convention for the
Safety of Life at Sea of 1974, or SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, the International Convention for the Control and Management of Ships’ Ballast Water and
Sediments, or the BWM Convention, the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Water Act, the U.S. Clean Air Act, the U.S. Outer Continental Shelf
Lands Act, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, and European Union regulations. Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational
changes and may affect the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions, the
management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. These costs could have a material
adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or
termination of our operations.
Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to
whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. Events
such as the 2010 explosion of the Deepwater Horizon and the subsequent release of oil into the Gulf of Mexico, or other events, may result in further regulation of the shipping industry, and modifications
to statutory liability schemes, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. An oil spill could result in significant liability, including fines, penalties and criminal
liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including
marine fuel) spills and other pollution incidents. Although insurance covers certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse
effect on our business, results of operations, cash flows and financial condition and our ability to pay dividends, if any, in the future.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the International Maritime Organization (“IMO”) have adopted, or are considering the adoption of,
regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap-and-trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Since
January 1, 2020, IMO regulations have required vessels to comply with a global cap on the sulfur in fuel oil used on board of 0.5%, down from the previous cap of 3.5%. Pursuant to MEPC 80, in July 2023, IMO adopted the 2023 IMO Strategy on
Reduction of GHG Emissions from Ships, which identifies a number of levels of ambition, including (1) decreasing the carbon intensity from ships through the implementation of further phases of the Energy Efficiency Design Index for new ships; (2)
reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030; and (3) pursuing net-zero GHG emissions by or around 2050.
Since January 1, 2020, ships have to either remove sulfur from emissions or buy fuel with low sulfur content, which may lead to increased costs and supplementary investments for
ship owners. The interpretation of “fuel oil used on board” includes use in main engine, auxiliary engines and boilers. Shipowners may comply with this regulation by (i) using 0.5% sulfur fuels on board, which are available around the world but at
a higher cost; (ii) installing scrubbers for cleaning of the exhaust gas; or (iii) by retrofitting vessels to be powered by liquefied natural gas, which may not be a viable option due to the lack of supply network and high costs involved in this
process. While currently all our vessels have scrubbers installed, costs of compliance with these regulatory changes for any non-scrubber vessels we may acquire may be significant and may have a material adverse effect on our future performance,
results of operations, cash flows and financial position.
Additional greenhouse regulations may result in increased implementation and compliance costs and expenses, such as:
|
• |
IMO Data Collection System (DCS): in October 2016, at MEPC 70, the IMO adopted a
mandatory data collection system, or the IMO DCS, which requires vessels above 5,000 gross tons to report consumption data for fuel oil, hours under way and distance travelled. This IMO DCS covers any maritime activity carried out by
ships, including dredging, pipeline laying, and offshore installations. Data is reported annually to the flag state, which issues to the vessel a statement of compliance.
|
|
• |
Amendments to MARPOL Annex VI: MEPC 79 adopted amendments to MARPOL, Annex VI
regarding reporting requirements in connection with the implementation of the Energy Efficiency Existing Ship Index, or EEXI, and carbon intensity indicator, or CII, framework, which amendments are expected to become effective on May 1,
2024. Beginning in January 2023, Annex VI requires EEXI and CII certification. The first annual reporting was to be completed in 2023, with initial ratings given in 2024.
|
|
• |
Net zero greenhouse emissions in the EU by 2050: in 2021, the EU adopted a
European Climate Law (Regulation (EU) 2021/1119), establishing the aim of reaching net zero greenhouse gas emissions in the EU by 2050, with an intermediate target of reducing greenhouse gas emissions by at least 55% by 2030, compared to
1990 levels. In July 2021, the European Commission launched the “Fit for 55” to support the climate policy agenda. As of January 2019, large ships calling at EU ports have been required to collect and publish data on carbon dioxide
emissions and other information.
|
|
• |
Maritime emissions trading scheme in force on January 1, 2024: the maritime
emissions trading scheme, or ETS, is to apply gradually over the period from 2024 to 2026. 40% of allowances would have to be surrendered in 2025 for the year 2024; 70% of allowances would have to be surrendered in 2026 for the year 2025;
and 100% of allowances would have to be surrendered in 2027 for the year 2026. Compliance is to be on a companywide (rather than per ship) basis and “shipping company” is defined widely to capture both the ship owner and any contractually
appointed commercial operator/ship manager/bareboat charterer who not only assume full compliance for ETS but also under the ISM Code. If the latter contractual arrangement is entered into this needs to be reflected in a certified mandate
signed by both parties and presented to the administrator of the scheme. The cap under the ETS would be set by taking into account EU MRV system emissions data for the years 2018 and 2019, adjusted, from year 2021 and is to capture 100%
of the emissions from intra-EU maritime voyages; 100% of emissions from ships at berth in EU ports and 50% of emissions from voyages which start or end at EU ports (but the other destination is outside the EU). Furthermore, the newly
passed EU Emissions Trading Directive 2023/959/EC makes clear that all maritime allowances would be auctioned and there will be no free allocation. 78.4 million emissions allowances are to be allocated specifically to maritime. New
systems, personnel, data management systems, costs recovery mechanisms, revised service agreement terms and emissions reporting procedures will have to be put in place to prepare for and manage the administrative aspect of ETS
compliance. The cost of compliance, and of our future EU emissions and costs to purchase an allowance for emissions (if we must purchase in order to comply) are unknown and difficult to predict, and are based on a number of factors,
including the size of our fleet, our trips within and to and from the EU, and the prevailing cost of allowances.
|
In addition, although the emissions of greenhouse gases from international shipping currently are not currently subject to the Kyoto Protocol to the United Nations Framework
Convention on Climate Change, which required adopting countries to implement national programs to reduce emissions of certain gases, or the Paris Agreement (discussed further below), a new treaty may be adopted in the future that includes
restrictions on shipping emissions. Compliance with changes in laws, regulations and obligations relating to climate change affects the propulsion options in subsequent vessel designs and could increase our costs related to acquiring new vessels,
operating and maintaining our existing vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation
and strategic growth opportunities may also be adversely affected.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also adversely
affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy
sources. In addition, the physical effects of climate change, including changes in weather patterns, extreme weather events, rising sea levels, scarcity of water resources, may negatively impact our operations. Any long-term material adverse effect
on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
Increasing growth of electric vehicles and renewable fuels could lead to a decrease in trading and the movement of crude oil and petroleum
products worldwide.
The IEA noted in its Global EV Outlook 2023 that total electric cars sold annually worldwide grew from about 120,000 in 2012 to more than 10 million in 2022, bringing the total
number of electric cars to approximately 26 million, more than five times the number from 2018. Electric car sales in the first quarter of 2023 were 2.3 million, up 25% from the same quarter of 2022. This was driven mainly by government subsidies
and policy initiatives, such as the phasing-out of internal combustion engines and vehicle electrification targets, combined with high oil prices in 2022 that further motivated prospective buyers. IEA forecasts are for electric vehicles (“EVs”) to
grow from 17 million in 2021 to 240 million by 2030, which the IEA forecasts would reduce worldwide demand for oil products by 5 million barrels per day in 2030. IEA estimates that EV operations in 2019 avoided the consumption of almost 0.7 million
barrels per day of oil products. According to the World Economic Forum, there were about 1.1 billion cars registered in 2015 and there will be about 2 billion cars registered by 2040.
According to the IEA and EIA, U.S. biodiesel production increased rapidly from 32,000 barrels per day in 2009 to 106,000 barrels per day in 2022, a growth of about 231%. During the
same period, diesel production from U.S. refineries grew from an average of 4.0 million barrels per day in 2009 to 4.8 million barrels per day in 2022, a growth of about 20%. A growth in EVs or a slowdown in imports or exports of crude or petroleum
products worldwide may result in decreased demand for our vessels and lower charter rates, which could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to make cash distributions.
Our vessels may suffer damage due to the inherent operational risks of the tanker industry and we may experience unexpected dry-docking costs,
which may adversely affect our business and financial condition.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad
weather and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy, diseases (such as the outbreak of COVID-19), quarantine and other circumstances or
events. These hazards may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships or delay or re-routing, which may also subject
us to litigation. In addition, the operation of tankers has unique operational risks associated with the transportation of oil or chemicals. An oil or chemical spill may cause significant environmental damage, and the costs associated with a
catastrophic spill could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to
the high flammability and high volume of the oil and chemicals transported in such tankers.
If our vessels suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock repairs are unpredictable and may be substantial. We may have to pay
dry-docking costs that our insurance does not cover in full. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings. In addition, space at dry-docking
facilities is sometimes limited and not all dry-docking facilities are conveniently located. We may be unable to find space at a suitable dry-docking facility or our vessels may be forced to travel to a dry-docking facility that is not conveniently
located to our vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant dry-docking facilities would decrease our earnings.
We are subject to international safety regulations and requirements imposed by classification societies and the failure to comply with these
regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the United Nations’ International Maritime Organization’s International Management Code for the Safe
Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and
environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. We expect that any vessels that we acquire in the future will be ISM Code-certified when delivered
to us. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a
denial of access to, or detention in, certain ports, including United States and European Union ports.
In addition, the hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the International Convention for Safety of Life at Sea. If a vessel does not maintain its class
and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable, which will negatively impact our revenues and results from operations.
If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S. government or
other governmental authorities, it could lead to monetary fines or adversely affect our business, reputation and the market for our common shares.
Our business could be adversely impacted if we are found to have violated economic sanctions under the applicable laws of the European
Union, the United States or another applicable jurisdiction against countries such as Iran, Syria, North Korea, and Cuba. U.S. economic sanctions, for example, prohibit a wide scope of conduct, target numerous countries and individuals, and are
frequently updated or changed.
Many economic sanctions relate to our business, including prohibitions on certain kinds of trade with countries, such as exportation or
re-exportation of commodities, or prohibitions against certain transactions with designated nationals who may be operating under aliases or through non-designated companies.
Additionally, the U.S. Iran Threat Reduction Act amended the Exchange Act, to require issuers that file annual or quarterly reports under Section 13(a) of the Exchange Act to
include disclosure in their annual and quarterly reports as to whether the issuer or its affiliates have knowingly engaged in certain activities prohibited by sanctions against Iran or transactions or dealings with certain identified persons. We
are subject to this disclosure requirement.
While our vessels have not called on ports located in countries or territories that are the subject of country-wide or territory-wide sanctions or embargoes imposed by the U.S.
government or other governmental authorities (“Sanctioned Jurisdictions”) in violation of applicable sanctions or embargo laws in 2023, and although we intend to maintain compliance with all applicable sanctions and embargo laws, and we endeavor to
take precautions reasonably designed to ensure compliance with such laws, it is possible that, in the future, our vessels may call on ports in Sanctioned Jurisdictions in violation of applicable sanctions or embargo laws on charterers’ instructions
and without our consent. If such activities result in a violation of sanctions or embargo laws, we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our common shares could be adversely
affected.
The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such
sanctions and embargo laws and regulations may be amended or expanded over time.
In particular, the ongoing war in Ukraine could result in the imposition of further economic sanctions by the United States and the European Union against Russia. Current or future
counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the governments of the U.S., European Union, and/or other international bodies. If we determine that such
sanctions require us to terminate existing or future contracts to which we, or our subsidiaries, are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer
reputational harm.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, any such violation could
result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to
invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors
of terrorism. The determination by these investors not to invest in, or to divest from, our common shares may adversely affect the price at which our common shares trade. Moreover, our charterers may violate applicable sanctions and embargo laws
and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common shares may also be adversely affected by the
consequences of war, the effects of terrorism, civil unrest and governmental actions in countries or territories that we operate in.
Political instability, terrorist or other attacks, war, international hostilities and public health threats can affect the tanker industry,
which may adversely affect our business.
We conduct most of our operations outside of the United States and our business, operating results, cash flows, financial conditions, and available cash may be adversely affected by
changing economic, political, and governmental conditions in the countries and regions in which our vessels or other vessels we may acquire are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely
impacted by the effects of political uncertainty and armed conflicts, including the war between Ukraine and Russia and between Israel and Hamas, Russia and NATO tensions, China and Taiwan disputes, United States and China trade relations,
instability between Iran and the West, hostilities between the United States and North Korea, political unrest and conflicts in the Middle East, the South China Sea region, the Red Sea region (including missile attacks controlled by the Houthis on
vessels transiting the Red Sea or Gulf of Aden), and other countries and geographic areas, geopolitical events, such as Brexit or another withdrawal from the European Union, terrorist or other attacks (or threats thereof) around the world, and war
(or threatened war) or international hostilities. Such events may contribute to further economic instability in the global financial markets and international commerce, and could also adversely affect our ability to obtain additional financing on
terms acceptable to us or at all.
The war between Russia and Ukraine may lead to further regional and international conflicts or armed action. This war has disrupted supply chains and caused instability in the
energy markets and the global economy, with effects on shipping freight rates, which have experienced volatility. The United States, the United Kingdom, and the European Union, among other countries, have announced unprecedented economic sanctions
and other penalties against certain persons, entities, and activities connected to Russia, including removing Russian-based financial institutions from the Society for Worldwide Interbank Financial Telecommunication payment system and restricting
imports of Russian oil, liquified natural gas, and coal. These sanctions have caused supply disruptions in the oil and gas markets and could continue to cause significant volatility in energy prices, which could result in increased inflation and
may trigger a recession in the U.S. and China, among other regions. While much uncertainty remains regarding the global impact of the war in Ukraine, it is possible that such tensions could adversely affect our business, financial condition,
operating results, and cash flows. Moreover, we will be subject to additional insurance premiums in case we transit through or call to any port or area designated as listed areas by the Joint War Committee or other organizations. These factors may
also result in the weakening of the financial condition of our charterers, suppliers, counterparties, and other agents in the shipping industry. As a result, our business, operating results, cash flows, and financial condition may be negatively
affected since our operations are dependent on the success and economic viability of our counterparties.
The ongoing war between Russia and Ukraine could result in the imposition of further economic sanctions by the United States, the United Kingdom, the European Union, or other
countries against Russia, trade tariffs, or embargoes with uncertain impacts on the markets in which we operate. In addition, the U.S. and certain other North Atlantic Treaty Organization (NATO) countries have been supplying Ukraine with military
aid. U.S. officials have also warned of the increased possibility of Russian cyberattacks, which could disrupt the operations of businesses involved in the shipping industry, including ours, and could create economic uncertainty particularly if
such attacks spread to a broad array of countries and networks. Although Ukraine and Russia reached an agreement to extend an arrangement allowing shipment of grain from Ukrainian ports through a humanitarian corridor in the Black Sea in November
2022, Russia terminated this agreement in July 2023. While much uncertainty remains regarding the global impact of the war in Ukraine, it is possible that such tensions could adversely affect our business, financial condition, operating results,
and cash flows.
The Russian Foreign Harmful Activities Sanctions program includes prohibitions on the import of certain Russian energy products into the United States, including crude oil,
petroleum, petroleum fuels, oils, liquefied natural gas and coal, as well as prohibitions on all new investments in Russia by U.S. persons, among other restrictions. Furthermore, the United States, the EU and other countries have also prohibited a
variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and
indemnity), flagging, and customs brokering. These prohibitions took effect on December 5, 2022 with respect to the maritime transport of crude oil and took effect on February 5, 2023 with respect to the maritime transport of other petroleum
products. An exception exists to permit such services when the price of the seaborne Russian oil into non-EU countries does not exceed the relevant price cap; but implementation of this price exception relies on a recordkeeping and attestation
process that allows each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the price cap. Violations of the price cap policy or the risk that information, documentation, or
attestations provided by parties in the supply chain are later determined to be false may pose additional risks adversely affecting our business.
Furthermore, the intensity and duration of the recently declared war between Israel and Hamas is difficult to predict and its impact on the world economy and our industry is
uncertain. Beginning in late 2023, vessels in the Red Sea and Gulf of Aden have increasingly been subject to attempted hijackings and attacks by drones and projectiles characterized by Houthi groups in Yemen as a response to the war between Israel
and Hamas. An increasing number of companies have rerouted their vessels to avoid transiting the Red Sea, incurring greater shipping costs and delays. For vessels transiting the region, war risk premium has increased substantially, and should these
attacks continue, we could similarly experience a significant increase in our insurance costs and we may not be adequately insured to cover losses from these incidents, however since currently all our vessels are on time charter these increased war
premiums if any will be paid by our charterers. While much uncertainty remains regarding the global impact of the war between Israel and Hamas, it is possible that such tensions could result in the eruption of further hostilities in other regions,
including in and around the Red Sea, and could adversely affect our business, financial conditions, operating results, and cash flows.
In the past, other political conflicts have also resulted in attacks on vessels, mining of waterways, and other efforts to disrupt international shipping, particularly in the
Arabian Gulf region. The ongoing war in Ukraine has previously resulted in missile attacks on commercial vessels in the Black Sea. The recent outbreak of conflict in and around the Red Sea has also resulted in missile attacks on vessels. Acts of
terrorism and piracy have also affected vessels trading in regions such as the Gulf of Guinea, the Red Sea, the Gulf of Aden off the coast of Somalia, and the Indian Ocean. Any of these occurrences could have a material adverse impact on our future
performance, operating results, cash flows, financial position, and our ability to pay cash distributions to our shareholders.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the Red Sea, the Gulf of Aden off the coast of Somalia, the Indian Ocean, and
the Gulf of Guinea region off the coast of Nigeria, which has experienced increased incident of piracy in recent years. Sea piracy incidents continue to occur, particularly in the South China Sea, the Indian Ocean, the Gulf of Guinea, and the
Strait of Malacca, and there has been a recent resurgence of such incidents in the Gulf of Aden. Acts of piracy could result in harm or danger to the crews that man our vessels and other vessels we may acquire. Additionally, if piracy attacks occur
in regions in which our vessels and other vessels we may acquire are deployed being characterized as “war risk” zones by insurers or if our vessels and other vessels we may acquire are deployed in Joint War Committee “war and strikes” listed areas,
premiums payable for insurance coverage could increase significantly and such insurance coverage may be more difficult to obtain, if available at all. In addition, crew and security equipment costs, including costs that may be incurred to employ
onboard security armed guards, could increase in such circumstances. Furthermore, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charter hire until
the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and is therefore entitled to cancel the charterparty, a claim that we would dispute. We may not be adequately insured
to cover losses from these incidents, which could have a material adverse effect on us. In addition, any detention hijacking as a result of an act of piracy against our vessels and other vessels we may acquire, or an increase in cost or
unavailability of insurance for our vessels and other vessels we may acquire could have a material adverse impact on our business, financial condition, and operating results.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures can result in the
seizure of, delay in the loading, off-loading or delivery of, the contents of our vessels or the levying of customs duties, fines or other penalties against us. It is possible that changes to inspection procedures could impose additional financial
and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any
such changes or developments may have a material adverse effect on our business, financial condition, and results of operations.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely
affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
The efficient operation of our business is dependent on computer hardware and software systems both onboard our vessels and at our onshore offices. Information systems are
vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information kept on our information systems. However, these
measures and technology may not adequately prevent cybersecurity breaches, the access, capture or alteration of information by criminals, the exposure or exploitation of potential security vulnerabilities, the installation of malware or ransomware,
acts of vandalism, computer viruses, misplaced data or data loss. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in
decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our
business, results of operations and financial condition, as well as our cash flows, including cash available for dividends to our stockholders.
Additionally, any changes in the nature of cyber threats might require us to adopt additional procedures for monitoring cybersecurity, which could require additional expenses and/or
capital expenditures. Most recently, the war between Russia and Ukraine has been accompanied by cyber-attacks against the Ukrainian government and other countries in the region. It is possible that these attacks could have collateral effects on
additional critical infrastructure and financial institutions globally, which could adversely affect our operations. It is difficult to assess the likelihood of such threat and any potential impact at this time.
In July 2023, the SEC adopted rules requiring the mandatory disclosure of material cybersecurity incidents, as well as
cybersecurity governance and risk management practices. A failure to disclosure could result in the imposition of injunctions, fines and other penalties by the SEC. Complying with these obligations could cause us to incur substantial costs and
could increase negative publicity surrounding any cybersecurity incident.
RISKS RELATED TO OUR COMPANY
Our financing facilities contain restrictive covenants that may limit our liquidity and corporate activities, and could have an adverse effect
on our financial condition and results of operations.
Our financing facilities in the form of the bareboat charters in connection with the sale and leaseback agreements (“SLBs”) of our fleet contain, and any future financing facilities we may enter into are
expected to contain, customary covenants, events of default and termination event clauses, including cross-default provisions and restrictive covenants and performance requirements that may affect our operational and financial flexibility. Such
restrictions could affect, and in many respects limit or prohibit, among other things, our ability to incur additional indebtedness, pay dividends, create liens, sell assets, or engage in mergers or acquisitions. These restrictions could also limit
our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities. There can be no assurance that such restrictions will not adversely affect our ability to finance our future
operations or capital needs.
Our financing facilities require us to maintain specified financial ratios, satisfy financial covenants and contain cross-default clauses and other representations, including the
following:
|
● |
maintain a consolidated leverage ratio of not more than 75%;
|
|
● |
maintain minimum free liquidity of $0.5 million per operating vessel but not less than $4.0 million in aggregate; and
|
|
● |
assure no change of control of the company takes place, except with the lessor’s/lender’s prior written consent.
|
As of December 31, 2023, we are in compliance with all covenants in our financing facilities.
As a result of the restrictions in our financing facilities, or similar restrictions in our future financing facilities, we may need to seek permission from the owners of our leased
vessels or banks that finance our vessels in order to engage in certain corporate actions. Their interests may be different from ours and we may not be able to obtain their permission when needed. This may prevent us from taking actions that we
believe are in our best interest, which may adversely impact our revenues, results of operations and financial condition.
A failure by us to meet our payment and other obligations, including our financial covenant requirements, could lead to defaults under our financing facilities or any future
financing facilities. If we are not in compliance with our covenants and we are not able to obtain covenant waivers or modifications, the current or future owners of our leased vessels or the banks that finance our current or future vessels, as
appropriate, could retake possession of our vessels or require us to pay down our indebtedness to a level where we are in compliance with our covenants or sell vessels in our fleet. Events beyond our control, including changes in the economic and
business conditions in the shipping markets in which we operate, interest rate developments, changes in the funding costs of our banks, changes in vessel earnings and asset valuations and outbreaks of epidemic and pandemic of diseases, such as the
outbreak of COVID-19, may affect our ability to comply with these covenants. We could lose our vessels if we default on our financing facilities, which would negatively affect our revenues, results of operations and financial condition.
Servicing current and future debt (including SLBs) will limit funds available for other purposes and could impair our ability to react to
changes in our business.
We must dedicate a portion of our cash flow from operations to pay the principal and interest on our indebtedness. These payments limit funds otherwise available for
working capital, capital expenditures and other purposes. As of December 31, 2023, we had a total indebtedness of $246.2 million, excluding unamortized finance fees and debt discounts. Our current or
future debt could have other significant consequences on our operations. For example, it could:
|
● |
increase our vulnerability to general economic downturns and adverse competitive and industry conditions;
|
|
● |
require us to dedicate a substantial portion, if not all, of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes;
|
|
● |
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
|
|
● |
place us at a competitive disadvantage compared to competitors that have less debt or better access to capital;
|
|
● |
limit our ability to raise additional financing on satisfactory terms or at all; and
|
|
● |
adversely impact our ability to comply with the financial and other restrictive covenants of our current or future financing arrangements, which could result in an event of default under such agreements.
|
Furthermore, our current or future interest expense will increase if interest rates increase. If we do not have sufficient earnings, we may be required to refinance all or part of
our current or future debt, sell assets, borrow more money or sell more securities, and we cannot guarantee that the resulting proceeds therefrom, if any, will be sufficient to meet our ongoing capital and operating needs. Because interest paid on
loans is generally a margin plus a reference rate, such as SOFR, that is subject to change, our actual interest costs would increase as the reference rate increases. During an inflationary period, such as one we are currently experiencing, the SOFR
or similar reference rate will generally be increased, thus costing us more money to service our debt obligations and reducing our results of operations and cash flow. Any event of default under a loan agreement pursuant to which we have granted
security could permit the relevant lender to exercise its rights as a secured lender and take the relevant collateral, which may include our vessels.
Our President, Chief Executive Officer and Director has significant influence over us, and a trust established for the benefit of his family
may be deemed to beneficially own, directly or indirectly, 100% of our Series D Preferred Shares, and thereby to control the outcome of matters on which our shareholders are entitled to vote.
As of the date of this annual report, Lax Trust, which is an irrevocable trust established for the benefit of certain family members of our President, Chief Executive Officer and
Director, Mr. Pistiolis, may be deemed to beneficially own, directly or indirectly, all of the 100,000 outstanding shares of our Series D Preferred Shares. Each Series D Preferred Share carries 1,000 votes. 3 Sororibus Trust, an irrevocable trust
established for the benefit of certain family members of Mr. Pistiolis, may be deemed to beneficially own 2,930,718 of our common shares, and Mr. Pistiolis may be deemed to beneficially own 446,446 common shares based on a Schedule 13D/A filed by 3
Sororibus Trust and Mr. Pistiolis on February 14, 2024.
Based on the Lax Trust’s beneficial ownership of 100% of our Series D Preferred Shares as of the date of this annual report, and the reported beneficial ownership of
common shares by 3 Sororibus Trust and Mr. Pistiolis on February 14, 2024, the Lax Trust may be deemed to beneficially own 95.6% of our total voting power, and the Lax Trust together with the 3 Sororibus
Trust and Mr. Pistiolis may be deemed to beneficially own 98.8% of our total voting power, and therefore to control the outcome of matters on which our shareholders are entitled to vote, including the
election of our directors and other significant corporate actions. The interests of the Lax Trust, 3 Sororibus Trust, the family of Mr. Pistiolis and Mr. Pistiolis may be different from your interests.
As a prerequisite for the Navigare Lease (defined below), Mr. Pistiolis personally guaranteed the performance of the bareboat charters connected to the lease, under certain
circumstances, and in exchange, we, among other things, amended the Certificate of Designations governing the terms of the Series D Preferred Shares, to adjust the voting rights per share of Series D Preferred Shares such that during the term of
the Navigare Lease, the combined voting power controlled by Mr. Pistiolis and the Lax Trust does not fall below a majority of our total voting power, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant
covenant of the bareboat charters entered in connection with the Navigare Lease.
We have been subject to litigation in the past and we may be subject to similar or other litigation in the future.
We and certain of our current executive officers were defendants in purported class-action lawsuits in the U.S. District Court for the Eastern District of New York, brought on
behalf of our shareholders. The lawsuits alleged violations of Sections 9, 10(b), 20(a) and/or 20A of the Securities Exchange Act of 1934, as amended, or the Exchange Act and Rule 10b-5 promulgated hereunder. In connection with these lawsuits,
certain co-defendants requested that we indemnify and hold them harmless against all losses, including reasonable costs of defense, arising from the litigation, pursuant to the provisions of the Common Stock Purchase Agreement between us and
Kalani.
On August 3, 2019 the Eastern District Court of New York dismissed the case with prejudice. On August 26, 2019, plaintiffs appealed the dismissal to the United States Court of
Appeals for the Second Circuit. We filed our response briefs on November 26 and November 27, 2019, and plaintiffs/appellants filed their reply brief on December 11, 2019. The Court of Appeals held oral argument on March 10, 2020 and took the matter
under advisement. On April 2, 2020, the Court of Appeals issued a summary order affirming the District Court’s decision dismissing Plaintiffs’ claims and denying leave to amend and the case was finally concluded in our favor.
We may, from time to time, be a party to other litigation in the normal course of business. Monitoring and defending against legal actions, whether or not meritorious, is
time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, our legal fees and costs incurred in connection with such activities and any legal fees of co-defendants
for which we are deemed responsible may be significant and we could, in the future, be subject to judgments or enter into settlements of claims for significant monetary damages. A decision adverse to our interests could result in the payment of
substantial damages and could have a material adverse effect on our cash flow, results of operations and financial position.
With respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses we may suffer in contesting and concluding
such lawsuit. Furthermore, our insurance does not cover legal fees associated with co-defendants. Substantial litigation costs, including the substantial self-insured retention that we are required to satisfy before any insurance applied to the
claim, or an adverse result in any litigation may adversely impact our business, operating results or financial condition.
As of the date of this annual report our operating fleet consists of eight tankers. Any limitation in the availability or operation of these
vessels could have a material adverse effect on our business, results of operations and financial condition.
As of the date of this annual report, our operating fleet consists of one 50,000 dwt MR product tanker, five 157,000 dwt Suezmax crude oil tankers, and two 300,000 dwt Very Large
Crude Carriers (VLCCs). Our MR product tanker is M/T Eco Marina Del Rey. Our Suezmax fleet consists of M/T Eco Bel Air, M/T Eco Beverly Hills, M/T Oceano CA, M/T Eco Malibu and M/T Eco West Coast. Our VLCC fleet consists of M/T Julius Caesar and
M/T Legio X Equestris. Furthermore, we have a 50% interest in M/T Eco Yosemite Park and M/T Eco Joshua Park, two 50,000 dwt product tankers. If these vessels are unable to generate revenue as a result of off hire time, early termination of the
applicable time charter or otherwise, our business, results of operations, financial condition and ability to pay dividends on our common shares could be materially adversely affected.
We expect to be dependent on a limited number of customers for a large part of our revenues, and failure of such counterparties to meet their
obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
During 2023, 100% of our revenues derived from four charterers, Clearlake Shipping Pte Ltd (“Clearlake”), Trafigura Maritime
Logistics Pte Ltd (“Trafigura”), Central Tankers Chartering Inc (“Central Tankers Chartering”) and Cargill International SA (“Cargill”). Such agreements subject us to counterparty risks. The ability of such charterers to perform their obligations
under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime industry, the overall financial condition of the counterparty,
charter rates received for specific types of vessels, work stoppages or other labor disturbances and various expenses. The combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under
reserve-based credit facilities, and the lack of availability of debt or equity financing may result in a significant reduction in the ability of charterers to make charter payments to us. In addition, in depressed market conditions, charterers
and customers may no longer need a vessel that is then under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter
agreements or avoid their obligations under those contracts. Should one of our counterparties fail to honor its obligations under agreements with us, we could sustain significant losses that could have a material adverse effect on our business,
financial condition, results of operations, and cash flows.
If we fail to manage our planned growth properly, we may not be able to successfully expand our market share.
We intend to continue to grow our fleet in the future in line with our strategy. Our future growth will primarily depend on our ability to:
|
● |
generate excess cash flow for investment without jeopardizing our ability to cover current and foreseeable working capital needs (including debt service);
|
|
● |
raise equity and obtain required financing for our existing and new operations;
|
|
● |
locate and acquire suitable vessels;
|
|
● |
identify and consummate acquisitions or joint ventures;
|
|
● |
integrate any acquired business successfully with our existing operations;
|
|
● |
our manager’s ability to hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
|
|
● |
enhance our customer base; and
|
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel, managing
relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. Furthermore, our current operating and financial systems may not be adequate if we implement a plan to expand the size of our fleet,
and our attempts to improve those systems may be ineffective. We may not be successful in executing our growth plans and we may incur significant additional expenses and losses in connection therewith.
Delays or defaults by the shipyards in the construction of newbuildings could increase our expenses and diminish our net income and cash
flows.
As of the date of this annual report, we do not have any contracts for newbuilding vessels. We may enter into contracts for newbuilding vessels in the future. Vessel construction
projects are generally subject to risks of delay that are inherent in any large construction project, which may be caused by numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of
ordered materials and equipment or shipyard construction, failure of equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated actual or purported
change orders, inability to obtain required permits or approvals, design or engineering changes and work stoppages and other labor disputes, adverse weather conditions or any other events of force majeure. Significant delays could adversely affect
our financial position, results of operations and cash flows. Additionally, failure to complete a project on time may result in the delay of revenue from that vessel, and we may continue to incur costs and expenses related to delayed vessels, such
as supervision expenses.
Our ability to obtain additional debt financing may be dependent on our ability to charter our vessels, the performance of our charters and
the creditworthiness of our charterers.
Our inability to re-charter our vessels, or vessels we may build or acquire, and the actual or perceived credit quality of our charterers, and any defaults by them, may materially
affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or maintain our existing fleet or may significantly increase our costs of obtaining such capital. Our inability to obtain financing,
or receiving financing at a higher than anticipated cost, may materially affect our results of operation and our ability to implement our business strategy.
The industry for the operation of tanker vessels and the transportation of oil, petroleum products and chemicals is highly competitive and we
may not be able to compete for charters with new entrants or established companies with greater resources.
We will employ our tankers and any additional vessels we may acquire in a highly competitive market that is capital intensive and highly fragmented. The operation of tanker vessels
and the transportation of cargoes shipped in these vessels, as well as the shipping industry in general, is extremely competitive. Competition arises primarily from other vessel owners, including major oil companies as well as independent tanker
shipping companies, some of whom have substantially greater resources than we do. Competition for the transportation of oil, petroleum products and chemicals can be intense and depends on price, location, size, age, condition and the acceptability
of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter and operate larger fleets through consolidations or acquisitions that may be able to offer better prices
and fleets than us.
We maintain cash with a limited number of financial institutions, including financial institutions that may be located in Greece, which will
subject us to credit risk.
We maintain all of our cash with a limited number of financial institutions, including institutions that are located in Greece. These financial institutions located in Greece may be
subsidiaries of international banks or Greek financial institutions. Although concerns relating to the sovereign debt crisis have largely been allayed and Greece has emerged from its bailout programs, the stand-alone financial strength of the banks
and the anticipated additional pressures stemming from the legacy of the country’s multi-year debt crisis and the COVID-19 pandemic continue to create uncertain economic prospects.
Additionally, only a small portion of cash balances are covered by insurance in the event of default by these financial institutions in Greece or elsewhere. Several banks, including
banks in the United States and Switzerland, have recently been subject to extraordinary resolution procedures or sale because of the risk of such a default. Furthermore, in the event any of our banks do not allow us to withdraw funds in the time
and amounts that we want, we may not timely comply with contractual provisions in any of our contracts or our salary obligations, among other things. The occurrence of such a default of any of our banks could have a material adverse effect on our
business, financial condition, results of operations and cash flows, and we may lose part or all of our cash that we deposit with such banks.
We may be unable to attract and retain key management personnel and other employees in the international tanker shipping industry, which may
negatively impact the effectiveness of our management and our results of operations.
Our success depends to a significant extent upon the abilities and efforts of our management team. All of our executive officers are employees of Central Mare Inc., or Central Mare,
a related party affiliated with the family of Mr. Evangelos J. Pistiolis, our President, Chief Executive Officer and Director, and we have entered into agreements with Central Mare for the compensation of Mr. Evangelos J. Pistiolis, our Chief
Executive Officer; Alexandros Tsirikos, our Chief Financial Officer and Director; Vangelis G. Ikonomou our Chief Operating Officer and Konstantinos Patis, our Chief Technical Officer. The loss of any of these individuals could adversely affect our
business prospects and financial condition. Difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not maintain “key man” life insurance on any of our officers.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations,
cash flows, financial condition and available cash.
Our Fleet Manager is responsible for recruiting, mainly through a crewing agent, the senior officers and all other crew members for our vessels and all other vessels we may acquire.
If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our business, results of
operations, cash flows, financial condition and available cash.
A drop in spot charter rates may provide an incentive for some charterers to default on their charters, which could affect our cash flow and
financial condition.
When we enter into a time charter or bareboat charter, rates under that charter are fixed throughout the term of the charter. If the spot charter rates in the tanker shipping
industry become significantly lower than the time charter equivalent rates that some of our charterers are obligated to pay us under our then existing charters, the charterers may have incentive to default under that charter or attempt to
renegotiate the charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower charter rates, and as a result we could sustain significant losses which could have a material adverse effect on
our cash flow and financial condition, which would affect our ability to meet our current or future loans or current leaseback obligations. If our current or future lenders choose to accelerate our indebtedness and foreclose their liens, or if the
owners of our leased vessels choose to repossess vessels in our fleet as a result of a default under the SLBs, our ability to continue to conduct our business would be impaired.
An increase in operating costs could decrease earnings and available cash.
Vessel operating costs include the costs of crew, fuel (for spot-chartered vessels), provisions, deck and engine spares and stores, insurance, and maintenance and repairs, which
depend on a variety of factors, many of which are beyond our control. Some of these costs, primarily relating to insurance and enhanced security measures, have been increasing. If any of our vessels, or vessels we may acquire, suffer damage, they
may need to be repaired at a dry-docking facility. The costs of dry-docking repairs are unpredictable and can be substantial. Increases in any of these expenses could decrease our earnings and available cash.
The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our fleet ages, operating and other costs will increase. In the
case of bareboat charters, operating costs are borne by the bareboat charterer. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, including environmental
regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels may engage. As our
fleet ages, market conditions might not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
Rising fuel prices may adversely affect our profits.
Fuel is a significant, expense if vessels are under voyage charter or if consumed during ballast days. Moreover, the cost of fuel will affect the profit we can earn on the
short-term or spot market. Upon redelivery of vessels at the end of a time charter, we may be obliged to repurchase the fuel on board at prevailing market prices, which could be materially higher than fuel prices at the inception of the time
charter period. As a result, an increase in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical events, supply and demand
for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns, and environmental concerns. Further, fuel may become much more expensive in the future, which may
reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.
Unless we set aside reserves or are able to borrow funds for vessel replacement, our revenue will decline at the end of a vessel’s useful life, which would adversely affect our business, results of operations and financial condition.
Unless we maintain reserves or are able to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining
useful lives. We estimate that our vessels have a useful life of up to 25 years from the date of their initial delivery from the shipyard. In case we acquire secondhand vessels, they are depreciated from the date of their acquisition through their
remaining estimated useful life. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels, or vessels we may acquire, to customers. If we are unable to replace the vessels in our fleet upon the expiration of
their useful lives, our business, results of operations, and financial condition will be materially and adversely affected.
Purchasing and operating secondhand vessels may result in increased operating costs and vessels off-hire, which could adversely affect our
earnings.
We may expand our fleet through the acquisition of secondhand vessels. While we rigorously inspect previously owned or secondhand vessels prior to purchase, this does not normally
provide us with the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us. Accordingly, we may not discover defects or other
problems with such vessels prior to purchase. Any such hidden defects or problems, when detected, may be expensive to repair, and if not detected, may result in accidents or other incidents for which we may become liable to third parties. Also,
when purchasing previously owned vessels, we do not receive the benefit of warranties from the builders if the vessels we buy are older than one year. In general, the costs to maintain a vessel in good operating condition increase with the age and
type of the vessel. In the case of chartered-in vessels, we run the same risks.
Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our
vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
Our anticipated acquisition of an interest in a megayacht entails certain risks and uncertainties associated with our entry into ownership of
a new class of vessels, and we cannot assure you that we will complete the acquisition or manage such risks successfully.
We are in advanced discussions to acquire an interest in a company that owns a 47-meter megayacht from an affiliate of our Chief Executive Officer. We anticipate that we will fund
the acquisition, if completed, with cash on hand. We believe market conditions are favorable for investments in this sector and are evaluating additional similar investment opportunities. However, there can be no assurance that we will complete
this acquisition or successfully identify any similar opportunities in the future.
Any megayacht we acquire is expected to be employed on short-term charters. We expect that management services, including commercial and technical management, for any yacht we
acquire will be provided by CSI.
Our management team and CSI do not have experience in the megayacht sector. We believe that the experience of our management and CSI in the ownership and operation of tanker and
other vessels provides relevant expertise and qualifications in the evaluation of megayacht acquisition opportunities and operation of megayachts.
We may not have adequate insurance to compensate us if we lose any vessels that we acquire.
There are a number of risks associated with the operation of ocean-going vessels, including mechanical failure, collision, fire, human error, war, terrorism, piracy, loss of life,
contact with floating objects, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. Any of these events may result in loss of revenues, increased costs and
decreased cash flows. In addition, the operation of any vessel is subject to the inherent possibility of marine disaster, including oil spills and other environmental mishaps.
We carry insurance for all vessels we acquire against those types of risks commonly insured against by vessel owners and operators. These insurances include hull and machinery
insurance, protection and indemnity insurance (which includes environmental damage and pollution insurance coverage), freight demurrage and defense and war risk insurance. Reasonable insurance rates can best be obtained when the size and the
age/trading profile of the fleet is attractive. As a result, rates become less competitive as a fleet downsizes.
We do not currently maintain strike or off-hire insurance, which would cover the loss of revenue during extended vessel off-hire periods,
such as those that occur during an unscheduled drydocking due to damage to the vessel from accidents except in cases of loss of hire up to a limited number of days due to war or a piracy event. Other events that may lead to off-hire periods include
natural or man-made disasters that result in the closure of certain waterways and prevent vessels from entering or leaving certain ports. Accordingly, any extended vessel off-hire, due to an accident or otherwise, could have a material adverse
effect on our business and our results of operations and operating cash flow.
Changes in the insurance markets attributable to the risk of terrorism in certain locations around the world could make it difficult for us
to obtain certain types of coverage. In addition, the insurance that may be available to us may be significantly more expensive than our existing coverage.
We may not be adequately insured to cover losses against all risks, which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular claims
and our insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with applicable maritime regulatory organizations. Any significant uninsured or underinsured
loss or liability could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends. It may also result in protracted legal litigation.
In the future, we may not be able to obtain adequate insurance coverage at reasonable rates for the vessels we acquire. The insurers may not pay particular claims. Our insurance
policies also contain deductibles for which we will be responsible as well as limitations and exclusions that may increase our costs or lower our revenue.
We may be subject to increased premium payments, or calls, as we obtain some of our insurance through protection and indemnity associations.
We may be subject to increased premium payments, or calls, in amounts based on our claim records and the claim records of our Fleet Manager as well as the claim records of other
members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our protection and indemnity associations may not have enough resources to
cover claims made against them. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations and financial condition.
Increasing regulation as well as scrutiny and changing expectations from investors, lenders and other market participants with
respect to our Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to
additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders
and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG and similar
matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Companies which do not adapt to or comply with investor, lender
or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer
from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.
We may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy practices,
reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments
in us. If we do not meet these standards, our business and/or our ability to access capital could be harmed.
On March 6, 2024, the SEC adopted final rules to enhance and standardize climate-related disclosures by public companies and in
public offerings. The final rules will become effective 60 days following publication of the adopting release in the Federal Register. As a non-accelerated filer, we will be required to provide the enhanced climate-related disclosures in our
annual reports for the year ending December 31, 2027. On March 15, 2024, the Fifth Circuit Court of Appeals stayed application of these rules pending further judicial review, but on March 25, 2024, the Fifth Circuit Court of Appeals ordered the
transfer of the petition to the Eighth Circuit Court of Appeals and the dissolution of the administrative stay. The impact of the ongoing litigation with respect to these rules on the content of these rules or the timing of their effectiveness is
uncertain. Costs of compliance with these new rules may be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Additionally, certain investors and lenders may exclude shipping companies, such as us, from their investing portfolios altogether due to environmental, social and governance
factors. These limitations in both the debt and equity capital markets may affect our ability to develop as our plans for growth may include accessing the equity and debt capital markets. If those markets are unavailable, or if we are unable to
access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to
service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with wide ranging ESG requirements. The occurrence of any of the foregoing could have a material
adverse effect on our business and financial condition.
Moreover, from time to time, we may establish and publicly announce goals and commitments in respect of certain ESG items. While we may create and publish voluntary disclosures
regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of
expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an
established single approach to identifying, measuring and reporting on many ESG matters. If we fail to achieve or improperly report on our progress toward achieving our environmental goals and commitments, the resulting scrutiny from market
participants or regulators could adversely affect our reputation and/or our access to capital.
Technological innovation and quality and efficiency requirements from our customers could reduce our charter hire income and the value of our
vessels.
Our customers, in particular those in the oil industry, have a high and increasing focus on quality and compliance standards with their suppliers across the entire supply chain,
including the shipping and transportation segment. Our continued compliance with these standards and quality requirements is vital for our operations. Charter hire rates and the value and operational life of a vessel are determined by a number of
factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related
docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new vessels are built that are more
efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels, and the resale value of
our vessels could significantly decrease which may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels may call in ports where smugglers may attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are
found with contraband, whether inside or attached to the hull of our vessels and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims which could have an adverse effect on our business,
results of operations, cash flows, and financial condition, as well as our ability to maintain cash flows, including cash available for distributions to pay dividends to our shareholders. Under some jurisdictions, vessels used for the conveyance of
illegal drugs could result in forfeiture of the subject vessel to the government of such jurisdiction.
Maritime claimants could arrest our vessels or vessels we may acquire, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims
or damages. In many jurisdictions, a maritime lienholder may enforce its lien by “arresting” or “attaching” a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels or vessels we acquire could result in a
significant loss of earnings for the related off-hire period. In addition, in jurisdictions where the “sister ship” theory of liability applies, a claimant may arrest the vessel which is subject to the claimant’s maritime lien and any “associated”
vessel, which is any vessel owned or controlled by the same owner. In countries with “sister ship” liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we own.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government could requisition for title or hire our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Although we would be entitled to compensation in the event of a
requisition, the amount and timing of payment of such compensation is uncertain. Government requisition of any of our vessels or vessels we acquire could negatively impact our revenues should we not receive adequate compensation.
U.S. federal tax authorities could treat us as a “passive foreign
investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any
taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income”
includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business.
Income derived from the performance of services does not constitute “passive income” for this purpose. U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the
distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
We believe that we were not a PFIC for our 2014 through 2023 taxable years and do not expect to be treated as a PFIC in subsequent taxable years. In this regard, we
intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not constitute
“passive income,” and the assets that we own and operate in connection with the production of that income do not constitute passive assets. There is substantial legal authority supporting this position including case law and United States
Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority which
characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the United States Internal Revenue Service, or IRS, or a court
of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be
changes in the nature and extent of our operations.
Our U.S. shareholders may face adverse U.S. federal income tax consequences and certain information reporting obligations as a result of us being treated as a PFIC. Under the PFIC
rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders, as discussed below under “Taxation—U.S. Federal Income Taxation of U.S. Holders—Passive Foreign
Investment Company Status and Significant Tax Consequences”), such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from
the disposition of their common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the common shares. See “Taxation—U.S. Federal Income Taxation of U.S. Holders—Passive Foreign
Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders as a result of our status as a PFIC.
We may be subject to U.S. federal income tax on our U.S. source income, which would reduce our earnings.
Under the U.S. Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our
subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source shipping income and such income is subject to a 4% U.S. federal income tax without
allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code.
We did not qualify for the tax exemption under Section 883 of the Code for our 2021 taxable year. Therefore, we and our subsidiaries were subject to an effective 2% U.S. federal
income tax on the gross shipping income we derived during 2021 that was attributable to the transport of cargoes to or from the United States. The amount of this tax for our 2021 taxable year was $152,000.
We took the position for U.S. federal income tax reporting purposes that we were not subject to U.S. federal income taxation for the 2022 taxable year and intend to take the same
position for the 2023 taxable year. However, there are factual circumstances beyond our control that could cause us to lose the benefit of the exemption and thereby become subject to U.S. federal income tax on our U.S. source shipping income. Due
to the factual nature of the issues involved, we may not qualify for exemption under Section 883 of the Code for any future taxable year.
We are a “foreign private issuer,” which could make our common shares less attractive to some investors or otherwise harm our stock price.
We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933, as amended, or the Securities Act. As a “foreign private issuer” the rules
governing the information that we disclose differ from those governing U.S. corporations pursuant to the Exchange Act. We are not required to file quarterly reports on Form 10-Q or provide current reports on Form 8-K disclosing significant events
within four days of their occurrence. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchase and sales of
our securities. Our exemption from the rules of Section 16 of the Exchange Act regarding sales of common shares by insiders means that you will have less data in this regard than shareholders of U.S. companies that are subject to the Exchange Act.
Moreover, we are exempt from the proxy rules, and proxy statements that we distribute will not be subject to review by the Commission. Accordingly, there may be less publicly available information concerning us than there is for other U.S. public
companies. These factors could make our common shares less attractive to some investors or otherwise harm our stock price.
RISKS RELATED TO OUR COMMON SHARES
The market price and trading volume of our common shares may continue to be highly volatile, which could lead to a loss of all
or part of a shareholder’s investment.
The market price of our common shares has fluctuated widely since our common shares began trading in July of 2004 on Nasdaq.
The market price of our common shares is affected by a variety of factors, including:
|
• |
fluctuations in interest rates;
|
|
• |
fluctuations in the availability or the price of oil and chemicals;
|
|
• |
fluctuations in foreign currency exchange rates;
|
|
• |
announcements by us or our competitors;
|
|
• |
changes in our relationships with customers or suppliers;
|
|
• |
actual or anticipated fluctuations in our semi-annual and annual results and those of other public companies in our industry;
|
|
• |
changes in United States or foreign tax laws;
|
|
• |
international sanctions, embargoes, import and export restrictions, nationalizations, piracy and wars or other conflicts, including the war in Ukraine.
|
|
• |
actual or anticipated fluctuations in our operating results from period to period;
|
|
• |
shortfalls in our operating results from levels forecast by securities analysts;
|
|
• |
market conditions in the shipping industry and the general state of the securities markets;
|
|
• |
business interruptions caused by the outbreak of COVID-19 or the war in Ukraine;
|
|
• |
mergers and strategic alliances in the shipping industry;
|
|
• |
changes in government regulation;
|
|
• |
a general or industry-specific decline in the demand for, and price of, shares of our common shares resulting from capital market conditions independent of our operating performance;
|
|
• |
the loss of any of our key management personnel;
|
|
• |
our failure to successfully implement our business plan;
|
|
• |
issuance of shares; and
|
|
• |
stock splits / reverse stock splits.
|
In addition, over the last few years, the stock market has experienced price and volume fluctuations, including due to factors relating to the outbreak of COVID-19 and
the war in Ukraine, and this volatility has sometimes been unrelated to the operating performance of particular companies. As a result, there is a potential for rapid and substantial decreases in the price of our common shares, including
decreases unrelated to our operating performance or prospects. During 2023, the closing price of our common shares experienced a high of $19.80 in February and a
low of $5.86 in November. This market and share price volatility relating to general economic, market or political conditions, has and could further reduce the market price of our common shares in spite
of our operating performance and could also increase our cost of capital, which could prevent us from accessing debt and equity capital on terms acceptable to us or at all.
In addition, the market price and trading volume of our common shares have very recently and at certain other times in the past exhibited, and may continue to exhibit, extreme
volatility, including within a single trading day. We believe certain past instances of trading volatility reflect market and trading dynamics unrelated to our operating business or prospects and outside of our control. Such volatility could cause
purchasers of our common shares to incur substantial losses. We are unable to predict when such instances of trading volatility will occur or how long such dynamics may last. Under these circumstances, we would caution you against investing in our
common shares unless you are prepared to incur the risk of incurring substantial losses.
A portion of our common shares may be traded by short sellers which may put pressure on the supply and demand for our common shares, creating further price volatility. In
particular, a possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to sudden extreme price volatility in our common shares. Investors may purchase our common shares to hedge existing
exposure in our common shares or to speculate on the price of our common shares. Speculation on the price of our common shares may involve long and short exposures. To the extent aggregate short exposure exceeds the number of common shares
available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our common shares for delivery to lenders of our common shares. Those repurchases may in turn, dramatically increase the price of our
common shares until investors with short exposure are able to purchase additional common shares to cover their short position. This is often referred to as a “short squeeze.” Following such a short squeeze, once investors purchase the shares
necessary to cover their short position, the price of our common shares may rapidly decline. A short squeeze could lead to volatile price movements in our shares that are not directly correlated to the performance or prospects of our company and
could cause purchasers of our common shares to incur substantial losses.
Further, shareholders may institute securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial
costs and our resources and the attention of management could be diverted from our business.
There is no guarantee of a continuing public market for you to resell our common shares.
Our common shares currently trade on the Nasdaq Capital Market. We cannot assure you that an active and liquid public market for our common shares will continue and you may not be
able to sell your common shares in the future at the price that you paid for them or at all. The price of our common shares may be volatile and may fluctuate due to factors such as:
|
• |
actual or anticipated fluctuations in our results and those of other public companies in our industry;
|
|
• |
mergers and strategic alliances in the shipping industry;
|
|
• |
market conditions in the shipping industry and the general state of the securities markets;
|
|
• |
changes in government regulation;
|
|
• |
shortfalls in our operating results from levels forecast by securities analysts; and
|
|
• |
announcements concerning us or our competitors.
|
Further, a lack of trading volume in our stock may affect investors’ ability to sell their shares. Our common shares have periodically had low daily trading volumes in the market.
As a result, investors may be unable to sell all or any of their shares in the desired time period, or may only be able to sell such shares at a significant discount to the previous closing price.
Nasdaq may delist our common shares from its exchange which could limit your ability to make transactions in our securities and subject us to
additional trading restrictions.
We are required to meet certain qualitative and financial tests (including a minimum bid price for our common shares of $1.00 per share, at least 500,000 publicly held shares, at least 300 public
holders, a market value of publicly held securities of $1 million and Stockholders’ Equity of $2.5 million), as well as other corporate governance standards, to maintain the listing of our common shares on the Nasdaq Capital Market, or Nasdaq. It
is possible that we could fail to satisfy one or more of these requirements. There can be no assurance that we will be able to maintain compliance with the minimum bid price, shareholders’ equity, number of publicly held shares, market value of
publicly held securities or other listing standards in the future. We may receive notices from Nasdaq that we have failed to meet its requirements, and proceedings to delist our stock could be commenced. We have received in the past, and most
recently on April 21, 2023 we received a written notification from Nasdaq indicating that because the closing bid price of our common shares for the last 30 consecutive business days was below $1.00 per share, we
no longer met the minimum bid price requirement under Nasdaq rules. On some occasions we were able to regain compliance within the grace period prescribed by Nasdaq pursuant to a reverse stock split. For example, on September 29, 2023, we
effectuated a 12-to-1 reverse stock split in order to regain compliance with Nasdaq Listing Rule 5450(a)(1) on October 16, 2023. For more information, please see “Item 4. Information on the Company—A.
History and Development of the Company.”
A continued decline in the closing price of our common shares on Nasdaq could result in suspension or delisting procedures in respect of our common shares. The commencement of
suspension or delisting procedures by an exchange remains, at all times, at the discretion of such exchange and would be publicly announced by the exchange. If a suspension or delisting were to occur, there would be significantly less liquidity in
the suspended or delisted securities. In addition, our ability to raise additional necessary capital through equity or debt financing would be greatly impaired. Furthermore, with respect to any suspended or delisted common shares, we would expect
decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such common
shares. A suspension or delisting would likely decrease the attractiveness of our common shares to investors and constitutes a breach under certain of our credit agreements as well as constitutes an event of default under certain classes of our
preferred stock and would cause the trading volume of our common shares to decline, which could result in a further decline in the market price of our common shares.
Finally, if the volatility in the market continues or worsens, it could have a further adverse effect on the market price of our common shares, regardless of our operating
performance.
We have issued common shares in the past through various transactions and we may do so in the future without shareholder approval, which may
dilute our existing shareholders, depress the trading price of our securities and impair our ability to raise capital through subsequent equity offerings.
We have already sold large quantities of our common shares and securities convertible into common shares, pursuant to previous public and private offerings of our equity and
equity-linked securities. We currently have an effective registration statement on Form F-3 (333-267170), for the registered sale of $200 million of our securities, of which we have sold $13.6 million.
In addition, the outstanding October 2022 Warrants (defined below) are exercisable to purchase up to 89,393 common shares at an exercise price of $81.00 per share, the outstanding
Class C Warrants (defined below) are exercisable to purchase up to 561,991 common shares at an exercise price of $16.20 per share and the outstanding February 2023 Warrants (defined below) are exercisable to purchase up to 837,094 common shares at
an exercise price of $16.20 per share.
Purchasers of the common shares we sell, as well as our existing shareholders, will experience significant dilution if we sell shares at prices significantly below the price at
which they invested. In addition, we may issue additional common shares or other equity securities of equal or senior rank in the future in connection with, among other things, debt prepayments, future vessel acquisitions, or any future equity
incentive plan, without shareholder approval, in a number of circumstances. Our existing shareholders may experience significant dilution if we issue shares in the future at prices below the price at which previous shareholders invested.
Our issuance of additional shares of common shares or other equity securities of equal or senior rank would have the following effects:
|
● |
our existing shareholders’ proportionate ownership interest in us will decrease;
|
|
● |
the amount of cash available for dividends payable on the shares of our common shares may decrease;
|
|
● |
the relative voting strength of each previously outstanding common share may be diminished; and
|
|
● |
the market price of the shares of our common shares may decline.
|
The market price of our common shares could decline due to sales, or the announcements of proposed sales, of a large number of common shares in the market, including sales of common
shares by our large shareholders or by holders of securities convertible into common shares, or the perception that these sales could occur. These sales or the perception that these sales could occur could also depress the market price of our
common shares and impair our ability to raise capital through the sale of additional equity securities or make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate. We cannot
predict the effect that future sales of common shares or other equity-related securities would have on the market price of our common shares.
Our Third Amended and Restated Articles of Incorporation, as amended, authorizes our Board of Directors to, among other things, issue additional shares of common or preferred stock
or securities convertible or exchangeable into equity securities, without shareholder approval. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional shares of common or preferred
stock or convertible securities could be substantially dilutive to our shareholders. Moreover, to the extent that we issue restricted stock units, stock appreciation rights, options or warrants to purchase our common shares in the future and those
stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution. Holders of shares of our common shares have no preemptive rights that entitle such holders to
purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
We may be unable to successfully consummate a planned spin-off of certain of our assets or to achieve some or all of the benefits that we
expect to achieve from the spin-off, and may incur significant risks associated with the spin-off.
On June 21, 2023, one of our wholly-owned subsidiaries, Rubico Inc., or Rubico, filed a registration statement on Form 20-F with the SEC in connection with its potential spin-off
from us. On August 18, 2023, Rubico withdrew its registration statement. We are evaluating alternatives to consummate a spin-off of certain of our assets to Rubico. Depending on the assets we spin off, we will require the consent of some or even
all of our financiers, which may or may not be granted and if granted may require we maintain our corporate guarantee in respect of the spun off assets. The intended benefits of any spin-off may not be realized, and we may incur significant risks
if we proceed with any spin-off. The spin-off, even if not completed successfully, may require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our business. Rubico may be
unable to successfully establish the infrastructure or implement the changes necessary to operate as an independent public company or may incur additional costs to do so. Rubico may not have access to financing on acceptable terms and conditions in
the future. A listing on a national securities exchange may not be obtained and a liquid trading market in the shares of Rubico may not develop and the market price of Rubico shares may be highly volatile. As a result of these or other risks, if
the spin-off is not completed, or is completed and does not achieve its intended benefits, the value of an investment in our common shares may be negatively affected.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law, and as a result,
shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.
Our corporate affairs are governed by our Third Amended and Restated Articles of Incorporation, as amended, our By-laws, and by the Marshall Islands Business Corporations Act, or
the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and
fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain
United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative
provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States
jurisdiction.
As a Marshall Islands corporation with principal executive offices in Greece and subsidiaries in the Marshall Islands and other offshore
jurisdictions, our operations may be subject to economic substance requirements.
The Council of the European Union, or the Council, routinely publishes a list of “non-cooperative jurisdictions” for tax purposes, which includes countries that the Council believes
need to improve their legal framework and to work towards compliance with international standards in taxation. In February 2023, the Republic of the Marshall Islands, among others, was placed by the EU on the list of non-cooperative jurisdictions
for lacking in the enforcement of economic substance requirements, and was subsequently removed from such list in October 2023. EU member states have agreed upon a set of measures, which they can choose to apply against the listed countries,
including increased monitoring and audits, withholding taxes, and non-deductibility of costs, and although we are not currently aware of any such measures being adopted they can be adopted by one or more EU members states in the future. The
European Commission has stated it will continue to support member states’ efforts to develop a more coordinated approach to sanctions for the listed countries. EU legislation prohibits certain EU funds from being channeled or transited through
entities in non-cooperative jurisdictions.
We are a Marshall Islands corporation with principal executive offices in Greece. The Marshall Islands has enacted economic substance regulations with which we may be obligated to
comply. Those regulations require certain entities that are not otherwise tax resident elsewhere that carry out particular activities to comply with an economic substance test whereby the entity must show that it (i) is directed and managed in the
Marshall Islands in relation to that relevant activity, (ii) carries out core income-generating activity in relation to that relevant activity in the Marshall Islands (although it is being understood and acknowledged by the regulators that
income-generated activities for shipping companies will generally occur in international waters), and (iii) having regard to the level of relevant activity carried out in the Marshall Islands, has (a) an adequate amount of expenditures in the
Marshall Islands, (b) adequate physical presence in the Marshall Islands, and (c) an adequate number of qualified employees in the Marshall Islands.
If we fail to comply with our obligations under this legislation or any similar law applicable to us in any other jurisdictions, we could be subject to financial penalties and
spontaneous disclosure of information to foreign tax officials or with respect to the Marshall Islands economic substance requirements, revocation of the formation documents and dissolution of the applicable non-compliant Marshall Islands entity or
struck from the register of companies in related jurisdictions. Any of the foregoing could be disruptive to our business and could have a material adverse effect on our business, financial conditions, and operating results. Accordingly, any
implementation of, or changes to, any of the economic substance regulations that impact us could increase the complexity and costs of carrying on business in these jurisdictions, and thus could adversely affect our business, financial condition or
results of operations.
We do not know what actions the Marshall Islands may take, if any, to remove itself from the list of “non-cooperative jurisdictions” if it should be placed back on the list; how
quickly the EU would react to any changes in regulations of the Marshall Islands; or how EU banks or other counterparties will react while we or our subsidiaries remain as entities organized and existing under the laws of the Marshall Islands
during a period if the Marshall Islands is again placed on the list of “non-cooperative jurisdictions.” The effect of the EU list of non-cooperative jurisdictions, and any noncompliance by us with legislation or regulations adopted by the Marshall
Islands to achieve removal from the list, could have a material adverse effect on our business, financial conditions and operating results.
It may not be possible for investors to serve process on or enforce U.S. judgments against us.
We and all of our subsidiaries are incorporated in jurisdictions outside the U.S. and substantially all of our assets and those of our subsidiaries are located outside the U.S. In
addition, all of our directors and officers are non-residents of the U.S., and all or a substantial portion of the assets of these non-residents are located outside the U.S. As a result, it may be difficult or impossible for U.S. investors to serve
process within the U.S. upon us, our subsidiaries or our directors and officers or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we or our
subsidiaries are incorporated or where our assets or the assets of our subsidiaries are located (1) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable
U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based on those laws.
Our By-laws provide that the High Court of the Republic of Marshall Islands shall be the sole and exclusive forum for certain
disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our By-laws provide that, unless the Company consents in writing to the selection of an alternative forum, the High Court of the Republic of Marshall Islands shall be the sole and
exclusive forum for (i) any shareholders’ derivative action or proceeding brought on behalf of the Corporation, including any such action arising under the Exchange Act or the Securities Act (ii) any action asserting a claim of breach of a
fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Business Corporations Act of the
Republic of the Marshall Islands, or (iv) any action asserting a claim governed by the internal affairs doctrine. This forum selection provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
We may not achieve the intended benefits of having a forum selection provision if it is found to be unenforceable.
Our Bylaws include a forum selection provision as described under the section herein entitled “Item 10. Additional Information—B. Memorandum and Articles of Association”. However,
the enforceability of similar forum selection provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that in connection with any action a court could find the forum selection provision
contained in our Bylaws to be inapplicable or unenforceable in such action. In particular, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or
the rules and regulations thereunder. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and
regulations thereunder. Shareholders’ derivative actions, including those arising under the Exchange Act or Securities Act, are subject to our forum selection provision. To the extent that the exclusive forum provision would apply to restrict the
courts in which our shareholders may bring claims arising under the Exchange Act or the Securities Act and the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such a provision. Investors cannot waive
compliance with the federal securities laws and the rules and regulations promulgated thereunder. If a court were to find the forum selection provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types of
actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
Anti-takeover provisions in our organizational documents could have the effect of discouraging, delaying or preventing a merger, amalgamation
or acquisition, which could reduce the market price of our common shares.
Several provisions of our Third Amended and Restated Articles of Incorporation, as amended, and Amended and Restated By-laws could make it difficult for our shareholders to change
the composition of our Board of Directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider
favorable.
These provisions include:
|
• |
authorizing our Board of Directors to issue “blank check” preferred stock without stockholder approval;
|
|
• |
providing for a classified Board of Directors with staggered, three-year terms;
|
|
• |
prohibiting cumulative voting in the election of directors;
|
|
• |
authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of at least 80% of the outstanding shares of our capital stock entitled to vote for the directors;
|
|
• |
prohibiting shareholder action by written consent unless the written consent is signed by all shareholders entitled to vote on the action;
|
|
• |
limiting the persons who may call special meetings of shareholders;
|
|
• |
establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by shareholders at shareholder meetings; and
|
|
• |
restricting business combinations with interested shareholders.
|
In addition, we have entered into a stockholders rights agreement that makes it more difficult for a third party to acquire a significant stake in the Company without the support of
our Board of Directors. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights Agreement.”
The above anti-takeover provisions and the provisions of our stockholders rights agreement could substantially impede the ability of public shareholders to benefit from a change in
control and, as a result, may adversely affect the market price of our common shares and your ability to realize any potential change of control premium.
RISKS RELATED TO OUR RELATIONSHIP WITH OUR FLEET MANAGER AND ITS AFFILIATES
We are dependent on our Fleet Manager to perform the day-to-day management of our fleet.
Our executive management team, provided by Central Mare, consists of Evangelos J. Pistiolis our Chief Executive Officer; Alexandros Tsirikos, our Chief Financial Officer and
Director; Vangelis G. Ikonomou our Chief Operating Officer and Konstantinos Patis, our Chief Technical Officer. We subcontract the day-to-day vessel management of our fleet, including crewing, maintenance and repair to our Fleet Manager.
Furthermore, upon delivery of any vessels we may acquire, we expect to subcontract their day-to-day management to our Fleet Manager. Our Fleet Manager is a related party affiliated with the family of Mr. Pistiolis. We are dependent on our Fleet
Manager for the technical and commercial operation of our fleet as well as for all accounting and reporting functions and the loss of our Fleet Manager’s services or its failure to perform obligations to us could materially and adversely affect the
results of our operations. If our Fleet Manager suffers material damage to its reputation or relationships it may harm our ability to:
|
● |
continue to operate our vessels and service our customers;
|
|
● |
renew existing charters upon their expiration;
|
|
● |
obtain financing on commercially acceptable terms;
|
|
● |
obtain insurance on commercially acceptable terms;
|
|
● |
maintain satisfactory relationships with our customers and suppliers; and
|
|
● |
successfully execute our growth strategy.
|
Our Fleet Manager is a privately held company and there may be limited or no publicly available information about it.
Our Fleet Manager is a privately held company. The ability of our Fleet Manager to provide services for our benefit will depend in part on its own financial strength. Circumstances
beyond our control could impair our Fleet Manager’s financial strength, and there may be limited publicly available information about its financial condition. As a result, an investor in our common shares might have little advance warning of
problems affecting our Fleet Manager, even though these problems could have a material adverse effect on us.
Our Fleet Manager may have conflicts of interest between us and its other clients.
We subcontract the day-to-day vessel management of our fleet, including crewing, maintenance and repair to our Fleet Manager. Our Fleet Manager may provide similar services for
vessels owned by other shipping companies, and it also may provide similar services to companies with which our Fleet Manager is affiliated. These responsibilities and relationships could create conflicts of interest between our Fleet Manager’s
performance of its obligations to us, on the one hand, and our Fleet Manager’s performance of its obligations to its other clients, on the other hand. These conflicts may arise in connection with the crewing, supply provisioning and operations of
the vessels in our fleet versus vessels owned by other clients of our Fleet Manager. In particular, our Fleet Manager may give preferential treatment to vessels owned by other clients whose arrangements provide for greater economic benefit to our
Fleet Manager. These conflicts of interest may have an adverse effect on our results of operations.
|
ITEM 4.
|
INFORMATION ON THE COMPANY
|
| A. |
History and Development of the Company
|
Our predecessor, Ocean Holdings Inc., was formed as a corporation in January 2000 under the laws of the Republic of the Marshall Islands and renamed Top Tankers Inc. in May 2004. In
December 2007, Top Tankers Inc. was renamed TOP Ships Inc. Our common shares are currently listed on Nasdaq under the symbol “TOPS.” The current address of our principal executive office is 1 Vasilisis Sofias and Megalou Alexandrou Str, 15124
Maroussi, Greece. The telephone number of our registered office is +30 210 812 8107. The SEC maintains a website that contains reports, proxy and information statements, and other information that we file electronically at http://www.sec.gov. Our
website is https://www.topships.org. The information contained on, or that can be accessed through, these websites is not incorporated by reference herein and does not form part of this annual report.
On January 8, 2021, we announced the sale of the three shipowning companies that owned M/T Eco Van Nuys (Hull No 2789), M/T Eco Santa Monica (Hull No 2790) and M/T Eco Venice Beach
(Hull No 2791) to a related party affiliated with Mr. Evangelos J. Pistiolis in exchange for:
|
● |
100% ownership in a Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted Suezmax Tanker (to be named M/T Eco Oceano CA) delivered from Hyundai Samho
shipyard in March 2022. The shipowning company was party to a time charter, starting from the vessel’s delivery, with Central Tankers Chartering, a company affiliated with Mr. Evangelos J. Pistiolis, for a firm duration of five years at a
gross daily rate of $32,450, with a charterer’s option to extend for two additional years at $33,950 and $35,450.
|
|
● |
35% ownership in one Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker (to be named M/T Julius Caesar) delivered from Hyundai Heavy
Industries shipyard in January 2022. The shipowning company was party to a time charter, starting from the vessel’s delivery, with Trafigura, for a firm duration of three years at a gross daily rate of $36,000, with a charterer’s option to
extend for two additional years at $39,000 and $41,500.
|
|
● |
35% ownership in one Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker (to be named M/T Legio X Equestris) delivered from Hyundai Heavy
Industries shipyard in March 2022. The shipowning company was party to a time charter, starting from the vessel’s delivery, with Trafigura, for a firm duration of three years at a gross daily rate of $35,750, with a charterer’s option to
extend for two additional years at $39,000 and $41,500.
|
|
● |
A forgiveness of $1.2 million in payables to the buyer.
|
The buyer would remain the guarantor on the shipbuilding contracts towards the shipyard and in addition, the buyer provided us with an option for a credit line up to 10% of the
total shipbuilding cost at market terms, to be negotiated when such option was to be exercised, amounting to $23.8 million.
On March 18, 2021, we entered into a credit facility with ABN Amro for $36.8 million for the financing of the vessel M/T Eco West Coast (see “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Prepayments of senior secured loans—ABN
Facility”). The facility bore interest at LIBOR plus a margin of 2.50%. From June 23, 2023, ABN Amro switched the facility’s variable rate from LIBOR to Compounded SOFR. On December 14, 2023, this facility
was fully prepaid using part of the proceeds from the 3rd AVIC SLB (see “Item 5. Operating and Financial Review and Prospects—B.
Liquidity and Capital Resources—Debt Facilities—Financings Committed under Sale and Leaseback Agreements—3rd AVIC Sale
and Leaseback”).
On March 26, 2021, we took delivery of the vessel M/T Eco West Coast from the Hyundai Heavy Industries shipyard in South Korea.
On May 6, 2021, we entered into a senior debt facility with Alpha Bank of $38 million for the financing of the vessel M/T Eco Malibu (see “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Prepayments of senior secured loans—Alpha Bank Facility”). The facility bore
interest at LIBOR plus a margin of 3.00%. From June 9, 2023, Alpha Bank switched the facility’s variable rate from LIBOR to Term SOFR. On December 21, 2023, this facility was fully prepaid through part of the proceeds from the Huarong SLB
(see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Financings Committed under Sale and Leaseback
Agreements—Huarong Sale and Leaseback”).
On May 11, 2021, we took delivery of the vessel M/T Eco Malibu from the Hyundai Heavy Industries shipyard in South Korea.
On September 1, 2021, we sold the M/T Nord Valiant to unaffiliated third parties for gross proceeds of $26.4 million, part of which were used to fully prepay the respective loan for
which the vessel was collateral.
On September 8, 2021, we purchased from a company affiliated with Mr. Evangelos J. Pistiolis (the “Seller”) for a consideration of $29.8 million an additional 65% ownership interest
in each of Julius Caesar Inc. and Legio X Inc. (the “VLCC Companies”), each a party to shipbuilding contracts for VLCC Julius Caesar (Hull No. 3213) and VLCC Legio X Equestris (Hull No. 3214), respectively. Following this transaction (the “VLCC
Transaction”), we became 100% owner of the VLCC Companies. The Seller remained the guarantor on the shipbuilding contracts towards the shipyard and in addition the Seller provided a financing option to the Company by remaining responsible to the
shipyard for up to 20% of the shipbuilding cost per vessel (increased from 10%, as previously agreed on January 6, 2021), at our option, exercisable until each vessel’s delivery date. On September 8, 2021 we issued 2,188 Series E Shares to Family
Trading, as partial settlement of $2.2 million of the consideration outstanding from the VLCC Transaction.
On November 23, 2021, we entered into a credit facility with China Merchants Bank Financial Leasing Co. Ltd. (“CMBFL”) for $108.0 million for the financing of the newbuilding
vessels Julius Caesar (Hull No. 3213) and Legio X Equestris (Hull No. 3214). We drew down $54.0 million from the facility in January 2022 for the financing of the delivery of the M/T Julius Caesar and another $54.0 in March 2022 for the financing
of the delivery of the M/T Legio X Equestris. For each of the vessels the credit facility is repayable in 32 consecutive quarterly installments of $0.7 million and a balloon payment of $32.4 million payable together with the last installment. The
credit facility bears interest at SOFR plus a margin of 2.60%.
On November 24, 2021, we agreed to sell the M/T Eco Los Angeles and M/T Eco City of Angels to unaffiliated third parties for net proceeds after debt repayment of $18.6 million, with
the closings taking place on February 28 and March 15, 2022 respectively.
On January 5, 2022, we entered into an unsecured credit facility for up to $20 million with Central Mare Inc. (the “Central Mare Unsecured Bridge Loan”), an affiliate of our CEO, in
order to finance part of the shipbuilding cost of the two VLCCs. A total of $9 million was drawn down and subsequently repaid from proceeds from the sale of M/T Eco Los Angeles and the facility is now terminated. The maturity date of the loan was
December 31, 2022. The principal terms of the loan included an arrangement fee of 2%, interest of 12% per annum and a commitment fee of 1.00% on the undrawn part of the facility.
On January 17, 2022, we entered into a stock purchase agreement with Africanus Inc, owned by 3 Sororibus Trust, an irrevocable trust established for the benefit of certain family
members of Mr. Pistiolis, for the sale of up to 7,560,759 newly-issued Series F Non-Convertible Perpetual Preferred Shares (“Series F Preferred Shares”), in exchange for (i) the assumption by Africanus Inc of an amount of $47.6 million of
shipbuilding costs for its newbuilding vessels M/T Eco Oceano CA (Hull No. 871), M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214), and (ii) settlement of the Company’s remaining payment obligations relating to the VLCC
Transaction, in an amount of up to $27.6 million. At total of 7,200,000 Series F Preferred Shares were issued in connection with the deliveries of M/T Julius Caesar, M/T Legio X Equestris and M/T Eco Oceano CA and the settlement of $24.4 million of
payment obligations relating to the VLCC Transaction.
On January 17, 2022, we took delivery of the vessel M/T Julius Caesar from the Hyundai Heavy Industries shipyard in South Korea.
On January 26, 2022, we received a notice from the Nasdaq Stock Market indicating that because the closing bid price of our common shares for the preceding 30 consecutive business
days was below $1.00 per share, we no longer met the minimum bid price requirement for the Nasdaq Capital Market. We regained compliance on March 22, 2022.
On February 14, 2022, we entered into time charter employment agreements with a major oil trader for M/T Eco Beverly Hills and for
M/T Eco Bel Air, according to which upon completion of their current charters, the M/T Eco Beverly Hills and M/T Eco Bel Air will enter into a time charter for a minimum period of 20 months and a maximum period of 26 months (at charterers option)
at daily rate of $24,000 per vessel. Charterers also have the option to further extend the time charter until December 1, 2025 for M/T Eco Beverly Hills and December 10, 2025 for M/T Eco Bel Air (which option for the M/T Eco Bel Air was exercised on February 29, 2024). The daily rate for the entire period for both vessels is $24,000, including charterer optional periods.
On February 22, 2022 we announced an amendment of a previously agreed time charter with an affiliate of Evangelos Pistiolis which commenced upon delivery of M/T Eco Oceano CA from
Hyundai Samho shipyard, on March 4, 2022. According to the amendment, the firm period of the time charter employment is increased from five years to 15 years and the daily rate is reduced from $32,450 to $24,500.
On March 2, 2022, we took delivery of the vessel M/T Legio X Equestris from the Hyundai Heavy Industries shipyard in South Korea.
On March 2, 2022 we entered into a sale and leaseback with AVIC International Leasing Co., Ltd (“AVIC”), for our newbuilding vessel Eco Oceano CA (Hull No. 871) for total proceeds
of $48.2 million. Consummation of the sale and leaseback took place on March 4, 2022. Following the sale, we have bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of 40 consecutive quarterly
installments of $0.68 million and a balloon payment of $21.1 million payable together with the last installment, plus interest based on the three months LIBOR plus 3.50%. As part of this transaction, we have continuous options to buy back the
vessels at purchase prices stipulated in the bareboat agreements depending on when the option will be exercised and at the end of the ten year period we have an obligation to buy back the vessel at a cost represented by the balloon payment.
On March 4, 2022, we took delivery of the vessel M/T Eco Oceano CA from the Hyundai Samho shipyard in South Korea.
On April 15, 2022, we entered into an Equity Distribution Agreement with Maxim Group LLC, as sales agent, under which we would offer and sell, from time to time through Maxim Group
LLC, up to $19,700,000 of our common shares, par value $0.01 per share. On October 6, 2022, we announced that we had terminated the Equity Distribution Agreement. We sold 10,786 common shares pursuant to the Equity Distribution Agreement for
aggregate net proceeds of approximately $2.0 million.
On May 18, 2022, we received a written notification from Nasdaq indicating that because the closing bid price of our common shares for the last 30 consecutive business days was
below $1.00 per share, we no longer met the minimum bid price requirement under Nasdaq rules. On September 23, 2022 we effectuated a 20-to-1 reverse stock split in order to regain compliance with Nasdaq Listing Rule 5450(a)(1). As a result, we
regained compliance on October 7, 2022.
On June 3, 2022, we entered into a securities purchase agreement with a single unaffiliated institutional investor to purchase approximately $7.2 million of our common shares (or
pre-funded warrants in lieu thereof) in a registered direct offering and warrants to purchase common shares in a concurrent private placement. On June 7, 2022, we issued 19,583 of our common shares and pre-funded warrants to purchase 40,012 common
shares in the registered direct offering, and 14,303,000 warrants (the “June 2022 Warrants”) to purchase 59,595 common shares in the concurrent private placement for a purchase price of $120.00 per common share and June 2022 Warrants and $119.976
per pre-funded warrant and June 2022 Warrant. The June 2022 Warrants were immediately exercisable, with an expiration date of five years from the date of issuance and had an exercise price of $120.00 per common share. Maxim Group LLC acted as the
sole placement agent in connection with the offering. In July 2022, pre-funded warrants were exercised to purchase 21,787 common shares, and in September 2022, pre-funded warrants were exercised to purchase 18,225 common shares.
On July 8, 2022, we redeemed 865,558 of our Series F Preferred Shares for an aggregate amount of approximately $10.4 million, payable in cash.
On September 23, 2022, we effected a 20-to-1 reverse stock split of our common shares, which was authorized at our annual meeting of shareholders held on September 5, 2022. There
was no change in the number of our authorized common shares. All share amounts in this report, not including amounts incorporated by reference, have been retroactively adjusted to reflect this reverse stock split.
On October 10, 2022, we entered into a warrant exercise inducement letter agreement (“Inducement Letter”) with an accredited investor that was an existing holder of June 2022
Warrants, wherein the investor agreed to exercise all of the June 2022 Warrants at an exercise price reduced from $120.00 per share to $81.00 per share, in consideration for the issuance of new warrants (the “October 2022 Warrants”) to purchase up
to an aggregate of 89,393 common shares for a purchase price of $81.00 per common share. The October 2022 Warrants were immediately exercisable upon issuance at an exercise price of $81.00 per common share and will expire on June 7, 2027. The net
proceeds of the exercise of the October 2022 Warrants to the Company, after deducting estimated expenses and fees, were approximately $4.5 million. We granted customary registration rights covering the resale of the common shares issuable upon
exercise of the October 2022 Warrants.
On December 6, 2022, we closed a public offering of 562,500 units, each consisting of one of our common shares and Class C Common Stock Purchase Warrants (“Class C Warrants”) to
purchase one common share, at a price of $24.00 per unit. Each Class C Warrant was immediately exercisable for one common share at an exercise price of $24.00 per share with an expiration date of five years after the issuance date. The gross
proceeds of the offering to us, before discounts and commissions and estimated offering expenses, were approximately $13.5 million.
On December 7, 2022, we entered into a time charter agreement with
WECO Tankers A/S for the M/T Marina Del Rey for a firm period of three years at a daily rate of $20,500 and an optional year at a daily rate of $22,500 at the charterer’s option.
On December 30, 2022, we redeemed 483,694 of our Series F Preferred Shares for an aggregate amount of approximately $5.8 million, payable in cash.
On January 13, 2023, March 6, 2023 and April 19, 2023, we redeemed 1,000,000, 1,016,667 and 174,454 of our Series F Preferred Shares for an aggregate amount of approximately $12.0
million, $12.2 million and $2.1 million, payable in cash respectively.
On February 14, 2023, we entered into a securities purchase agreement with several institutional investors to purchase approximately $13.6 million of our units in a registered
direct offering at a price of $16.20 per unit. Each unit consisted of one common share and warrants to purchase one common share (the “February 2023 Warrants”). The February 2023 Warrants are immediately exercisable, will expire five years from the
date of issuance and have an exercise price of $16.20 per common share. Additionally, pursuant to the terms of our Class C Warrants issued to investors on December 6, 2022, we agreed to reduce the exercise price per common share under the Class C
Warrants to $16.20 per common share from an original exercise price of $24.00 per common share. The offering closed on February 16, 2023.
On March 1, 2023, we announced that for the period commencing from March 1, 2023 to December 31, 2023 we will not conduct any new equity offerings, public or private, we will not
conduct any reverse stock splits (except to the extent our Board of Directors deems advisable for the sole purpose of remaining compliant with Nasdaq continued listing requirements), we will not pay any bonuses to our executive management and that
neither the CEO nor his affiliates will sell any common shares.
On April 21, 2023, we received a written notification from Nasdaq indicating that because the closing bid price of our common shares for the last 30 consecutive
business days was below $1.00 per share, we no longer met the minimum bid price requirement under Nasdaq rules. On September 29, 2023 we effectuated a 12-to-1 reverse stock split in order to regain compliance with Nasdaq Listing Rule 5450(a)(1).
As a result, we regained compliance on October 16, 2023.
On June 21, 2023, one of our wholly-owned subsidiaries, Rubico Inc., or Rubico, filed a registration statement on Form 20-F with the SEC in connection with its potential spin-off
from us. On August 18, 2023, Rubico withdrew its registration statement. We are evaluating alternatives to consummate a spin-off of certain of our assets to Rubico.
On July 12, 2023 we entered into an agreement to extend the duration of the time charter parties with Clearlake Shipping Pte Ltd for a fixed term of a minimum of 30 months and a
maximum of 36 months for the vessels M/T Eco West Coast and M/T Eco Malibu. The daily rate of the extended period was agreed at $32,850.
On September 29, 2023, we effected a 12-to-1 reverse stock split of our common shares, which was authorized at our annual meeting of shareholders held on September 5, 2022. There
was no change in the number of our authorized common shares. All share amounts in this report, not including amounts incorporated by reference, have been retroactively adjusted to reflect this reverse stock split.
On November 22, 2023, we announced our agreement to extend the duration of the time charter parties for the vessels M/T Julius Caesar and M/T Legio X Equestris. Specifically, the firm period was extended for approximately three years at a daily rate of $41,500 per vessel with two additional years at the charterer’s option.
On December 7, 2023, we announced the issuance of 2,930,718 common shares following the conversion of all of our Series E Preferred shares held by the Lax Trust. Following this
conversion, we currently have no Series E Preferred Shares outstanding.
On December 10, 2023, our board of directors granted to our Chief Executive Officer a bonus of $5.0 million as incentive compensation. The bonus was paid to our Chief Executive
Officer on January 26, 2024.
On December 14, 2023, we announced the launch of our share
repurchase program (the “Program”), under which the Company could repurchase up to $4 million of its outstanding common shares, for a period of three months. No shares were repurchased under the Program, which expired on March 14, 2024.
On December 14, 2023, we consummated a SLB with AVIC in the amount of $41.0 million, for the purpose of refinancing the indebtedness secured over the M/T Eco West Coast. For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Financings Committed under Sale and Leaseback Agreements—3rd AVIC Sale and Leaseback.”
On December 20, 2023, we consummated a SLB with China Huarong Shipping Financial Leasing Co Ltd. in the amount of $41.0 million, for the purpose of refinancing the indebtedness secured over the M/T
Eco Malibu. For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—Financings Committed
under Sale and Leaseback Agreements—Huarong Sale and Leaseback.”
Recent Developments
On January 16 and January 23, 2024, we exercised our purchase options under the CMBFL SLB and took full ownership of M/Ts Julius
Caesar and Legio X Equestris for $48.6 million and $49.3 million respectively. Following the purchase of the vessels that was funded with cash and a short-term revolving bridge loan from HSBC (the “HSBC Bridge”), on January 18 and January 25, 2024 we concluded SLBs (the “New CMBFL SLBs”) for the financing of M/Ts Julius Caesar and Legio X Equestris
respectively from the same institution (CMBFL). The consideration from the New CMBFL SLBs amounted to $125 million ($62.5 million per vessel). For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and
Capital Resources—Debt Facilities—Financings Committed under Sale and Leaseback Agreements—Huarong Sale and Leaseback.”
On February 6, 2024, we redeemed 3,659,627 of our Series F Preferred Shares (representing all of our outstanding Series F
Preferred Shares) for an aggregate amount of approximately $43.9 million, payable in cash. Following completion of this redemption, as of the date hereof, no Series F Preferred Shares remain outstanding.
We are in advanced discussions to acquire an interest in a company that owns a 47-meter megayacht from an affiliate of our Chief Executive Officer. We anticipate that we will fund
the acquisition, if completed, with cash on hand. We believe market conditions are favorable for investments in this sector and are evaluating additional similar investment opportunities. However, there can be no assurance that we will complete
this acquisition or successfully identify any similar opportunities in the future. Any megayacht we acquire is expected to be employed on short-term charters. We expect that management services, including commercial and technical management, for
any yacht we acquire will be provided by CSI.
We are an international owner and operator of modern, fuel efficient eco tanker vessels focusing on the transportation of crude oil, petroleum products (clean and dirty) and bulk
liquid chemicals. Our operating fleet has a total capacity of 1,435,000 deadweight tons (“dwt”). As of the date of this annual report, our operating fleet consists of one 50,000 dwt product/chemical tanker, Marina Del Rey, five 157,000 dwt Suezmax
tankers, the M/T Eco Bel Air, M/T Eco Beverly Hills, M/T Oceano CA, M/T Eco Malibu and M/T Eco West Coast, two 300,000 dwt Very Large Crude Carriers (VLCCs), M/T Julius Caesar and M/T Legio X Equestris, and we also own 50% interest in two 50,000
dwt product tankers, M/T Eco Yosemite Park and M/T Joshua Park. All of our vessels are IMO-certified and are capable of carrying a wide variety of oil products including chemical cargos which we believe make our vessels attractive to a wide base of
charterers.
For more information, please see “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments.”
We intend to continue to review the market in order to identify potential acquisition targets in line with our strategy.
We believe we have established a reputation in the international ocean transport industry for operating and maintaining vessels with high standards of performance, reliability and
safety. We have assembled a management team comprised of executives who have extensive experience operating large and diversified fleets of tankers and who have strong ties to a number of national, regional and international oil companies,
charterers and traders.
Our Fleet
The following tables present our fleet list as of the date of this annual report:
Operating MR Tanker Vessels on SLBs (treated as financings):
|
Name
|
Deadweight
|
Charterer
|
End of firm
period
|
Charterer’s
Optional Periods
|
Gross Rate fixed period/
options
|
|
M/T Eco Marina Del Rey
|
50,000
|
Cargill / WECO Tankers A/S
|
May 2024 / May 2027
|
- / 1 year
|
Cargill: $15,100 /
WECO Tankers A/S: $20,500 / $22,500
|
Operating Suezmax Vessels on SLBs (treated as operating leases):
|
Name
|
Deadweight
|
Charterer
|
End of firm
period
|
Charterer’s
Optional Periods
|
Gross Rate fixed period/
options
|
|
M/T Eco Bel Air
|
157,000
|
Trafigura
|
December 10, 2025
|
-
|
$24,000
|
|
M/T Eco Beverly Hills
|
157,000
|
Trafigura
|
July 2024
|
16 months
|
$24,000 / $24,000
|
Operating Suezmax Vessels on SLBs (treated as financings):
|
Name
|
Deadweight
|
Charterer
|
End of firm
period
|
Charterer’s
Optional Periods
|
Gross Rate fixed period/
options
|
|
M/T Eco Oceano CA
|
157,000
|
Central Tankers Chartering
|
March 2037
|
none
|
$24,500
|
Operating Suezmax Vessels financed via senior loan facilities:
|
Name
|
Deadweight
|
Charterer
|
End of firm
period
|
Charterer’s Optional Periods
|
Gross Rate fixed
period/ options
|
|
M/T Eco West Coast
|
157,000
|
Clearlake
|
January 2027
|
1+1 years
|
$32,850 / $34,750 / $36,750
|
|
M/T Eco Malibu
|
157,000
|
Clearlake
|
March 2027
|
1+1 years
|
$32,850 / $34,750 / $36,750
|
Operating VLCC Vessels on SLBs (treated as financings):
|
Name
|
Deadweight
|
Charterer
|
End of firm
period
|
Charterer’s Optional
Periods
|
Gross Rate fixed period/
options
|
|
M/T Julius Caesar
|
300,000
|
Trafigura
|
January 2028
|
1+1 years
|
$36,000 up to January 2025 and $41,500 afterwards / $44,000 / $46,000
|
|
M/T Legio X Equestris
|
300,000
|
Trafigura
|
March 2028
|
1+1 years
|
$35,750 up to March 2025 and $41,500 afterwards / $44,000 / $46,000
|
Operating Joint Venture MR Tanker fleet (50% owned):
|
Name
|
Deadweight
|
Charterer
|
End of firm period
|
Charterer’s
Optional Periods
|
Gross Rate fixed period/
options
|
|
M/T Eco Yosemite Park
|
50,000
|
Clearlake
|
March 2025
|
5+1+1 years
|
$17,400 / $18,650 / $19,900
|
|
M/T Eco Joshua Park
|
50,000
|
Clearlake
|
March 2025
|
5+1+1 years
|
$17,400 / $18,650 / $19,900
|
All the vessels in our fleet are equipped with engines of modern design with improved Specific Fuel Oil Consumption (SFOC) and in compliance with the latest emission requirements,
fitted with energy saving improvements in the hull, propellers and rudder as well as equipment that further reduces fuel consumption and emissions certified with an improved Energy Efficiency Design Index (Phase 2 compliance level as minimum).
Vessels with this combination of technologies, introduced from certain shipyards, are commonly referred to as eco vessels. We believe that recent advances in shipbuilding design and technology makes these latest generation vessels more
fuel-efficient than older vessels in the global fleet that compete with our vessels for charters, providing us with a competitive advantage. Furthermore, all of our vessels are fitted with ballast water treatment equipment and exhaust gas cleaning
systems (scrubbers).
Management of our Fleet
Our Fleet Manager provides all operational, technical and commercial management services for our fleet. Please see “Item 18. Financial Statements—Note 5—Transactions with Related
Parties”.
Officers, Crewing and Employees
As of the date of this annual report we do not employ any shore-based employees. Our executive officers and a number of administrative employees are provided according to an
agreement with Central Mare. Please see “Item 18. Financial Statements—Note 5—Transactions with Related Parties”. In addition, our Fleet Manager is responsible for recruiting, mainly through a crewing agent, the senior officers and all other crew
members for our vessels. We believe the streamlining of crewing arrangements will ensure that all our vessels will be crewed with experienced seamen that have the qualifications and licenses required by international regulations and shipping
conventions.
The International Shipping Industry
The seaborne transportation industry is a vital link in international trade, with ocean going vessels representing the most efficient and often the only method of transporting large
volumes of basic commodities and finished products. Demand for tankers is dictated by world oil demand and trade, which is influenced by many factors, including international economic activity; geographic changes in oil production, processing, and
consumption; oil price levels; inventory policies of the major oil and oil trading companies; and strategic inventory policies of countries such as the United States, China and India.
Shipping demand, measured in ton-miles, is a product of (a) the amount of cargo transported in ocean going vessels, multiplied by (b) the distance over which this cargo is
transported. The distance is the more variable element of the ton-mile demand equation and is determined by seaborne trading patterns, which are principally influenced by the locations of production and consumption. Seaborne trading patterns are
also periodically influenced by geo-political events that divert vessels from normal trading patterns, as well as by inter-regional trading activity created by commodity supply and demand imbalances. Tonnage of oil shipped is primarily a function
of global oil consumption, which is driven by economic activity as well as the long-term impact of oil prices on the location and related volume of oil production. Tonnage of oil shipped is also influenced by transportation alternatives (such as
pipelines) and the output of refineries.
Demand for tankers and tonnage of oil shipped is primarily a function of global oil consumption, which is driven by economic activity, as well as the long-term impact of oil prices
on the location and related volume of oil production. Global oil demand returned to limited growth in 2010 and has since been expanding at a modest pace, as a steady rise in Asia has outweighed decreasing demand in Europe and in the United States,
with a notable exception for 2020 and 2021 in which years the COVID 19 epidemic dramatically reduced oil demand. According to the International Energy Agency, global oil demand increased to 101.7 million barrels/day in 2023, compared to 100.8
million barrels/day for 2022.
We strategically monitor developments in the tanker industry on a regular basis and, subject to market demand, will seek to enter into shorter or longer time or bareboat charters
according to prevailing market conditions.
We will compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an operator. We will arrange our time
charters and bareboat charters through the use of brokers, who negotiate the terms of the charters based on market conditions. We will compete primarily with owners of tankers in the MR Product Tanker, Suezmax and VLCC class sizes. Ownership of
tankers is highly fragmented and is divided among major oil companies and independent vessel owners.
Seasonality
Historically, oil and oil products trade and, therefore, charter rates increased in the winter months and eased in the summer months as demand for oil and oil products in the
Northern Hemisphere rose in colder weather and fell in warmer weather. The tanker industry, in general, has become less dependent on the seasonal transport of heating oil than a decade ago as new uses for oil and oil products have developed,
spreading consumption more evenly over the year. This is most apparent from the higher seasonal demand during the summer months due to energy requirements for air conditioning and motor vehicles. This seasonality may affect operating results.
However, to the extent that our vessels are chartered at fixed rates on a long-term basis, seasonal factors will not have a significant direct effect on our business.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to
political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities
arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for
certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all
risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and freight,
demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we consider it appropriate), which covers business interruptions that result in the loss of use of a
vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or “P&I Associations,” and covers our third-party liabilities in connection with
our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other
third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and
indemnity mutual associations, or “clubs.”
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 12 P&I Associations that comprise the International Group insure
approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. The International Group’s website states that the Pool provides a mechanism for sharing all claims in excess
of US $10 million up to, currently, approximately US$8.9 billion. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on our claim records as well as the
claim records of all other members of the individual associations and members of the shipping pool of P&I Associations comprising the International Group.
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local
laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and
non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications and
implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable
national authorities such as the United States Coast Guard (“USCG”), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these
entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary
suspension of the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our
vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance
with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently
change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future
serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization (IMO)
The IMO, the United Nations agency for maritime safety and the prevention of pollution by vessels, adopted the International Convention for the Prevention of Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as “MARPOL,” the International Convention for the Safety of Life at Sea of 1974 (“SOLAS Convention”), and the International Convention
on Load Lines of 1966 (the “LL Convention”) and International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage
management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to dry bulk, tanker and LNG carriers, among other vessels, and is divided into six Annexes,
each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk, in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and
garbage management, respectively; and Annex VI, lastly, relates to air emissions.
Since 2014, the IMO’s Marine Environmental Protection Committee, or the “MEPC,” amendments to MARPOL Annex I Condition Assessment Scheme, or “CAS” have required compliance with the
2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, or “ESP Code,” which provides for enhanced inspection programs. Effective July 1, 2024, amendments to the ESP Code will become
effective, addressing inconsistencies on examination of ballast tanks at annual surveys for bulk carriers and oil tankers.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions
from all commercial vessel exhausts and prohibits “deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks and the shipboard incineration of specific substances.
Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of “volatile organic compounds” from certain
vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or “PCBs”) are also prohibited. We believe that all our vessels are currently compliant in all
material respects with these regulations.
The Marine Environment Protection Committee, or “MEPC,” adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting
substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships.
Effective January 1, 2020, there has been a global limit of 0.5% m/m sulfur oxide emissions (reduced from 3.50%). This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels or exhaust gas cleaning systems (or EGCS). Ships
are required to obtain bunker delivery notes and International Air Pollution Prevention (“IAPP”) Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers
above 0.5% sulfur on ships became effective on March 1, 2020. Fuels with higher sulfur content than required by Reg. 14 of Annex VI can still be delivered to a ship, provided the ship uses equivalent measures, such as an EGCS. Additional amendments
to Annex VI revising, among other terms, the definition of “Sulphur content of fuel oil” and “low-flashpoint fuel” and pertaining to the sampling and testing of onboard fuel oil, became effective in April 2022. These regulations subject ocean-going
vessels to stringent emissions controls, and may cause us to incur substantial costs.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or (“ECAs”). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel
with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and
United States Caribbean Sea area. Furthermore, in December 2022, the Committee adopted Resolution MEPC.361(79) establishing a new Emission Control Area (ECA) for the Mediterranean Sea as a whole. These amendments will enter into force on 1 May
2024, however, ships operating in this ECA will be exempted from compliance with the 0.10% m/m sulfur content standard for fuel oil, during the first 12 months immediately following entry into force of the amendment until July 1, 2025. Ocean-going
vessels in these areas will be subject to stringent emission controls and ocean-going vessels trading in ECAs are subject to increased operational costs due to the significantly higher price of the fuel with very low Sulphur content (0.1%m/m) or
due to the additional cost entailed by the use of an EGCS. Amendments to Annex VI requiring bunker delivery notes to include a flashpoint of fuel oil or a statement that the flashpoint has been measured at or above 70°C as mandatory information,
will become effective May 1, 2024. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection
Agency (“EPA”) or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. Now Annex VI provides
for a three-tier reduction in NOx emissions from marine diesel engines, with the final tier (or Tier III) to apply to engines installed on vessels constructed on or after January 1, 2016 and which operate in the North American ECA or the U.S.
Caribbean Sea ECA as well as ECAs designated in the future by the IMO. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent
(and in some senses stricter) emissions standards in late 2009. Additionally, amendments to Annex II, which strengthen discharge requirements for cargo residues and tank washings in specified sea areas (including North West European waters, Baltic
Sea area, Western European waters and Norwegian Sea), came into effect in January 2021.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report
annual data on fuel oil consumption to an IMO database, with the first year of data collection commencing on January 1, 2019. The IMO used such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse
gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency
Management Plans (“SEEMPS”), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index (“EEDI”). Under these measures, by 2025, all new ships built will be
30% more energy efficient than those built in 2014. Additionally, MEPC 75 adopted amendments to MARPOL Annex VI which brought forward the effective date of the EEDI’s “phase 3” requirements from January 1, 2025, to April 1, 2022, for several ship
types, including gas carriers, general cargo ships, and LNG carriers.
Additionally, MEPC 76 adopted amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. The revised Annex VI entered into force in November
2022, and includes requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon intensity of international shipping. The requirements include (1) a technical
requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (or EEXI), and (2) operational carbon intensity reduction requirements based on a new operational carbon intensity indicator (or CII). The attained EEXI is
required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship types and categories. With respect to the CII, which took effect from January 1, 2023, ships of 5,000 gross tonnage to document and
verify their actual annual operational CII achieved against a determined required annual operational CII. All ships that fall under the new CII regime have to have a CII rating of C or above in order to be compliant. Ships that have a CII rating of
D for three consecutive years or E, are required to submit a corrective action plan, to show how the required index (C or above) would be achieved or else they will be deemed non-compliant. The EEXI and CII certification requirements entered into
effect on January 1, 2023.
Additionally, MEPC 76 adopted amendments requiring ships of 5,000 gross tonnage and above to revise their SEEMP to include methodology for calculating the ship’s attained annual
operation CII and the required annual operational CII, on or before June 1, 2023. MEPC 76 also approved amendments to MARPOL Annex I to prohibit the use and carriage for use as fuel of heavy fuel oil (or HFO) by ships in Arctic waters on and after
July 1, 2024. For ships subject to Regulation 12A (oil fuel tank protection), the prohibition will become effective on or after July 1, 2029.
MEPC 77 adopted a non-binding resolution which urges EU member states and ship operators to voluntarily use distillate or other cleaner alternative fuels or methods of propulsion
that are safe for ships and could contribute to the reduction of black carbon emissions from ships when operating in or near the Arctic.
MEPC 79 adopted amendments to Annex VI on the reporting of mandatory values related to the implementation of the IMO short-term GHG reduction measure, including attained EEXI, CII
and rating values to the IMO DCS, which will become effective May 1, 2024. MEPC 80 adopted the 2023 IMO Strategy on Reduction of GHG Emissions from Ships with enhanced targets to mitigate harmful emissions. The revised IMO GHG Strategy comprises a
common ambition to ensure an uptake of alternative zero and near-zero GHG fuels by 2030 and to achieve net-zero emissions from international shipping by 2050. MEPC 81 will take place in spring 2024 in which the IMO will decide on the market-based
mechanism to reach the emission reduction targets– either through a global emissions trading scheme for shipping or a global carbon levy.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission
control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for Maritime Claims (the “LLMC”)
sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”), our operations
are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and
environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team
have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and
may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a Safety Management Certificate (or SMC) for each vessel they operate. This certificate evidences compliance by a vessel’s
management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a Document Of Compliance (or DOC), issued by each flag state (or Recognized
Organization (“RO”) on behalf of the flag administration), under the ISM Code. We have obtained applicable DOC for our offices and safety management certificates for all of our vessels. The DOCs & SMCs are renewed as required.
Amendments to SOLAS chapter II-2, intended to prevent the supply of oil fuel not complying with SOLAS flashpoint requirements, requiring that ships carrying oil fuel must, prior to
bunkering, be provided with a declaration certifying that the oil fuel supplied is in conformity with SOLAS regulation II-2/4.2.1, will enter into effect January 1, 2026.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity, and stability to
minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, and from July 1, 2016 with respect to new oil tankers and bulk carriers. Regulation II-1/3-10 requires that all oil
tankers and bulk carriers of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based
Ship Construction Standards for Bulk Carriers and Oil Tankers, or GBS Standards. Effective July 1, 2024, amendments to the International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, 2011 will become
effective, addressing inconsistencies on examination of ballast tanks at annual surveys for bulk carriers and oil tankers.
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous
Goods Code (“IMDG Code”). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and
classification requirements for dangerous goods and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020, also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods,
including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregation groups; and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas. Amendments to the IMDG Code
relating to segregation requirements for certain substances, and classification and transport of carbon came into effect in June 2022. Updates to the IMDG Code, in line with the updates to the United Nations Recommendations on the Transport of
Dangerous Goods, which set the recommendations for all transport modes, became effective January 1, 2024.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). As of February 2017, all seafarers are
required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class
rules, to undertake surveys to confirm compliance.
Actions by the IMO’s Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the
near future in an attempt to combat cybersecurity threats. For example, effective January 2021, cyber-risk management systems must be incorporated by ship-owners and managers. This might cause companies to create additional procedures for
monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For
example, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”) in 2004. The BWM Convention entered into force globally on September 8, 2017. The BWM Convention
requires ships to manage their ballast water to remove, render harmless or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention’s implementing regulations call for a
phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate.
Specifically, ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2
standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. For most ships, compliance with the D-2 standard involves installing on-board systems to treat
ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast
water, must be approved in accordance with IMO Guidelines (Regulation D-3). Pursuant to the BWM Convention amendments that entered into force in October 2019, BWMS installed on or after October 28, 2020 shall be approved in accordance with BWMS
Code, while BWMS installed before October 23, 2020 must be approved taking into account guidelines developed by the IMO or the BWMS Code. As of October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect requiring all ships to meet the
D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial. The cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many countries already regulate
the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct
mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. Amendments to the BWM Convention concerning commissioning testing of BWMS and the form of the International Ballast Water Management
Certificate became effective in June 2022. All the vessels of our fleet have Ballast Water Treatment Systems that ensure compliance with the new environmental regulations.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000, the
CLC. Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a
contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on
liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the
spill is caused by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the
owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable
signatory states to issue certificates. We will ensure that our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force as required by law.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”) to impose strict liability on ship owners (including
the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to
maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the LLMC). With respect to
non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the Bunker
Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti‑Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti‑fouling Systems on Ships, or the “Anti‑fouling Convention,” which entered into force in
September 2008, and prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo
an initial survey before the vessel is put into service or before an International Anti‑fouling System Certificate is issued for the first time; and subsequent surveys when the anti‑fouling systems are altered or replaced. We have obtained
Anti‑fouling System Certificates for all of our vessels that are subject to the Anti‑fouling Convention. MEPC 76 adopted amendments to the Anti-fouling Convention to include controls on the biocide cybutryne; ships shall not apply or re-apply
anti-fouling systems containing that substance from January 1, 2023. The amendments require ships to remove, or apply a coating to anti-fouling systems with this substance, at the next scheduled renewal of the anti-fouling system after January 1,
2023.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance
coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities as well as other regional and national authorities in a number of countries (“ISM Code Compliant
Countries”) have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S., European Union and ISM Code Compliant Countries ports, respectively. As of the date of this report, each of
our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if
any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects
all “owners and operators” whose vessels trade or operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.’s territorial sea and its 200-nautical mile exclusive economic zone around
the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at
sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third
party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to
include:
|
(i) |
injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
|
|
(ii) |
injury to, or economic losses resulting from, the destruction of real and personal property;
|
|
(iii) |
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
|
|
(iv) |
loss of subsistence use of natural resources that are injured, destroyed or lost;
|
|
(v) |
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
|
|
(vi) |
net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health
hazards, and loss of subsistence use of natural resources.
|
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. On December 23, 2022, the USCG adjusted the limits of OPA liability for a tank
vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,500 per gross ton or $21,521,000 for a single-hull tank vessel, over 3,000 gross tons to the greater of $4,000 per gross ton or $29,591,300; and for
a non-tank vessel, over to the greater of $1,300 er gross ton or $1,076,000 (subject to periodic adjustment for inflation) (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused
by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship) or a responsible party’s gross negligence or
willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows or has reason to know of the incident; (ii)
reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas
Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or
destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the
act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or
$500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or
negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all
reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish
and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility
obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG’s financial responsibility regulations by providing applicable certificates of
financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations
regarding offshore oil and gas drilling and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental
Enforcement’s (“BSEE”) revised Production Safety Systems Rule (“PSSR”), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, in August 2023, the BSEE released a final Well
Control Rule, which strengthens testing and performance requirements, and may affect offshore drilling operations. Compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could
negatively impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a
minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that
impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation
providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining vessel owners’ responsibilities
under these laws. The Company intends to comply with all applicable state regulations in the ports where our vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to
exceed our insurance coverage, that could have an adverse effect on our business and results of operation.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and
other air contaminants. The CAA requires states to adopt State Implementation Plans, or “SIPs,” some of which regulate emissions resulting from vessel loading and unloading operations which may affect our vessels.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly issued permit or
exemption and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and
CERCLA. In 2015, the EPA expanded the definition of “waters of the United States” (“WOTUS”), thereby expanding federal authority under the CWA. On December 30, 2022, the EPA and U.S. Army Corps of Engineers announced the final revised WOTUS rule,
which was published on January 18, 2023. In August 2023, the EPA and Department of the Army issued a final rule to amend the revised WOTUS definition to conform the definition of WOTUS to the U.S. Supreme Court’s interpretation of the Clean Water
Act in its decision dated May 25, 2023. The final rule became effective September 8, 2023 and operates to limit the Clean Water Act.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of
equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S.
Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into
law on December 4, 2018 and requires that the USCG develop implementation, compliance and enforcement regulations regarding ballast water. On October 26, 2020, the EPA published a Notice of Proposed rulemaking for Vessel Incidental Discharge
National Standards of Performance under VIDA, and in November 2020, held virtual public meetings. On October 18, 2023, the EPA published a Supplemental Notice to the Vessel Incidental Discharge National Standards of Performance, which shares new
ballast water information that the EPA received from the USCG. Comments to the Supplemental Notice were due by December 18, 2023. Under VIDA, all provisions of the VGP 2018 and the USCG ballast water regulations remain in force and effect as
currently written until the EPA publishes standard. Currently Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act, or NISA, require mid-ocean ballast exchange programs and installation of approved
USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. Until new USCG regulations are final and enforceable, non-military, non-recreational vessels greater than 79 feet in length must
continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or retention of a PARI form and submission of annual reports. We have submitted NOIs for all our vessels where required. Compliance with the
EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost, or may otherwise
restrict our vessels from entering U.S. waters. Our vessels are equipped with ballast water treatment systems, which are subject to functionality monitoring and treated ballast water sampling and analysis, in compliance with the requirements
stipulated in EPA VGP 2013.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if
committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal
penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial
penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amended by Regulation (EU) 2016/2071 with respect to methods of calculating, inter alia, emission and
consumption) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide
emissions annually, which may cause us to incur additional expenses relating to increased monitoring and verification services. As of January 2019, large ships calling at EU ports have been required to collect and publish data on carbon dioxide
emissions and other information. The system entered into force on 1 March 2018. July 2020 saw the European Parliament’s Committee on Environment, Public Health and Food Safety vote in favor of the inclusion of vessels of 5,000 gross tons and above
in the EU Emissions Trading System (in addition to voting for a revision to the monitoring, reporting and verification of CO2 emissions). In September 2020, the European Parliament adopted the proposal from the European Commission to amend the
regulation on monitoring carbon dioxide emissions from maritime transport.
Similarly to the EU, the UK adopted its own UK MRV (Monitoring, Reporting and Verification) scheme applicable to all vessels over 5,000 gross tonnage on voyages between UK and
non-European Economic Area (EEA) ports and vice versa, between UK ports, and at berth in a UK port.
On July 14, 2021, the European Commission published a package of draft proposals as part of its ‘Fit for 55’ environmental legislative agenda and as part of the wider EU Green Deal
growth strategy. There are two key initiatives relevant to maritime arising from the proposals: (a) a bespoke emissions trading scheme for maritime (Maritime ETS) which commenced in 2024 and applies to all ships above a gross tonnage of 5,000; and
(b) a FuelEU draft regulation which seeks to require all ships above a gross tonnage of 5,000 to carry on board a ‘FuelEU certificate of compliance’ from 30 June 2025 as evidence of compliance with the limits on the greenhouse gas intensity of the
energy used on-board by a ship and with the requirements on the use of on-shore power supply (OPS) at berth. More specifically, Maritime ETS is to apply gradually over the period from 2024-2026. “Shipping companies” (defined to include the ship
owner or the entity that contractually assumes responsibility for compliance with ETS) will have to surrender allowances for 40% of their emissions in 2025 for the year 2024; 70% in 2026 for the year 2025; and 100% in 2027 for the year 2026. It is
intended that the polluter pays principle is applied by way of the ETS costs clause. The EU has mandated its member states to introduce national laws which enable the ship owners to pass on the costs of ETS allowances to the actual commercial
users/operators of the ships. Also, the cap under the ETS would be set by taking into account EU MRV system emissions data for the years 2018 and 2019, adjusted, from year 2021 and is to capture 100% of the emissions from intra-EU maritime voyages;
100% of emissions from ships at berth in EU ports; and 50% of emissions from voyages which start or end at EU ports (but the other destination is outside the EU). More recent proposed amendments signal that 100% of non-EU emissions may be caught if
the IMO does not introduce a global market-based measure by 2028. Furthermore, the MRV system is also being revised such that the scope of ships to be monitored will now extend to those that are 400GT and more. The reason for this is because the
ETS will apply to ships that are between 400GT and 5,000GT from circa 2027. Maritime allowances will be auctioned and there will be no free allocation. The ETS final form was agreed in December 2022. From a risk management perspective, new systems,
including data management systems, personnel, cost recovery mechanisms, revised service agreement terms, and emissions reporting procedures will have to be put in place, at significant cost, to prepare for and manage the administrative aspects of
ETS compliance. The FuelEU regulation was passed into law on July 25, 2023 and will apply from January 1, 2025.
Responsible recycling and scrapping of ships is becoming an increasingly important issue for shipowners and charterers alike as the industry strives to replace old ships with
cleaner, more energy efficient models. The recognition of the need to impose recycling obligations on the shipping industry is not new. In 2009, the IMO oversaw the creation of the Hong Kong Ship Recycling Convention (the “Hong Kong Convention”),
which sets standards for ship recycling. Concerned at the lack of progress in satisfying the conditions needed to bring the Hong Kong Convention into force, the EU published its own Ship Recycling Regulation 1257/2013 (SRR) in 2013, with a view to
facilitating early ratification of the Hong Kong Convention both within the EU and in other countries outside the EU. SRR requires that, from 31 December 2020, all existing ships sailing under the flag of EU member states and non-EU flagged ships
calling at an EU port or anchorage must carry on-board an Inventory of Hazardous Materials (IHM) with a certificate or statement of compliance, as appropriate. For EU-flagged vessels, a certificate (either an Inventory Certificate or Ready for
Recycling Certificate) will be necessary, while non-EU flagged vessels will need a Statement of Compliance. Now that the Hong Kong Convention has been ratified and will enter into force on June 26, 2025, it is expected the EU Ship Recycling
Regulation will be reviewed in light of this.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age and flag as
well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European
Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has
implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. Since January 1, 2015, vessels have been required to burn fuel with sulfur content not exceeding 0.1% while within EU member states’
territorial seas, exclusive economic zones and pollution control zones that are included in “SOx Emission Control Areas.” EU Directive (EU) 2016/802 establishes limits on the maximum sulfur content of gas oils and heavy fuel oil and contains
fuel-specific requirements for ships calling at EU ports.
EU Directive 2004/35/CE (as amended) regarding the prevention and remedying of environmental damage addresses liability for environmental damage (including damage to water, land,
protected species and habitats) on the basis of the “polluter pays” principle. Operators whose activities caused the environmental damage are liable for the damage (subject to certain exceptions). With regard to specified activities causing
environmental damage, operators are strictly liable. The directive applies where damage has already occurred and where there is an imminent threat of damage. The directive requires preventative and remedial actions, and that operators report
environmental damage or an imminent threat of such damage.
In 2021, the EU adopted a European Climate Law (Regulation (EU) 2021/1119), establishing the aim of reaching net zero greenhouse gas emissions in the EU by 2050, with an
intermediate target of reducing greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. In July 2021, the European Commission launched the Fit for 55 (described above) to support the climate policy agenda.
International Labor Organization
The International Labor Organization (the “ILO”) is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 (“MLC 2006”). A Maritime Labor Certificate and
a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships above 500 gross tonnage or over and are either engaged in international trade. We believe that all our vessels are in substantial compliance
with and are certified to meet MLC 2006 and its amendments.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (this
task hanging been delegated to the IMO), which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020.
International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the
Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not
directly limit greenhouse gas emissions from ships. The United States rejoined the Paris Agreement in February 2021.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was
approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. In July 2023, the IMO adopted the 2023 IMO Strategy on Reduction of GHG Emissions from
Ships, which identifies a number of levels of ambition, including (1) decreasing the carbon intensity from ships through implementation of further phases of energy efficiency for new ships; (2) reducing carbon dioxide emissions per transport work,
as an average across international shipping, by at least 40% by 2030; and (3) pursuing net-zero GHG emissions by or around 2050. These regulations could cause us to incur additional substantial expenses.
As noted above, the 70th MEPC meeting in October 2016 adopted a mandatory data collection system (DCS) which requires ships above 5,000 gross tons to report consumption data for
fuel oil, hours under way and distance travelled. Unlike the EU MRV (see below), the IMO DCS covers any maritime activity carried out by ships, including dredging, pipeline laying, ice-breaking, fish-catching and off-shore installations. The SEEMPs
of all ships covered by the IMO DCS must include a description of the methodology for data collection and reporting. After each calendar year, the aggregated data are reported to the flag state. If the data have been reported in accordance with the
requirements, the flag state issues a statement of compliance to the ship. Flag states subsequently transfer this data to an IMO ship fuel oil consumption database, which is part of the Global Integrated Shipping Information System (GISIS)
platform. IMO will then produce annual reports, summarizing the data collected. Thus, currently, data related to the GHG emissions of ships above 5,000 gross tons calling at ports in the European Economic Area (EEA) must be reported in two
separate, but largely overlapping, systems: the EU MRV – which applies since 2018 – and the IMO DCS – which applies since 2019. The proposed revision of Regulation (EU) 2015/757 adopted on 4 February 2019 aims to align and facilitate the
simultaneous implementation of the two systems however it is still not clear when the proposal will be adopted.
IMO’s MEPC 76 adopted amendments to Annex VI that will require ships to reduce their greenhouse gas emissions. The Revised MARPOL Annex VI entered into force on November 1. 2022.
The revised Annex VI includes carbon intensity measures (requirements for ships to calculate their Energy Efficiency Existing Ship Index (EEXI) following technical means to improve their energy efficiency and to establish their annual operational
carbon intensity indicator and rating. MEPC 76 also adopted guidelines to support implementation of the amendments.
In 2021, the EU adopted a European Climate Law (Regulation (EU) 2021/1119), establishing the aim of reaching net zero greenhouse gas emissions in the EU by 2050, with an
intermediate target of reducing greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. In July 2021, the European Commission launched the Fit for 55 (described above) to support the climate policy agenda.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile
sources, and proposed regulations to limit greenhouse gas emissions from large stationary sources. The EPA or individual U.S. states could enact environmental regulations that could negatively affect our operations. On November 2, 2021, the EPA
issued a proposed rule under the CAA designed to reduce methane emissions from oil and gas sources. In November 2022, the EPA issued a supplemental proposal that would achieve more comprehensive emissions reductions and add proposed requirements
for sources not previously covered. The EPA held a public hearing in January 2023 on the proposal. In December 2023, the EPA announced a final rule to reduce methane and other air pollutants from the oil and natural gas industry. The rule includes
“Emissions Guidelines” for states to follow as they develop plans to limit methane emissions from existing sources.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the
international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant expenditures which we cannot predict with certainty at this time. Even in the absence of climate
control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime
Transportation Security Act of 2002 (“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the
United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port
Facilities Security Code (“the ISPS Code”). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized
security organization approved by the vessel’s flag state. Ships operating without a valid certificate will be refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS Convention, include, for
example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity,
position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore and our Fleet Manager; the development of vessel security plans; ship
identification number to be permanently marked on a vessel’s hull; a continuous synopsis record kept onboard showing a vessel’s history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was
registered with that state, the ship’s identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on
board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant negative financial impact on us. All the vessels in our fleet comply
with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf
of Aden, Arabian Sea area and the West Africa area including the Gulf of Guinea. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses
could significantly and negatively affect our business. Costs may be incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
European Mandatory Non-Financial Reporting Regulations
On November 28, 2022, the EU Parliament adopted the Corporate Sustainability Reporting Directive (“CSRD”). EU member states have 18
months from July 6, 2024 to integrate CSRD into national law. CSRD will create new, detailed sustainability reporting requirements and will significantly expand the number of EU and non-EU companies subject to the EU sustainability reporting
framework. The required disclosures will go beyond environmental and climate change reporting to include social and governance matters (e.g., respect for employee and human rights, anti-corruption and bribery, corporate governance, and diversity
and inclusion). In addition, it will require disclosure regarding the due diligence processes implemented by a company in relation to sustainability matters and the actual and potential adverse sustainability impacts of an in-scope company’s
operations and value chain. CSRD will begin to apply on a phased basis starting from financial year 2024 through 2028, applicable to large EU and non-EU undertakings with substantial presence in the EU, subject to certain financial and employee
thresholds being met. New systems, including data management systems, personnel, and reporting procedures will have to be put in place, at significant cost, to prepare for and manage the administrative aspects of CSRD compliance.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a
vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified
“in class” by a classification society which is a member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or “the Rules,” which apply to oil tankers and bulk carriers
constructed on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. All of our vessels are certified as being “in class” by all the applicable Classification Societies (e.g., DNV GL, American Bureau of
Shipping, Lloyd’s Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, dry-dockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle,
under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel. If any vessel does not maintain its class
and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our
loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
| C. |
Organizational Structure
|
We are a Marshall Islands corporation with principal executive offices located at 1 Vasilisis Sofias and Megalou Alexandrou Str, 15124 Maroussi, Greece. Our significant wholly owned
subsidiaries as of December 31, 2023 are listed in Exhibit 8.1 to this annual report on Form 20-F.
| D. |
Property, Plants and Equipment
|
For a list of the vessels of our fleet, please see “Item 4. Information on the Company—B. Business Overview—Our Fleet” above and for a description of our major encumbrances on our
fleet please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities”.
We do not own any real estate property.
| ITEM 4A. |
UNRESOLVED STAFF COMMENTS
|
None.
| ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The following presentation of management’s discussion and analysis is intended to discuss our financial condition, changes in financial condition and results of operations, and should be read
in conjunction with our historical consolidated financial statements and their notes included in this annual report.
For a discussion of our results for the year ended December 31, 2022 compared to the year ended December 31, 2021, please see “Item 5. Operating and Financial Review and Prospects – A.
Operating Results – Results of Operations for the Fiscal Years Ended December 31, 2021 and 2022” contained in our annual report on Form 20-F for the year ended December 31, 2022, filed with the Securities and Exchange Commission on April 3,
2023.
This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors, such as those set forth in “Item 3. Key Information—Risk Factors” and elsewhere in this report.
Factors Affecting our Results of Operations
We believe that the important measures for analyzing trends in the results of our operations consist of the following:
Calendar days. We define calendar days as the total number of days the vessels were in our possession for the relevant period. Calendar days are an indicator of the size
of our fleet during the relevant period and affect both the amount of revenues and expenses that we record during that period.
Available days. We define available days as the number of calendar days less the aggregate number of days that our vessels are off-hire due to scheduled repairs, or
scheduled guarantee inspections in the case of newbuildings, vessel upgrades or special or intermediate surveys and the aggregate amount of time that we spend positioning our vessels. Companies in the shipping industry generally use available
days to measure the number of days in a period during which vessels should be capable of generating revenues. Our calculation of Available Days may not be comparable to that reported by other companies due to differences in methods of
calculation.
Operating days. We define operating days as the number of available days in a period less the aggregate number of days that our vessels are off-hire due to unforeseen
technical circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period that our vessels actually generate revenues. Our calculation of Operating Days may not be comparable to that reported by
other companies due to differences in methods of calculation.
Fleet utilization. We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. The
shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons other than scheduled repairs or scheduled
guarantee inspections in the case of newbuildings, vessel upgrades, special or intermediate surveys and vessel positioning. We believe monitoring Fleet utilization assists management in making decisions regarding areas where we may be able to
improve efficiency and increase revenue and as such provides useful information to investors regarding the efficiency of our operations.
TCE Revenues / TCE Rates. We define TCE, or time charter equivalent, revenues as revenues minus voyage expenses. Voyage expenses primarily consist of port, canal and fuel
costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions. We believe that presenting revenues net of voyage expenses neutralizes the variability created by unique
costs associated with particular voyages or the deployment of vessels on the spot market and facilitates comparisons between periods on a consistent basis. We calculate daily TCE rates by dividing TCE revenues by operating days for the relevant
time period. TCE revenues include demurrage revenue, which represents fees charged to charterers associated with our spot market voyages when the charterer exceeds the agreed upon time required to load or discharge a cargo. The company’s
calculation of TCE may not be similar to other method of calculation of other companies.
In the shipping industry, economic decisions are based on vessels’ deployment upon anticipated TCE rates, and industry analysts typically measure shipping freight rates in terms of TCE rates.
This is because under time-charter and bareboat contracts the customer usually pays the voyage expenses, while under voyage charters the ship-owner usually pays the voyage expenses, which typically are added to the hire rate at an approximate
cost. Consistent with industry practice, we use TCE rates because it provides a means of comparison between different types of vessel employment and, therefore, assists our decision-making process.
In evaluating our financial condition, we focus on the below measures to assess our historical operating performance and we use future estimates of the same measures to assess our future
financial performance. In assessing the future performance of our fleet, the greatest uncertainty relates to future charter rates at the expiration of a vessel’s present period employment, whether under a time charter or a bareboat charter.
Decisions about future purchases and sales of vessels are based on the availability of excess internal funds, the availability of financing and the financial and operational evaluation of such actions and depend on the overall state of the
shipping market and the availability of relevant purchase candidates.
The following table sets forth our selected other operating data for the periods indicated.
| |
|
2022
|
|
|
2023
|
|
|
FLEET DATA
|
|
|
|
|
|
|
|
Total number of vessels at end of period (including leased vessels)
|
|
|
8
|
|
|
|
8
|
|
|
Average number of vessels(1)
|
|
|
8
|
|
|
|
8
|
|
|
Total calendar days for fleet
|
|
|
2,912
|
|
|
|
2,920
|
|
|
Total available days for fleet
|
|
|
2,901
|
|
|
|
2,920
|
|
|
Total operating days for fleet
|
|
|
2,893
|
|
|
|
2,920
|
|
|
Total time charter days for fleet
|
|
|
2,893
|
|
|
|
2,920
|
|
|
Total spot (voyage) days for fleet
|
|
|
-
|
|
|
|
-
|
|
|
Fleet utilization
|
|
|
99.72
|
%
|
|
|
100.00
|
%
|
| |
|
|
2022
|
|
|
|
2023
|
|
|
AVERAGE DAILY RESULTS
|
|
|
|
|
|
|
|
|
|
Time charter equivalent(2)
|
|
$
|
27,310
|
|
|
$
|
27,856
|
|
|
Vessel operating expenses(3)
|
|
$
|
6,397
|
|
|
$
|
6,345
|
|
|
General and administrative expenses(4)
|
|
$
|
555
|
|
|
$
|
2,293
|
|
| (1) |
Average number of vessels is the number of vessels that constituted our fleet (including chartered in vessels) for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the
period divided by the number of calendar days in that period.
|
| (2) |
Time charter equivalent rate, or TCE rate, is a measure of the average daily revenue performance of a vessel. Our definition of TCE may not be the same as
reported by other companies in the shipping industry or other industries. Our method of calculating TCE rate is determined by dividing TCE revenues by operating days for the relevant time period. TCE revenues are revenues minus
voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, but are payable by us in the case
of a voyage charter, as well as commissions. TCE revenues and TCE rate, non-U.S. GAAP measures, are standard shipping industry performance measures that provide additional supplemental information in conjunction with shipping
revenues, the most directly comparable U.S. GAAP measure. We use TCE rates and TCE revenues to compare period-to-period changes in our performance and it assists investors and our management in evaluating our financial performance.
The following table reconciles our net revenues from vessel to TCE rate.
|
| (3) |
Operating expenses include crew wages and related costs, insurance, repairs and maintenance, spares and consumable stores, tonnage taxes and value added tax, or VAT, and other miscellaneous expenses. Daily vessel operating expenses
are calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period. Our ability to control our fixed and variable expenses, including our daily vessel operating expenses, also affects our financial
results.
|
| (4) |
Daily general and administrative expenses are calculated by dividing general and administrative expenses by fleet calendar days for the relevant time period.
|
|
U.S. dollars in thousands, except average daily time charter equivalent and total operating days
|
|
2022
|
|
|
2023
|
|
|
On a consolidated basis
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
80,656
|
|
|
|
82,949
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
(1,648
|
)
|
|
|
(1,609
|
)
|
|
Time charter equivalent revenues
|
|
|
79,008
|
|
|
|
81,340
|
|
|
Total operating days
|
|
|
2,893
|
|
|
|
2,920
|
|
| |
|
|
|
|
|
|
|
|
|
Average Daily Time Charter Equivalent (TCE)
|
|
$
|
27,310
|
|
|
$
|
27,856
|
|
| |
|
|
|
|
|
|
|
|
|
EBITDA*
|
|
|
|
|
|
|
|
|
|
U.S. dollars in thousands
|
|
|
2022
|
|
|
|
2023
|
|
|
EBITDA
|
|
|
46,554
|
|
|
|
43,058
|
|
*Non-US GAAP Measures
This report describes Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), which is not a measure prepared in accordance with U.S. GAAP (i.e., a “Non-US GAAP” measure). We
define EBITDA as earnings before interest, taxes, depreciation, and amortization.
EBITDA is a non-U.S. GAAP financial measure that is used as a supplemental financial measure by management and external users of financial statements, such as investors, to assess our
financial and operating performance. We believe that this non-U.S. GAAP financial measure assists our management and investors by increasing the comparability of our performance from period to period. This is achieved by excluding the
potentially disparate effects between periods or companies of interest, other financial items, depreciation and amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and
historical cost basis and which items may significantly affect net income between periods. We believe that including EBITDA as a measure of operating performance benefits investors in (a) selecting between investing in us and other investment
alternatives and (b) monitoring our ongoing financial and operational strength.
EBITDA is not a measure of financial performance under U.S. GAAP, does not represent and should not be considered as an alternative to net income, operating income, cash flow from operating
activities or any other measure of financial performance presented in accordance with U.S. GAAP. EBITDA as presented below may not be comparable to similarly titled measures of other companies. See below for a reconciliation of EBITDA to Net
Income, the most directly comparable U.S. GAAP measure.
Reconciliation of Net Income to EBITDA
|
(Expressed in thousands of U.S. Dollars)
|
|
2022
|
|
|
2023
|
|
|
Net income
|
|
|
18,948
|
|
|
|
6,066
|
|
| |
|
|
|
|
|
|
|
|
|
Add: Vessel depreciation
|
|
|
13,289
|
|
|
|
14,349
|
|
|
Add: Interest and finance costs
|
|
|
14,365
|
|
|
|
22,989
|
|
|
Less: Interest income
|
|
|
(48
|
)
|
|
|
(346
|
)
|
|
EBITDA
|
|
|
46,554
|
|
|
|
43,058
|
|
Time Charter Revenues
Our Time charter revenues are driven primarily by the number and size of vessels in our fleet, the number of operating days during which our vessels generate revenues and the amount of daily
charterhire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount
of time that our vessels spend in dry-dock undergoing repairs, maintenance and upgrade work, the duration of the charter, the age, condition and specifications of our vessels, levels of supply and demand in the global transportation market for
oil and oil products and other factors affecting spot market charter rates such as vessel supply and demand imbalances.
Vessels operating on period charters, time charters or bareboat charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the short-term, or
spot, charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market, either directly or through a pool arrangement, could generate revenues that are less predictable, but could enable
us to capture increased profit margins during periods of improvements in charter rates, although we could be exposed to the risk of declining charter rates, which could have a materially adverse impact on our financial performance. If we employ
vessels on period charters, future spot market rates may be higher or lower than the rates at which we have employed our vessels on period time charters.
Under a time charter, the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. We
remain responsible for paying the chartered vessel’s operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses,
and we also pay commissions to CSI, one or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter.
Under a bareboat charter, the vessel is chartered for a stipulated period of time, which gives the charterer possession and control of the vessel, including the right to appoint the master and
the crew. Under bareboat charters, all voyage and operating costs are paid by the charterer.
As of the date of this annual report, all of our vessels are bareboat chartered-in under our SLB arrangements which are accounted for as financings with the exception of two suezmax crude oil
tankers which are accounted for as operating leases. We may in the future operate vessels in the spot market until the vessels have been chartered under appropriate medium to long-term charters.
Voyage Expenses
Voyage expenses primarily consist of port charges, including canal dues, bunkers (fuel costs) and commissions. All these expenses, except commissions, are paid by the charterer under a time
charter or bareboat charter contract. The amount of voyage expenses are primarily driven by the routes that the vessels travel, the amount of ports called on, the canals crossed and the price of bunker fuels paid.
Operating Lease Expenses
Operating lease expenses represent operating lease payments for vessels we have bareboat chartered-in via operating lease agreements.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and
VAT, and other miscellaneous expenses. We analyze vessel operating expenses on a U.S. dollar per day basis. Additionally, vessel operating expenses can fluctuate due to factors beyond our control, such as unplanned repairs and maintenance
attributable to damages or regulatory compliance and factors which may affect the shipping industry in general, such as developments relating to insurance premiums, or developments relating to the availability of crew.
Dry-docking Costs
Dry-docking costs relate to regularly scheduled intermediate survey or special survey dry-docking necessary to preserve the quality of our vessels as well as to comply with international
shipping standards and environmental laws and regulations. Dry-docking costs can vary according to the age of the vessel, the location where the dry-dock takes place, shipyard availability, local availability of manpower and material, and the
billing currency of the yard. Please see “Item 18. Financial Statements—Note 2—Significant Accounting Policies.” In the case of tankers, dry-docking costs may also be affected by new rules and regulations. For further information please see
“Item 4. Information on the Company—B. Business Overview—Environmental Regulations.”
Management Fees—Related Parties
As from January 1, 2019, we have outsourced to CSI a related party controlled by the family of Mr. Evangelos J. Pistiolis, all operational, technical and commercial functions relating to the
chartering and operation of our vessels. We outsourced the above functions pursuant to a letter agreement between CSI and Top Ships Inc. and management agreements between CSI and our vessel-owning subsidiaries on the same date, and each new
vessel that entered our fleet after that date entered into a management agreement with CSI. See “Item7. Major shareholders and related party transactions — B. Related Party Transactions”.
General and Administrative Expenses
Our general and administrative expenses include executive compensation paid to Central Mare for the compensation of our executive officers and a number of administrative staff, office rent,
legal and auditing costs, regulatory compliance costs, other miscellaneous office expenses, non-cash stock compensation, and corporate overhead. Central Mare provides the services of the individuals who serve in the position of Chief Executive
Officer, Chief Financial Officer, Chief Operating Officer and Chief Technical Officer as well as a number of administrative employees. For further information please see “Item 18. Financial Statements—Note 5—Transactions with Related Parties.”
A portion of our general and administrative expenses are denominated in Euros and are therefore affected by the conversion rate of the U.S. dollar versus the Euro.
Although inflation has had a moderate impact on our vessel operating expenses and corporate overheads, management does not consider inflation to be a significant risk to
direct costs in the current and foreseeable economic environment. Oil transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased demand for qualified crew and this could lead to
inflationary pressure on crew costs. However, in a shipping downturn, costs subject to inflation can usually be controlled because shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers
to lower rates and prices in the event of a downturn.
Interest and Finance Costs
We incur interest expense on outstanding indebtedness under our loans and SLBs, which we include in interest and finance costs. We also incur finance costs in establishing those debt facilities
and SLBs which are deferred and amortized over the period of the respective facility. The amortization of the finance costs is presented in interest and finance costs.
Main components of managing our business and main drivers of profitability
The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main components:
|
• |
management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts;
|
|
• |
management of our accounting system and records and financial reporting;
|
|
• |
administration of the legal and regulatory requirements affecting our business and assets; and
|
|
• |
management of the relationships with our service providers and customers.
|
The principal factors that affect our profitability, cash flows and shareholders’ return on investment include:
|
• |
charter rates and periods of charter hire for our tankers;
|
|
• |
utilization of our tankers (earnings efficiency);
|
|
• |
levels of our tanker’s operating expenses and dry-docking costs;
|
|
• |
depreciation and amortization expenses;
|
|
• |
fluctuations in foreign exchange rates.
|
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2022 AND 2023
The following table depicts changes in the results of operations for 2023 compared to 2022.
|
(Expressed in thousands of U.S. Dollars)
|
|
Year Ended December 31,
|
|
|
change
|
|
| |
|
2022
|
|
|
2023
|
|
|
YE23 v YE22
|
|
| |
|
|
|
|
|
|
|
$
|
%
|
|
|
Total charter revenues
|
|
|
80,656
|
|
|
|
82,949
|
|
|
|
2,293
|
|
|
|
3
|
%
|
|
Voyage expenses
|
|
|
1,648
|
|
|
|
1,609
|
|
|
|
(39
|
)
|
|
|
-2
|
%
|
|
Operating lease Expense
|
|
|
10,840
|
|
|
|
10,840
|
|
|
|
-
|
|
|
|
0
|
%
|
|
Vessel operating expenses
|
|
|
18,628
|
|
|
|
18,527
|
|
|
|
(101
|
)
|
|
|
-1
|
%
|
|
Vessel depreciation
|
|
|
13,289
|
|
|
|
14,349
|
|
|
|
1,060
|
|
|
|
8
|
%
|
|
Management fees-related parties
|
|
|
2,093
|
|
|
|
2,200
|
|
|
|
107
|
|
|
|
5
|
%
|
|
General and administrative expenses
|
|
|
1,617
|
|
|
|
6,697
|
|
|
|
5,080
|
|
|
|
314
|
%
|
|
Gain on sale of vessels
|
|
|
(78
|
)
|
|
|
-
|
|
|
|
78
|
|
|
|
-100
|
%
|
|
Operating income
|
|
|
32,619
|
|
|
|
28,727
|
|
|
|
(3,892
|
)
|
|
|
-12
|
%
|
|
Interest and finance costs
|
|
|
(14,365
|
)
|
|
|
(22,989
|
)
|
|
|
(8,624
|
)
|
|
|
60
|
%
|
|
Interest income
|
|
|
48
|
|
|
|
346
|
|
|
|
298
|
|
|
|
621
|
%
|
|
Equity gain/(loss) in unconsolidated joint ventures
|
|
|
646
|
|
|
|
(18
|
)
|
|
|
(664
|
)
|
|
|
-103
|
%
|
|
Total other expenses, net
|
|
|
(13,671
|
)
|
|
|
(22,661
|
)
|
|
|
(8,990
|
)
|
|
|
66
|
%
|
|
Net income
|
|
|
18,948
|
|
|
|
6,066
|
|
|
|
(12,882
|
)
|
|
|
-68
|
%
|
Year on Year Comparison of Operating Results
During the year ended December 31, 2023, Vessel depreciation increased by $1.1 million, or 8%, compared to the same period in 2022, mainly due to the fact that M/Ts Eco Oceano CA, Julius Caesar
and Legio X Equestris were delivered in March, January and March 2022, respectively, and we therefore incurred $0.4 million, $0.2 million and $0.5 million respectively less depreciation expense in 2022 when compared to the same period in 2023.
|
2. |
General and administrative expenses
|
During the year ended December 31, 2023, our general and administrative expenses increased by $5.1 million, or 314%, compared to the year ended December 31, 2022, mainly due to $5.0 million of
bonuses declared in 2023 (with no bonuses being declared in 2022), a $0.1 million increase in legal and consulting fees and expenses, a $0.1 million increase in auditor fees and a $0.1 million increase in foreign currency losses. These
increases were offset by a $0.2 million decrease in utilities.
|
3. |
Interest and Finance Costs
|
During the year ended December 31, 2023, interest and finance costs increased by $8.6 million, or 60%, compared to the same period in 2022 mainly due to:
|
• |
a $7.3 million increase in interest costs mainly due to a) the increase in the variable interest rate of our credit facilities (LIBOR and SOFR) which increased from 4.74% in January 2023 to 5.62% in December 2023, while LIBOR ranged
from 0.10% in January 2022 to 4.74% in December 2022, and b) the three new SLBs for M/Ts Eco Oceano CA, Julius Caesar and Legio X Equestris that we closed in March, January and March 2022 respectively for an aggregate amount of $156.2
million, that where incurring interest expense for the whole year ended December 31, 2023. These increases were offset by a $0.9 million decrease in interest and finance costs relating to M/Ts Eco Los Angeles and Eco City of Angels that
were sold on February 28 and March 15, 2022;
|
|
• |
$3.5 million of amortization of debt discount relating to the Cargill facility (please see “Item 18. Financial Statements—Note 7—Debt”) that commenced in 2023; and
|
|
• |
an offsetting $1.3 million decrease in amortization of deferred financing fees mainly due to the acceleration of the amortization of $1.9 million of unamortized balances of deferred financing fees relating to the sale of M/Ts Eco Los
Angeles and Eco City of Angels and the prepayment of our Unsecured Bridge Loan in 2022. By comparison, in 2023 we accelerated $0.6 million of deferred financing fees relating to the prepayment of the ABN and the Alpha Bank facilities
(see “—B. Liquidity and Capital Resources—Debt Facilities— Prepayments of senior secured loans)”.
|
|
4. |
Equity gain/(loss) in unconsolidated joint ventures
|
During the year ended December 31, 2023, equity gain in unconsolidated joint ventures turned into a loss resulting in a year on year change of $0.7 million or 103%. This was mainly due to the
sharp increase of interest rates that materially affected interest and finance costs of the joint venture entities.
Our Fleet—Illustrative Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels
In Note 2 to our consolidated financial statements included herein we discuss our policy for impairing the carrying values of our vessels. During the past few years, the market values of
vessels have experienced particular volatility, with substantial declines in many vessel classes. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below those vessels’ carrying
value. However, we would not impair those vessels’ carrying value under our accounting impairment policy due to our belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such
vessels’ carrying amounts. Furthermore, since from 2021 tanker values have been constantly increasing there was no need to follow through with an undiscounted cash flows analysis due to the absence of impairment indications for all the vessels
of our fleet.
As of December 31, 2023, we believe that the basic charter-free market values of our owned operating vessels are higher than the vessels carrying value by approximately 52.8%.
Our estimates of basic charter-free market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without
notations of any kind. Our estimates are based on the estimated market values for the vessels received from third-party independent shipbrokers approved by our financing providers. Vessel values are highly volatile. Accordingly, our estimates
may not be indicative of the current or future basic market value of the vessels or prices that could be achieved if the vessels were to be sold.
Please see “Item 3. Key Information—D. Risk
Factors—Risks Related to our Industry—The international oil tanker industry has historically been both cyclical and volatile” and the discussion
herein under the heading “Item 3. Key Information—D. Risk Factors—Risks Related to Our Industry.”
| B. |
Liquidity and Capital Resources
|
Since our formation, our principal sources of funds have been equity provided by our shareholders through equity offerings or at the market sales, operating cash flow, long-term borrowing
including SLBs and short-term borrowings. Our principal use of funds has been capital expenditures to establish and grow our fleet, maintain the quality of our vessels, comply with international shipping standards and environmental laws and
regulations and fund working capital requirements.
Our business is capital intensive and its future success will depend on our ability to maintain a high-quality fleet through the acquisition of newer vessels and the selective sale of older
vessels. Our practice has been to acquire vessels using a combination of funds received from equity investors and bank debt including SLBs secured by title on our vessels. Future acquisitions are subject to management’s expectation of future
market conditions, our ability to acquire vessels on favorable terms and our liquidity and capital resources.
As of December 31, 2023, we had an indebtedness of $240.5 million, which after excluding unamortized financing fees and debt discounts amounts to a total indebtedness of $246.2 million.
Finally, as of December 31, 2023, our cash and cash equivalent balances amounted to $40.0 million, held in U.S. Dollar accounts, $4.0 million of which are classified as restricted cash.
As of the date of this annual report our cash flow projections indicate that cash on hand and cash to be provided by operating activities will be sufficient to cover the liquidity needs that
become due in the twelve-month period ending one year after December 31, 2023.
Our medium- and long-term liquidity requirements relate to expenditures relating to the operation and maintenance of our vessels. Sources of
funding for our medium- and long-term liquidity requirements include cash flows from operations. Routine or strategic acquisitions may require the incurrence of additional indebtedness, including debt issuances, and/or additional equity
issuances, which may be dilutive to our
common shareholders.
Working Capital Requirements and Sources of Capital
As of December 31, 2023, we had a working capital deficit (current assets less current liabilities) of $2.6 million, which included an amount of $6.6 million relating to pre-collected revenue
that is included in Unearned revenue in the accompanying consolidated balance sheets. This amount represents a current liability that does not require future cash settlement.
Our operating cash flow, provided that SOFR expectations for 2024 remain as they are as of the date of this annual report, is expected to slightly decrease when compared to the same period in
2023, since all our owned vessels except for M/Ts Marina del Rey, Julius Caesar and Legio X Equestris have loans with fluctuating interest rates leading to increased interest costs (please see “ITEM 11. Quantitative and qualitative disclosures
about market risk -Interest rate risk” for a sensitivity analysis the increase in interest rates). Furthermore, we expect to incur significant expenses relating to scheduled Dry-dockings for three of our vessels (M/Ts Eco Marina Del Rey, Eco
Bel Air and Eco Beverly Hills) in the first half of 2024.
Cash Flow Information
Cash and cash equivalents and restricted cash were $24.5 million and $40.0 million as of December 31, 2022 and 2023 respectively.
Net Cash from Operating Activities.
Net cash provided by operating activities decreased by $4.5 million, or 13%, for 2023 to $28.9 million, compared to $33.4 million for 2022.
Adjustments to reconcile net income to net cash provided by operating activities for the year ended December 31, 2023 totaled $28.3 million. This consisted mainly of $14.3 million of
depreciation expenses, $9.3 million of amortization of right of use assets from operating leases and $4.7 million of amortization and write offs of deferred financing costs and debt discounts. The cash
inflow from operations was offset by a $5.0 million decrease in current liabilities and a $0.4 million increase in current assets.
Adjustments to reconcile net income to net cash provided by operating activities for the year ended December 31, 2022 totaled $24.3 million. This consisted mainly of $13.3 million of
depreciation expenses, $8.6 million of amortization of right of use assets from operating leases and $2.5 million of amortization and write offs of deferred financing costs, offset by $0.1 million of gains on sale of vessels. The cash inflow
from operations was offset by a $8.8 million decrease in current liabilities and a $1.0 million increase in current assets.
Net Cash from Investing Activities.
Net cash provided by investing activities in the period ended December 31, 2023 was $2.5 million, deriving exclusively from return of investments in unconsolidated joint ventures.
Net cash used in investing activities in the period ended December 31, 2022 was $142.7 million, consisting of $216.7 million of cash paid for advances for vessels under construction, offset by
$71.7 million net proceeds from sale and exchange of vessels and $2.3 million of return of investments in unconsolidated joint ventures.
Net Cash from Financing Activities.
Net cash used in financing activities in the period ended December 31, 2023 was $16.0 million, consisting of $76.4 million of principal payments and prepayments of long term, $26.3 million of
payments for our Series F Preferred Shares redemptions, $6.0 million in payments of dividends for our Series E Preferred Shares and our Series F Preferred Shares and $1.6 million in payments of financing costs. These were offset by $82.0
million of proceeds from long term debt and $12.3 million of proceeds from issuance of our common stock net of equity issuance costs.
Net cash provided by financing activities in the period ended December 31, 2022 was $127.4 million, consisting of $165.2 million of proceeds from long term and related party debt, $47.6 million
of proceeds from issuance of Series F Shares, $21.1 million of proceeds from issuance of our common stock net of equity issuance costs and $4.6 of proceeds from warrant exercises, net of fees. These were offset by $77.9 million of principal
payments and prepayments of long term and related party debt, $16.2 million of payments for Series F Shares redemptions, $13.4 million payments of dividends for Series F and E Shares and $3.6 million payments of financing costs.
Please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results” in our Annual Report on Form 20-F, filed on April 3, 2023 where the 2022 cash flow information may be
found.
Debt Facilities
For a more complete description of debt facilities entered into in the year ended December 31, 2023 as well as for a description of debt facilities entered into before the year ended December
31, 2023 please see “Item 18. Financial Statements—Note 7—Debt.”.
Prepayments of senior secured loans
ABN Facility
On March 18, 2021, we entered into a credit facility with ABN Amro for $36.8 million for the financing of the vessel M/T Eco West Coast. This facility was drawn down in full. The credit
facility was repayable in 24 consecutive quarterly installments of $0.61 million commencing in June 2021, plus a balloon installment of $22.0 million payable together with the last installment. The facility bore interest at LIBOR plus a margin
of 2.50%. From June 23, 2023, ABN Amro switched the facility’s variable rate from LIBOR to Compounded SOFR. On December 14, 2023, this facility was fully prepaid using part of the proceeds from the 3rd AVIC SLB (see “—3rd AVIC Sale and Leaseback.”).
Alpha Bank Facility
On May 6, 2021, we entered into a credit facility with Alpha Bank for $38.0 million for the financing of the vessel M/T Eco Malibu. This facility was drawn down in full. The credit facility was
repayable in 12 consecutive quarterly installments of $0.75 million and 12 consecutive quarterly installments of $0.63 million, commencing three months from draw down, and a balloon payment of $21.5 million payable together with the last
installment. The facility bore interest at LIBOR plus a margin of 3.00%. From June 9, 2023, Alpha Bank switched the facility’s variable rate from LIBOR to Term SOFR On December 21, 2023, this facility was fully prepaid through part of the
proceeds from the Huarong SLB (see “—Huarong Sale and Leaseback”).
New facilities
HSBC Bridge Loan
On January 15, 2024, we entered into the HSBC Bridge with HSBC Private Bank (Suisse) SA for the purpose of partially financing the purchase of
M/Ts Julius Caesar and Legio X Equestris, following the exercise of our purchase options under the CMBFL SLB (see “— New CMBFL SLBs”). Under the HSBC Bridge, we drew down $20.0 million on January 16, 2024 for the purchase of M/T Julius
Caesar (which amount we repaid on January 18, 2024) and another $8.0 million on January 23, 2024 for the purchase of M/T Legio X Equestris (which amount we repaid on January 25, 2024). The HSBC Bridge was for a maximum amount of $24.0 million
at any time, carried an interest of 3% plus term SOFR and was guaranteed by Mr. Evangelos J. Pistiolis. For his guarantee, Mr. Evangelos J. Pistiolis charged the Company a 1% fee on the amounts drawn down under the HSBC Bridge.
Financings Committed under Sale and Leaseback Agreements
On December 14, 2023 we consummated an SLB with AVIC (the “3rd AVIC SLB”) in the amount of $41.0 million, for
the purpose of refinancing the indebtedness secured over the M/T Eco West Coast. We bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of 120 consecutive monthly installments of $0.18 million and a
balloon payment of $19.0 million payable together with the last installment, plus interest based on Term SOFR plus 2.65% per annum. As part of this transaction, we have continuous options to buy back the vessel at purchase prices stipulated in
the bareboat agreement depending on when the option will be exercised. At the end of the ten -year period we have an obligation to buy back the vessel at a cost represented by the balloon payment. As part of the 3rd AVIC Facility, AVIC reduced the margin of the 2nd AVIC Facility from 3.5% to 3.0%.
On December 20, 2023, we consummated an SLB with China Huarong Shipping Financial Leasing Co Ltd. (“Huarong” and the “Huarong SLB”) in the amount of $41.0 million, for the purpose of
refinancing the indebtedness secured over the M/T Eco Malibu. We bareboat chartered back the vessel for a period of ten years at bareboat hire rates comprising of 120 consecutive monthly installments of $0.18 million and a balloon payment of
$19.0 million payable together with the last installment, plus interest based on Term SOFR plus 2.50% per annum. As part of this transaction, we have continuous options to buy back the vessel at purchase prices stipulated in the bareboat
agreement depending on when the option will be exercised. At the end of the ten-year period we have an obligation to buy back the vessel at a cost represented by the balloon payment.
New CMBFL SLBs
On January 16 and January 23, 2024, we exercised our purchase options under the CMBFL SLB and took full ownership of M/Ts Julius Caesar and
Legio X Equestris for $48.6 million and $49.3 million, respectively. Following the purchase of the vessels that was funded with cash and the HSBC Bridge, on January 18 and January 25, 2024 we concluded SLBs (the “New CMBFL SLBs”) for the
financing of M/Ts Julius Caesar and Legio X Equestris respectively from the same institution (CMBFL). The duration of the New CMBFL SLBs is for eight years and the Company has continuous options, after the first year, to buy back the
vessels at purchase prices stipulated in the New CMBFL SLBs depending on when the option will be exercised. At the end of the eight-year period, the Company has an option to buy back the vessels for consideration of $37.5 million per
vessel. The New CMBFL SLBs have a fixed bareboat hire rate of $7.3 million per annum, which includes both interest and repayment. The consideration from the New CMBFL SLBs amounted to $125.0 million ($62.5 million per vessel) and the SLBs
have similar customary covenants and event of default clauses as the SLBs that preceded them with CMBFL, as further described in “Item 18. Financial Statements—Note 7—Debt.”
Covenant Compliance
As of December 31, 2023, we were in compliance with all covenants with respect to our sale and leaseback agreements. The fair value of debt outstanding on December 31, 2023, after excluding
unamortized financing fees and debt discounts, approximates its carrying amount when valuing the Cargill SLB on the basis of the Commercial Interest Reference Rates as applicable on December 31, 2023.
Operating Leases
On December 1 and December 10, 2020, we sold and leased back M/T Eco Beverly Hills and M/T Eco Bel Air, respectively, to an unaffiliated third party (the “Navigare Lease”). Each vessel was
chartered back on a bareboat basis for five years at a bareboat hire of $16,750 per day for the first two years, $14,000 per day for the next two years and $10,000 per day for the fifth year. We do not have any option nor obligation to buy back
the vessels. The abovementioned sale and leaseback transactions contain, customary covenants and event of default clauses, including cross-default provisions, change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less
than 50.1% of the voting rights of the Company) and restrictive covenants and performance requirements. Part of these covenants is a requirement to maintain a minimum liquidity of $4 million at all times which is certified bi-annually. As of
December 31, 2023, we were in compliance with all covenants of the Navigare Lease.
Please see “Item 18. Financial Statements—Note 6—Leases.” for more detailed information.
| C. |
Research and Development, Patents and Licenses, Etc.
|
None.
Our results of operations depend primarily on the charter rates earned by our vessels. Over the course of 2023, the BDTI reached
a high of 1,642 and a low of 713 while the BCTI reached a high of 1,250 and a low of 563. Historically and even more so since the start of the financial crisis in 2008 the performance of the BDTI and the BCTI have been characterized by high
volatility. Although the BDTI was 1,159 as of March 25, 2024, there can be no assurance that the crude oil charter market will continue to increase, and the market could again decline.
Meanwhile, the war in Ukraine has amplified the volatility in the tanker market. In the short term, the effect of the invasion of Ukraine has been positive for the tanker
market, yet the overall longer term effect on ton-mile demand is uncertain given that cargoes exported previously from Russia will need to be substituted by cargoes from different sources due to the oil and oil products embargo enacted by the
United States, the European Union and the United Kingdom.
In addition, the continuing war in Ukraine led to increased economic uncertainty amidst fears of a more generalized military conflict or significant inflationary pressures, due
to the increases in fuel and grain prices following the sanctions imposed on Russia. Whether the present dislocation in the markets and resultant inflationary pressures will transition to a long-term inflationary environment is uncertain, and
the effects of such a development on charter rates, vessel demand and operating expenses in the sector in which we operate are uncertain. As described above, the initial effect of the invasion in Ukraine on the tanker freight market was
positive, despite the short-term volatility in charter rates and increases on specific items of operating costs. If these conditions are sustained, the longer-term net impact on the tanker market and our business would be difficult to predict.
However, such events may have unpredictable consequences, and contribute to instability in global economy, a decrease in supply or cause a decrease in worldwide demand for certain goods and, thus, shipping. Regarding the possible impact of
supply chain disruptions that have or may emanate from the military conflict in Ukraine, our operations have not been affected materially and we do not expect them to be in the future.
Furthermore, the intensity and duration of the recently declared war between Israel and Hamas is difficult to predict and its impact on the world economy and our industry is
uncertain. Beginning in late 2023, vessels in the Red Sea and Gulf of Aden have increasingly been subject to attempted hijackings and attacks by drones and projectiles characterized by Houthi groups in Yemen as a response to the war between
Israel and Hamas. An increasing number of companies have rerouted their vessels to avoid transiting the Red Sea, incurring greater shipping costs and delays and for vessels transiting the region, war risk premium has increased substantially.
While much uncertainty remains regarding the global impact of the war between Israel and Hamas, it is possible that such tensions could result in the eruption of further hostilities in other regions, including in and around the Red Sea.
Regarding the possible impact of supply chain disruptions that have or may emanate from the war between Israel and Hamas, our operations have not been affected materially and we do not expect them to be in the future.
Inflation has had a moderate impact on our vessel operating expenses and corporate overheads. It is anticipated that insurance costs, which have risen over the last three years, may well continue to
rise over the next few years. Oil transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased demand for qualified crew and this has and will continue to put inflationary pressure on crew
costs. However, in a shipping downturn, costs subject to inflation can usually be controlled because shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers to lower rates and prices in the
event of a downturn.
For further discussion of industry trends, refer to industry disclosure under “Item 4. Information on the Company—B. Business Overview.”
| E. |
Critical Accounting Estimates
|
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at
the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting estimates are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions
and conditions. We have described below what we believe are our most critical accounting estimates that involve a higher degree of judgment and the methods of their application. For a description of all of our significant accounting estimates,
see Note 2 to our consolidated financial statements included herein.
Vessel depreciation. We
record the value of our vessels at their cost (which includes the contract price, pre-delivery costs incurred during the construction of newbuildings, capitalized interest and any material expenses incurred upon acquisition such as initial
repairs, improvements and delivery expenses to prepare the vessel for its initial voyage) less accumulated depreciation. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years from the
date of initial delivery from the shipyard. Depreciation is based on cost of the vessel less its residual value which is estimated to be $300 per light-weight ton. An increase in the estimated useful life of a vessel or in its residual value
would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of a vessel or in the residual value would have the effect of increasing the annual depreciation charge. The
estimated residual value of the vessels may not represent the fair value at any one time since market prices of light-weight tons tend to fluctuate.
A decrease in the useful life of the vessel may occur as a result of poor vessel maintenance performed, harsh ocean-going and weather conditions that the vessel is subject to,
or poor quality of the shipbuilding yard. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, the vessel’s useful life is adjusted at the date such regulations become effective. Weak freight markets
may result in owners scrapping more vessels and scrapping them earlier due to unattractive returns. An increase in the useful life of the vessel may result from superior vessel maintenance performed, favorable ocean-going and weather conditions
the vessel is subjected to, superior quality of the shipbuilding yard, or high freight rates which result in owners scrapping the vessels later due to attractive cash flows.
Impairment of vessels: We evaluate the existence of impairment indicators whenever events or changes in circumstances indicate that the
carrying values of our long-lived assets are not recoverable. Such indicators of potential impairment include, vessel sales and purchases, business plans and overall market conditions. If there are indications for impairment present, we
determine undiscounted projected net operating cash flows for each vessel and compare it to the vessel’s carrying value. If the carrying value of the related vessel exceeds its undiscounted future net cash flows, the carrying value is reduced
to its fair value.
The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes
in charter rates and the cost of newbuildings.
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance
as to how long charter rates and vessel values will remain at their current levels or whether they will improve or decrease by any significant degree. Charter rates may be at depressed levels for some time, which could adversely affect our
revenue and profitability, and future assessments of vessel impairment.
In order to perform the undiscounted cash flow test, we make assumptions about future charter rates, commissions, vessel operating
expenses, dry-dock costs, fleet utilization, scrap rates used to calculate estimated proceeds at the end of vessels’ useful lives and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well
as future expectations. The projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days (based on
the ten year historical averages of the one-year, three-year and five-year time charter rates) over the remaining useful life of each vessel, which we estimate to be 25 years from the date of initial delivery from the shipyard. Expected
outflows for scheduled vessels’ maintenance and vessel operating expenses are based on historical data, and adjusted annually assuming an average annual inflation derived from the most recent twenty-year average consumer price index. Effective
fleet utilization, average commissions, dry-dock costs and scrap values are also based on historical data.
In both 2022 and 2023, tanker values increased and as a result in both years the charter-free market value of each vessel of our fleet was
higher than its carrying amount. As such we had no indicators of potential impairment and did not perform the undiscounted cash flow test for any vessel of our fleet. Therefore, for the years ended December 31, 2022 and 2023, this is not considered a critical accounting estimate.
Also see “Item 18. Financial Statements—Note 2— Significant Accounting Policies”
| ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
| A. |
Directors and Senior Management
|
Set forth below are the names, ages and positions of our directors, executive officers and key employees. Members of our Board of Directors are elected annually on a staggered
basis and each director elected holds office for a three-year term.
Officers are elected from time to time by vote of our Board of Directors and hold office until a successor is elected.
|
Name
|
|
Age
|
|
Position
|
|
Evangelos J. Pistiolis
|
|
51
|
|
Director, President, Chief Executive Officer
|
|
Alexandros Tsirikos
|
|
49
|
|
Director, Chief Financial Officer
|
|
Konstantinos Patis
|
|
50
|
|
Chief Technical Officer
|
|
Vangelis G. Ikonomou
|
|
60
|
|
Chief Operating Officer
|
|
Konstantinos Karelas
|
|
51
|
|
Independent Non-Executive Director
|
|
Stavros Emmanuel
|
|
81
|
|
Independent Non-Executive Director
|
|
Paolo Javarone
|
|
50
|
|
Independent Non-Executive Director
|
Biographical information with respect to each of our directors and executives is set forth below.
Evangelos J. Pistiolis founded our Company in 2000, is our President and Chief Executive Officer, and has served on our Board of
Directors since July 2004. Mr. Pistiolis graduated from Southampton Institute of Higher Education in 1999, where he studied shipping operations and from Technical University of Munich in 1994 with a bachelor’s degree in mechanical engineering.
His career in shipping started in 1992 when he was involved with the day-to-day operations of a small fleet of drybulk vessels. From 1994 through 1995, he worked at Howe Robinson & Co. Ltd., a London shipbroker specializing in container
vessels. While studying at the Southampton Institute of Higher Education, Mr. Pistiolis oversaw the daily operations of Compass United Maritime Container Vessels, a ship management company located in Greece.
Alexandros Tsirikos has served as our Chief Financial Officer since April 1, 2009. Mr. Tsirikos is a U.K. qualified Chartered Accountant
(ACA) and has been employed with TOP Ships Inc. since July 2007 as our Corporate Development Officer. Prior to joining TOP Ships Inc., Mr. Tsirikos was a manager with PricewaterhouseCoopers, or PwC, where he worked as a member of the PwC
Advisory team and the PwC Assurance team, thereby drawing experience both from consulting as well as auditing. As a member of PwC’s Advisory team, he led and participated in numerous projects in the public and the private sectors, including
strategic planning and business modeling, investment analysis and appraisal, feasibility studies, costing and project management. As a member of the PwC’s Assurance team, Mr. Tsirikos was part of the International Financial Reporting Standards,
or IFRS, technical team of PwC Greece and lead numerous IFRS conversion projects for listed companies. He holds a Master’s of Science in Shipping Trade and Finance from City University of London and a bachelor’s degree with honors in Business
Administration from Boston University in the United States. He speaks English, French and Greek.
Konstantinos Patis has served as our Chief Technical Officer since January 2018. Mr. Patis holds a Master’s of Science and a Bachelor’s
degree, both in Marine Engineering from the University of Newcastle upon Tyne in the UK, as well as a Bachelor’s degree in Naval Architecture from the Technological Educational Institute of Athens, in Greece. He started his carrier in 1997
acting as a Superintendent Engineer, thereafter as Fleet Manager and from 2014 as Technical Manager in various ship management companies in Greece, like Cyprus Sea Lines, Technomar Shipping, Aeolian Investments, Arion Shipping operating diverse
fleets of Tankers, Bulk Carriers and Containers and was involved in the technical supervision, repairs, dry docks and construction of new projects.
Vangelis G. Ikonomou is our Chief Operating Officer. Prior to joining us, Mr. Ikonomou was the Commercial Director of Primal Tankers
Inc. From 2000 to 2002, Mr. Ikonomou worked with George Moundreas & Company S.A. where he was responsible for the purchase and sale of second-hand vessels and initiated and developed a shipping industry research department. Mr. Ikonomou
worked, from 1993 to 2000, for Eastern Mediterranean Maritime Ltd., a ship management company in Greece, in the commercial as well as the safety and quality departments. Mr. Ikonomou holds a Master’s degree in Shipping Trade and Finance from
the City University Business School in London, a bachelor’s degree in Business Administration from the University of Athens in Greece and a Navigation Officer Degree from the Higher State Merchant Marine Academy in Greece.
Konstantinos Karelas has served on our Board of Directors and has been member of the Audit Committee since April 2014. Since 2008, Mr.
Karelas has served as the President and CEO of Europe Cold Storages SA, one of the leading companies in the field of refrigeration logistics.
Stavros Emmanuel has served on our Board of Directors since December 31, 2017 and has been member of the Audit Committee since December
2018. Captain Stavros Emmanuel has 47 years of experience in the shipping industry and expertise in operation and chartering matters. He obtained a Naval Officers degree from ASDEN Nautical Academy of Aspropyrgos, Greece and earned a Master
Mariners degree in 1971. He has worked in various management capacities at Compass United Maritime and Primal Tankers Inc. From 2004 to 2009 he was our Chief Operating Officer. Since leaving us, Captain Stavros Emmanuel has been an independent
advisor to various shipping companies.
Paolo Javarone has served on our Board of Directors since September 1, 2014. Mr. Javarone is a member of the Italian Shipbrokers
Association. From 2015, Mr. Javarone has been working for Shipping 360 Ltd, a boutique shipbroking company with offices in London and Monaco and before that he has been working since 2000 for Sernavimar S.R.L., one of the most reputable
shipbroking houses in Italy, which cooperates with many of the oil major companies and trading associations of the industry. From 1994 to 2000, Mr. Javarone worked for Genoa Sea Brokers in the tanker wing of the company specializing in clean
petroleum products and edible markets. Previously, Mr. Javarone worked for S.a.n.a. Eur, a company based in Rome Italy, where he was tasked with supplying energy and offshore supply. Before S.a.n.a., Mr. Javarone worked for Sidermar di
Navigazione S.P.A. in the dry cargo field. Mr. Javarone holds a Shipbroker degree from National Agents Association Shipbroking School in Italy and a degree in Shipping Economics and Law from Nautical Maritime School in Italy.
On September 1, 2010, we entered into separate agreements with Central Mare, pursuant to which Central Mare furnishes our four executive
officers as described below. On December 10, 2023, our compensation committee comprising independent directors suggested and the board of directors granted to Mr. Evangelos J. Pistiolis a bonus of $5.0 million. During the fiscal year ended
December 31, 2023, we paid to the members of our senior management and to our directors aggregate compensation of $0.4 million and declared a $5.0 million bonus to our Chief Executive Officer, which was paid in January 2024. We do not have a
retirement plan for our officers or directors and we did not issue any stock options or other securities to them as part of compensation for the fiscal year ended December 31, 2023.
Under the terms of the agreement for the provision of our Chief Executive Officer, we are obligated to pay annual base salary. The initial term of the agreement expired on
August 31, 2014 and is automatically extended for successive one-year terms unless Central Mare or we provide notice of non-renewal at least sixty days prior to the expiration of the then applicable term.
If our Chief Executive Officer’s employment is terminated without cause, he is entitled to certain personal and household security costs. If he is removed from our Board of
Directors or not re-elected, then his employment terminates automatically without prejudice to Central Mare’s rights to pursue damages for such termination. In the event of a change of control, the Chief Executive Officer is entitled to receive
a cash payment of ten million Euros. The agreement also contains death and disability provisions. In addition, the Chief Executive Officer is subject to non-competition and non-solicitation undertakings.
Under the terms of the agreement for the provision of our Chief Operating Officer, we are obligated to pay annual base salary and additional incentive compensation as determined
by our Board of Directors. The initial term of the agreement expired on August 31, 2011 and is automatically extended for successive one-year terms unless Central Mare or we provide notice of non-renewal at least sixty days prior to the
expiration of the then applicable term. In the event of a change of control, he is entitled to receive a cash payment of three years’ annual base salary. The agreement also contains death and disability provisions. In addition, our Chief
Operating Officer is subject to non-competition and non-solicitation undertakings.
Under the terms of the agreement for the provision of our Chief Financial Officer, we are obligated to pay annual base salary. The initial term of the agreement expired on
August 31, 2012, and is automatically extended for successive one-year terms unless Central Mare or we provide notice of non-renewal at least sixty days prior to the expiration of the then applicable term.
If our Chief Financial Officer is removed from our Board of Directors or not re-elected, then his employment terminates automatically without prejudice to Central Mare’s rights
to pursue damages for such termination. In the event of a change of control, our Chief Financial Officer is entitled to receive a cash payment equal to three years’ annual base salary. The agreement also contains death and disability
provisions. In addition, our Chief Financial Officer is subject to non-competition and non-solicitation undertakings.
Under the terms of our agreement for the provision of our Chief Technical Officer, we are obligated to pay annual base salary. The initial term of the agreement expired on
August 31, 2011; however the agreement is being automatically extended for successive one-year terms unless Central Mare or we provide notice of non-renewal at least sixty days prior to the expiration of the then applicable term. In the event
of a change of control, the Chief Technical Officer is entitled to receive a cash payment equal to three years’ annual base salary. In addition, our Chief Technical Officer is subject to non-competition and non-solicitation undertakings.
Our Board of Directors is divided into three classes. Members of our Board of Directors are elected annually on a staggered basis, and each director elected holds office for a
three-year term. We currently have two executive directors and three independent non-executive directors. The terms of our Class II directors, Paolo Javarone and Konstantinos Karelas, expires at the annual general meeting of shareholders in
2024. The term of our Class III director, Alexandros Tsirikos, expires at the annual general meeting of shareholders in 2025. The terms of our Class I directors, Stavros Emmanuel and Evangelos J. Pistiolis expires at the annual general meeting
of shareholders in 2026.
Committees of our Board of Directors
We currently have an audit committee composed of three independent members, who are responsible for reviewing our accounting controls and recommending to our Board of Directors,
the engagement of our outside auditors. Konstantinos Karelas, Paolo Javarone and Stavros Emmanuel (Chairman), whose biographical details are included in “Item 6. Directors, Senior Management and Employees” of this Annual Report, are the members
of the audit committee, and our Board of Directors has determined that they are independent under the Nasdaq corporate governance rules.
Our compensation committee and nominating and governance committees are currently composed of the following three members: Konstantinos Karelas, Paolo Javarone and Stavros
Emmanuel. The compensation committee carries out our Board of Directors’ responsibilities relating to compensation of our executive and non-executive officers and provides such other guidance with respect to compensation matters as the
committee deems appropriate. The nominating and governance committee assists our Board of Directors in: (i) identifying, evaluating and making recommendations to our Board of Directors concerning individuals for selections as director nominees
for the next annual meeting of stockholders or to otherwise fill vacancies on our Board of Directors; (ii) developing and recommending to our Board of Directors a set of corporate governance guidelines and principles applicable to us; and (iii)
reviewing our overall corporate governance and recommending improvements to our Board of Directors from time to time.
As a foreign private issuer, we are exempt from certain Nasdaq requirements that are applicable to U.S. domestic companies. For a listing and further discussion of how our
corporate governance practices differ from those required of U.S. companies listed on Nasdaq, please see “Item 16G. Corporate Governance”.
We have no direct employees, while our four executive officers and a number of administrative employees are furnished to us pursuant to agreements with Central
Mare, as described above. Our Fleet Manager ensures that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions, and that our vessels employ experienced and competent
personnel. As of December 31, 2021, 2022 and 2023, we employed 146, 170 and 178 sea-going employees, indirectly through our Fleet Manager.
The common shares beneficially owned by our directors and senior managers and/or companies affiliated with these individuals are disclosed in “Item 7. Major Shareholders and
Related Party Transactions—A. Major Shareholders.”
| F. |
Disclosure of a registrant’s action to recover erroneously awarded compensation.
|
None.
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The following table sets forth the beneficial ownership of our voting securities, comprised of our common shares and Series D
Preferred Shares, as of the date of this annual report, held by: (i) each person or entity that we know beneficially owns 5% or more of our common shares and (ii) all our executive officers, directors and key employees as a group. Beneficial
ownership is determined in accordance with the SEC’s rules. In computing percentage ownership of each person, common shares subject to options held by that person that are currently exercisable or convertible, or exercisable or convertible
within 60 days are deemed to be beneficially owned by that person. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. All shareholders of common stock are entitled to
one vote for each common share held and holders of our Series D Preferred Shares are entitled to 1,000 votes per Series D Preferred Share held. Percentages in the table below are based on 4,626,197 common shares and 100,000 Series D
Preferred Shares outstanding as of March 29, 2024.
|
Name and Address of Beneficial Owner
|
Number of Shares Owned
|
|
Percentage of
Class
|
|
|
Percentage
of
Total
Voting
Power
|
|
|
Lax Trust (1)
|
100,000 Series D Preferred Shares (1)
|
|
|
100
|
%
|
|
|
95.58
|
%
|
|
3 Sororibus Trust(2)
|
2,930,718 Common Shares
|
|
|
63.35
|
%
|
|
|
2.80
|
%
|
|
Evangelos J. Pistiolis(3)
|
446,446 Common Shares
|
|
|
9.65
|
%
|
|
|
0.43
|
%
|
|
Executive officers, directors and key employees(4)
|
0 Common Shares
|
|
|
0
|
%
|
|
|
0.00
|
%
|
| (1) |
The Lax Trust is an irrevocable trust established for the benefit of certain family members of Mr. Evangelos J. Pistiolis, our President, Chief Executive
Officer and Director. The business address of the Lax Trust is Level 3, 18 Stanley Street, Auckland 1010, New Zealand. As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis personally guaranteed the performance of the
bareboat charters entered in connection with the lease, under certain circumstances, and in exchange, we amended the Certificate of Designations governing the terms of the Series D Preferred Shares, to adjust the voting rights per
share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of our total voting power,
irrespective of any new common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. The above percentage of total voting power is based on
100,000,000 votes carried by the outstanding Series D Preferred Share (1,000 votes per Series D Preferred Share held).
|
| (2) |
The above information is derived, in part, from the Amendment No. 39 to the 13D/A filed with the SEC on February 14, 2024. 3 Sororibus Trust is an irrevocable trust established for the benefit of certain
family members of Mr. Evangelos J. Pistiolis. The business address of 3 Sororibus Trust is 31 Kitiou Kyprianou, 3036, Limassol, Cyprus. 3 Sororibus Trust is the sole shareholder of Family Trading Inc., or Family Trading, a Marshall
Islands corporation, and may be deemed to beneficially own all of the common shares beneficially owned by Family Trading.
|
| (3) |
The above information is derived, in part, from the Amendment No. 39 to the 13D/A filed with the SEC on February 14, 2024.
|
| (4) |
Excludes the shares held by Mr. Evangelos J. Pistiolis that are reported elsewhere in this table.
|
.
As of March 29, 2024, we had one shareholder of record, Cede & Co, which is located in the United States and held an aggregate of 4,626,197 of our common shares, representing 100% of our outstanding common shares. We believe that the shares held by Cede & Co. include common shares beneficially owned by both holders in the United States and non-U.S.
beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.
| B. |
Related Party Transactions
|
Please also see “Item 18. Financial Statements—Note 5—Transactions with Related Parties.”
(a) Central Mare–
Executive Officers and Other Personnel Agreements
On September 1, 2010, we entered into separate agreements with Central Mare, a related party affiliated with the family of our President, Chief Executive Officer and Director,
Mr. Evangelos J. Pistiolis, pursuant to which Central Mare provides us with our executive officers (Chief Executive Officer, Chief Financial Officer, Chief Technical Officer and Chief Operating Officer).
The fees charged by and expenses relating to Central Mare for the years ended December 31, 2021, 2022 and 2023 are $0.4 million per year.
(b) Central Shipping Inc. (“CSI”) – Letter Agreement and Management Agreements
On January 1, 2019, we entered into a letter agreement with CSI (“CSI Letter Agreement”), a related party affiliated with the family of Mr. Evangelos J. Pistiolis and on the
same date we entered into management agreements, or the CSI Management Agreements, between CSI and our vessel-owning subsidiaries respectively. The CSI Letter Agreement can only be terminated subject to an eighteen-month advance notice, subject
to a termination fee equal to twelve months of fees payable under the CSI Letter Agreement.
Pursuant to the CSI Letter Agreement, as well as the CSI Management Agreements concluded between CSI and our vessel-owning subsidiaries, we pay a management fee of $630 per day
per vessel for the provision of technical, commercial, operation, insurance, bunkering and crew management, commencing three months before the vessel is scheduled to be delivered by the shipyard. In addition, the CSI Management Agreements
provide for payment to CSI of: (i) $573 per day for superintendent visits plus actual expenses; (ii) a chartering commission of 1.25% on all freight, hire and demurrage revenues; (iii) a commission of 1.00% on all gross vessel sale proceeds or
the purchase price paid for vessels and (iv) a financing fee of 0.2% on derivative agreements and loan financing or refinancing. CSI also performs supervision services for all of our newbuilding vessels while the vessels are under construction,
for which we pay CSI the actual cost of the supervision services plus a fee of 7% of such supervision services.
CSI provides, at cost, all accounting, reporting and administrative services. Finally, the CSI Letter Agreement provides for a performance incentive fee for the provision of
management services to be determined at our discretion. The CSI Management Agreements have an initial term of five years, after which they will continue to be in effect until terminated by either party subject to an eighteen-month advance
notice of termination. Pursuant to the terms of the CSI Management Agreements, all fees payable to CSI are adjusted annually according to the US Consumer Price Inflation (“CPI”) of the previous year and, if CPI is less than 2%, then a 2%
increase is effected.
The fees charged by and expenses relating to CSI for the years ended December 31, 2021, 2022 and 2023 were $5.7 million, $4.9 million and $3.4 million respectively. For the years ended December 31, 2021, 2022 and 2023, CSI also charged us newbuilding supervision related pass-through costs amounting to $1.2 million, $0.2 million and $0.0 million respectively.
(c) Issuance of Series E Preferred Shares to Family Trading Inc (“Family Trading”)
On September 8, 2021, pursuant to a Sale and Purchase Agreement between the Issuer and Zizzy Charter Co. dated September 8, 2021, we issued 2,188 Series E Preferred Shares to Family Trading as partial settlement of
the consideration outstanding for the purchase of an additional 65% ownership interest in each of Julius Caesar Inc. and Legio X Inc., each a party to shipbuilding contracts for VLCC Julius Caesar and VLCC Legio X Equestris, respectively, from
a party affiliated with Mr. Pistiolis. On December 6, 2023, Family Trading converted all of its 13,452 Series E Preferred Shares into 2,930,718 Common Shares pursuant to the terms of the Series E Preferred Shares, at a Series E Conversion Price
of $4.59. All converted Series E Preferred Shares were cancelled upon conversion and we currently have no Series E Preferred Shares outstanding.
(d) Vessel Acquisitions from affiliated entities
From January 8, 2021 to September 8, 2021 we entered into a series of transactions with a number of entities affiliated with Mr. Evangelos J. Pistiolis. As of December 31, 2023,
we don’t owe anything to the previous owners of the newbuilding vessels. For more information on these vessel acquisitions please see “Item 18. Financial Statements—Note 1— Basis of Presentation and General Information.” and “Item 4.
Information On the Company - A. History and Development of the Company.”
(e) Charter Parties with Central Tankers Chartering
On January 6, 2021 we acquired a shipowning company from an entity affiliated with Mr. Evangelos J. Pistiolis that owned M/T Eco Oceano CA which was party to a time charter,
with Central Tankers Chartering Inc, for a firm duration of five years at a gross daily rate of $32,450, with two optional years at $33,950 and $35,450 at Central Tankers Chartering’s option. The time charter commenced on the date of delivery.
On February 22, 2022 we amended the previously agreed time charter with Central Tankers Chartering and increased its firm period from five years to 15 years and reduced the daily rate from $32,450 to $24,500. This transaction was approved by a
special committee of our Board of Directors (the “Special Committee”), of which all of the directors were independent, after obtaining a fairness opinion from an independent financial advisor.
(f) Personal Guarantees by Mr. Evangelos J. Pistiolis and Related Amendments to the Series D Preferred Shares.
As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis personally guaranteed the performance of the bareboat charters connected to the lease and in exchange, we
agreed to indemnify him for any losses suffered as a result of the guarantee provided, and we amended the Certificate of Designations governing the terms of the Series D Preferred Shares, to adjust the voting rights per share of Series D
Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of our total voting power, irrespective of any new common or
preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. This personal guarantee comes into effect in the case 120 days have passed and we are still unable
to pay down all amounts due under the Navigare Lease, with the exception of amounts due to Navigare due to a total loss, where in this case the personal guarantee will cover an amount equal to all unpaid charter hire and a further amount
equivalent to all future charter hire that would have accrued from the date of the total loss up to the end of the charter period and is callable 200 days after the date of the total loss. Due to the related party nature of the transactions
involving Mr. Evangelos J. Pistiolis, such transactions were unanimously approved by the Company’s Board of Directors, including all three independent directors.
(g) Issuance of Series F Preferred Shares
On January 17, 2022, we entered into a stock purchase agreement with Africanus Inc., an affiliate of our CEO for the sale of up to 7,560,759 Series F Non-Convertible Perpetual Preferred Shares,
par value $0.01, in exchange for (i) the assumption by Africanus Inc. of an amount of $48.0 million of shipbuilding costs for vessels M/T Eco Oceano CA, M/T Julius Caesar and M/T Legio X Equestris, and (ii) settlement of our remaining payment
obligations relating to the acquisition in September 8, 2021 of an additional 65% ownership interest in the newbuilding contracts for its two VLCCs, in an amount of up to $27.6 million. A total of 7,200,000 Series F Preferred Shares were
issued. On July 8, 2022, we redeemed 865,558 of our Series F Preferred Shares for an aggregate amount of approximately $10.4 million, payable in cash. On December 30, 2022, we redeemed 483,694 of our Series F Preferred Shares for an aggregate
amount of approximately $5.8 million, payable in cash. On January 13, 2023, we redeemed 1,000,000 of our Series F Preferred Shares for an aggregate amount of approximately $12.0 million, payable in cash. On March 6, 2023, we redeemed 1,016,667
of our Series F Preferred Shares for an aggregate amount of approximately $12.2 million, payable in cash. On April 19, 2023, we redeemed 174,454 of our Series F Preferred Shares for an aggregate amount of approximately $2.1 million, payable in
cash. On February 6, 2024, we fully redeemed all of our outstanding 3,659,627 Series F Preferred Shares for an aggregate amount of approximately $43.9 million, payable in cash. Following completion of the redemptions, as of the date hereof, we
have no Series F Preferred Shares outstanding. In December 2022, 100% of Africanus Inc shares were transferred to 3 Sororibus Trust, which is an irrevocable trust established for the benefit of certain family members of Mr. Pistiolis.
(h) Central Mare Bridge Loan
On January 5, 2022 we entered into an unsecured credit facility for up to $20 million with an affiliate of Mr. Evangelos J. Pistiolis in order to finance part of the
shipbuilding cost of our two VLCC newbuildings. A total of $9 million was drawn down. The facility maturity was December 31, 2022. The principal terms of the loan included an arrangement fee of 2%, interest of 12% per annum and a commitment fee
of 1.00% on the undrawn part of the facility. The facility was fully repaid and terminated on March 4, 2022 from proceeds from the sale of the M/T Eco Los Angeles.
(i) HSBC Bridge Guarantee
As described above under "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities—HSBC Bridge
Loan,” Evangelos J. Pistiolis provided a guarantee for the Company’s performance under the HSBC Bridge and charged the Company a 1% fee on the amounts drawn down under the HSBC Bridge.
| C. |
Interests of Experts and Counsel
|
Not applicable.
| ITEM 8. |
FINANCIAL INFORMATION
|
| A. |
Consolidated Statements and Other Financial Information
|
See “Item 18—Financial Statements.”
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that
these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Dividend Distribution Policy
The declaration and payment of any future special dividends shall remain subject to the discretion of our Board of Directors and shall be based on general market and other
conditions including our earnings, financial strength and cash requirements and availability.
All significant changes have been included in the relevant sections.
| ITEM 9. |
THE OFFER AND LISTING
|
Not applicable except for Item 9.A.4. and Item 9.C.
Share History and Markets
Since July 23, 2004, the primary trading market for our common shares has been Nasdaq on which our shares are now listed under the symbol “TOPS.”
| ITEM 10. |
ADDITIONAL INFORMATION
|
Not applicable.
| B. |
Memorandum and Articles of Association
|
Purpose
Our purpose is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Marshall Islands Business Corporations Act, or BCA. Our
Third Amended and Restated Articles of Incorporation and Amended and Restated By-Laws, as further amended, do not impose any limitations on the ownership rights of our shareholders.
Authorized Capitalization
Our authorized capital stock consists of 1,000,000,000 common shares, par value $0.01 per share, of which 4,626,197 shares were issued and outstanding as of
December 31, 2023 and 20,000,000 preferred shares with par value of $0.01, of which 100,000 Series D Preferred Shares and 3,659,627 Series F Preferred Shares were issued and outstanding as of December 31,
2023. On February 6, 2024, we fully redeemed all of our outstanding Series F Preferred Shares pursuant to their terms, following which no Series F Preferred Shares are outstanding. Our Board of Directors has the authority to establish such
series of preferred stock and with such designations, preferences and relative, participating, optional or special rights and qualifications, limitations or restrictions as shall be stated in the resolution or resolutions providing for the
issue of such preferred stock.
On September 14, 2016, we declared a dividend of one preferred share purchase right for each outstanding common share and adopted a shareholder rights plan, as set forth in a
Stockholders Rights Agreement dated as of September 22, 2016, by and between us and Computershare Trust Company, N.A., as rights agent (succeeded by our current transfer agent), described below under the section entitled “—Stockholders Rights
Agreement”. In connection with the Stockholders Rights Agreement, we designated 1,000,000 shares as Series A Participating Preferred Stock, none of which were outstanding as of December 31, 2023.
Description of Common Shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any
outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our Board of Directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of
all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of our preferred shares having liquidation preferences, if any, the holders of our common shares will be entitled
to receive pro rata our remaining assets available for distribution. Holders of our common shares do not have conversion, redemption or preemptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders
of our common shares are subject to the rights of the holders of any preferred shares that we may issue in the future.
Description of Preferred Shares
Our Third Amended and Restated Articles of Incorporation authorize our Board of Directors to establish one or more series of preferred shares and to determine, with respect to
any series of preferred shares, the terms and rights of that series, including the designation of the series, the number of shares of the series, the preferences and relative, participating, option or other special rights, if any, and any
qualifications, limitations or restrictions of such series, and the voting rights, if any, of the holders of the series.
Description of Series D Preferred Shares
On May 8, 2017, we issued 100,000 shares of Series D Preferred Shares to Tankers Family Inc., a company controlled by Lax Trust, which is an irrevocable trust established for
the benefit of certain family members of Mr. Evangelos J. Pistiolis, for $1,000 pursuant to a stock purchase agreement. Each Series D Preferred Share has the voting power of one thousand (1,000) common shares.
On April 21, 2017, we were informed by ABN Amro Bank that we were in breach of a loan covenant that requires that any member of the family of Mr. Evangelos J. Pistiolis,
maintain an ownership interest (either directly and/or indirectly through companies beneficially owned by any member of the Pistiolis family and/or trusts or foundations of which any member of the Pistiolis family are beneficiaries) of 30% of
our outstanding Common Shares. ABN Amro Bank requested that either the family of Mr. Evangelos J. Pistiolis maintain an ownership interest of at least 30% of the outstanding common shares or maintain voting rights interests of above 50% in us.
In order to regain compliance with the loan covenant, we issued the Series D Preferred Shares.
The Series D Preferred Stock has the following characteristics:
Conversion. The Series D Preferred Shares are not convertible into common shares.
Voting. Each Series D Preferred Share has the voting power of 1,000 common shares. As a prerequisite for the Navigare
Lease, Mr. Evangelos J. Pistiolis personally guaranteed the performance of the bareboat charters entered in connection with the lease, under certain circumstances, and in exchange, we amended the Certificate of Designations governing the terms
of the Series D Preferred Shares, to adjust the voting rights per share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not
fall below a majority of our total voting power, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease.
Distributions. The Series D Preferred Shares shall have no dividend or distribution rights.
Maturity. The Series D Preferred Shares shall expire and all
outstanding Series D shares shall be redeemed by us for par value on the date that any financing facility with any financial institution, which requires that any member of the family of Mr. Evangelos J. Pistiolis maintains a specific minimum
ownership or voting interest (either directly and/or indirectly through companies or other entities beneficially owned by any member of the Pistiolis family and/or trusts or foundations of which any member of the Pistiolis family are
beneficiaries) of our issued and outstanding common shares, respectively, are fully repaid or reach their maturity date. The Series D Preferred Shares shall not be otherwise redeemable. Currently the SLB’s with AVIC, CMBFL, Huarong and Navigare
have similar provisions that are satisfied via the existence of the Series D Shares.
Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of our Company, the Series D
Preferred Shares shall have a liquidation preference of $0.01 per share.
The description of the Series D Convertible Preferred Shares is subject to and qualified in its entirety by reference to the Securities Purchase Agreement, Certificate of
Designation of the Series D Preferred Shares, and Certificate of Amendment to the Certificate of Designation. Copies of the Securities Purchase Agreement and Certificate of Designation of the Series D Preferred Shares have been filed as
exhibits to our Report on Form 6-K filed with the SEC on May 8, 2017. The Certificate of Amendment to the Certificate of Designation was filed as an exhibit to our Report on Form 6-K filed with the SEC on December 4, 2020.
Description of Series F Preferred Shares
On January 17, 2022, we entered into a stock purchase agreement with Africanus Inc., owned by 3 Sororibus Trust, an irrevocable trust established for the benefit of certain
family members of Mr. Pistiolis, for the sale of up to 7,560,759 Series F Non-Convertible Perpetual Preferred Shares, par value $0.01, in exchange for (i) the assumption by Africanus Inc. of an amount of $48.0 million of shipbuilding costs for
vessels M/T Eco Oceano CA (Hull No. 871), M/T Julius Caesar and M/T Legio X Equestris (Hull No. 3214), and (ii) settlement of our remaining payment obligations relating to the acquisition in September 8, 2021 of an additional 65% ownership
interest in the newbuilding contracts for its two VLCCs, in an amount of up to $27.6 million.
A total of 7,200,000 Series F Preferred Shares were issued. On July 8, 2022, we redeemed 865,558 of our Series F Preferred Shares for an aggregate amount of approximately $10.4 million, payable
in cash. On December 30, 2022, we redeemed 483,694 of our Series F Preferred Shares for an aggregate amount of approximately $5.8 million, payable in cash. On January 13, 2023, we redeemed 1,000,000 of our Series F Preferred Shares for an
aggregate amount of approximately $12.0 million, payable in cash. On March 6, 2023, we redeemed 1,016,667 of our Series F Preferred Shares for an aggregate amount of approximately $12.2 million, payable in cash. On April 19, 2023, we redeemed
174,454 of our Series F Preferred Shares for an aggregate amount of approximately $2.1 million, payable in cash. On February 6, 2024, we fully redeemed all of our outstanding 3,659,627 Series F Preferred Shares for an aggregate amount of
approximately $43.9 million, payable in cash. Following completion of the redemptions, we have no Series F Preferred Shares outstanding.
The Series F Preferred Shares had the following characteristics:
Voting. The holders of Series F Preferred Shares were entitled to the voting power of ten (10) of our common shares
per Series F Preferred Share. The holders of Series F Preferred Shares and the holders of common shares voted together as one class on all matters submitted to a vote of shareholders. Except as required by law, the holders of Series F Preferred
Shares had no special voting rights and their consent was not required for taking any corporate action.
Distributions. Upon any liquidation, dissolution or winding up of our Company, the holders of Series F Preferred
Shares were entitled to receive the net assets of the Company pari passu with the Common Shares.
Redemption. The Company at its option had the right to redeem a portion or all of the outstanding Series F Preferred
Shares. Upon an optional redemption, the Company was required to pay an amount equal to $10 per Series F Preferred Share redeemed (the “Liquidation Amount”), plus a redemption premium of 20% of the Liquidation Amount. The Series F Preferred
Shares included a mandatory redemption provision tied to minimum voting requirements for the Company’s major shareholders, including affiliates of the CEO, pursuant to which if such minimum voting rights fell below 50% the Company would be
obliged to redeem the full amount of the then outstanding Series F Preferred Shares at a redemption premium of 40%.
Dividends. The holders of outstanding Series F Preferred Shares were entitled to receive semi-annual dividends
payable in cash at a rate of 13.5% per year of the Liquidation Amount of the then outstanding Series F Preferred Shares. In addition, a one-time cash dividend equal to 4.0% of the Liquidation Amount was payable to the relevant holders 30 days
following the initial issuance of Series F Preferred Shares.
Ranking. All shares of Series F Preferred Shares ranked pari passu with the Company’s common shares.
Description of June 2022 Warrants and October 2022 Warrants
On June 3, 2022, we entered into a securities purchase agreement with a single unaffiliated institutional investor to purchase approximately $7.2 million of our common shares
(or pre-funded warrants in lieu thereof) in a registered direct offering and warrants to purchase common shares in a concurrent private placement (the “June 2022 Warrants”). On June 7, 2022, we issued 19,583 of our common shares and pre-funded
warrants to purchase 40,012 common shares in the registered direct offering, and 14,303,000 warrants (the “June 2022 Warrants”) to purchase 59,595 common shares in the concurrent private placement for a purchase price of $120.00 per common
share and June 2022 Warrants and $119.976 per pre-funded warrant and June 2022 Warrant.
On October 10, 2022, we entered into a warrant exercise inducement letter agreement (“Inducement Letter”) with an accredited investor that was an existing holder of the June
2022 Warrants, wherein the investor agreed to exercise all of the June 2022 Warrants at an exercise price reduced from $120.00 per share to $81.00 per share, in consideration for the issuance of new warrants (the “October 2022 Warrants”) to
purchase up to an aggregate of 89,393 common shares for a purchase price of $81.00 per common share. The net proceeds of the exercise of the June 2022 Warrants to the Company, after deducting estimated expenses and fees, were approximately $4.5
million.
The following description of the characteristics of the October 2022 Warrants is a summary and does not purport to be complete and is qualified by reference to the Form of
Common Stock Purchase Warrant attached as an exhibit to our Report on Form 6-K filed with the SEC on October 11, 2022.
Exercisability. The October 2022 Warrants are exercisable at any time after their original issuance and June 7, 2027.
The October 2022 Warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the common shares underlying
the October 2022 Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in
immediately available funds for the number of common shares purchased upon such exercise. If a registration statement registering the issuance of the common shares underlying the October 2022 Warrants under the Securities Act is not effective
or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in which case the
holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. No fractional common shares will be issued in connection with the exercise of a warrant. In lieu of fractional
shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any
portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of our common shares outstanding immediately after giving effect to the exercise, as such percentage ownership
is determined in accordance with the terms of the October 2022 Warrants.
Exercise Price. The exercise price per whole common share purchasable upon
exercise of the October 2022 Warrants is $81.00 per share. The exercise price is subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events
affecting our common shares and also upon any distributions of assets, including cash, stock or other property to our shareholders.
Transferability. Subject to compliance with any applicable securities laws
and the additional conditions set forth in the October 2022 Warrants certificate, the October 2022 Warrants and all rights hereunder are transferable, in whole or in part, upon surrender of the October 2022 Warrants at our principal office or
our designated agent, together with a written assignment of the October 2022 Warrants substantially in the form attached thereto duly executed by the holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer.
Fundamental Transactions. In the event of a fundamental transaction, as
described in the October 2022 Warrants and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our common shares, the sale, transfer or other disposition of all or substantially all of our
properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our
outstanding common shares, the holders of the October 2022 Warrants will be entitled to receive upon exercise of the October 2022 Warrants the kind and amount of securities, cash or other property that the holders would have received had they
exercised the October 2022 Warrants immediately prior to such fundamental transaction.
Rights as a Shareholder. Except as otherwise provided in the October 2022
Warrants or by virtue of such holder’s ownership of our common shares, the holder of the October 2022 Warrants does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the
warrant.
Governing Law. The October 2022 Warrants and the October 2022 Warrants Agreement are governed by New York law.
Description of Class C Warrants
On December 6, 2022, we closed a public offering of 562,500 units, each consisting of one of our common shares and Class C Warrants to purchase one common share, at a price of
$24.00 per unit. The gross proceeds of the offering to us, before discounts and commissions and estimated offering expenses, were approximately $13.5 million.
The following description of the characteristics of the Class C Warrants is a summary and does not purport to be complete and is qualified by reference to the Form of Class C
Common Stock Purchase Warrant and the Warrant Agency Agreement attached as exhibits to our Report on Form 6-K filed with the SEC on December 14, 2022.
Exercisability. The Class C Warrants are exercisable at any time after their original issuance and at any time up to
the date that is five years after their original issuance. The Class C Warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement
registering the issuance of the common shares underlying the Class C Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the
issuance of such shares, by payment in full in immediately available funds for the number of common shares purchased upon such exercise. If a registration statement registering the issuance of the common shares underlying the Class C Warrants
under the Securities Act is not effective or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a
cashless exercise, in which case the holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. No fractional common shares will be issued in connection with the
exercise of a warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any
portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our common shares outstanding immediately after giving effect to the exercise, as such percentage ownership
is determined in accordance with the terms of the Class C Warrants.
Exercise Price. The exercise price per whole common share purchasable upon
exercise of the Class C Warrants was $24.00 per share. The exercise price is subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events
affecting our common shares and also upon any distributions of assets, including cash, stock or other property to our shareholders. On February 14, 2023 we entered into a securities purchase agreement with several institutional investors as
part of a registered direct equity offering, under which we reduced the exercise price per common share under the outstanding Class C Warrants to $16.20 per common share with all other terms remaining unchanged.
Transferability. The Class C Warrants and all rights hereunder are
transferable, in whole or in part, upon surrender of the Class C Warrants at our principal office or our designated agent, together with a written assignment of the Class C Warrants substantially in the form attached thereto duly executed by
the holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.
Warrant Agent. The Class C Warrants are issued in registered form under the warrant agency agreement between American
Stock Transfer & Trust Company, as warrant agent, and us.
Fundamental Transactions. In the event of a fundamental transaction, as
described in the Class C Warrants and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our common shares, the sale, transfer or other disposition of all or substantially all of our
properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our
outstanding common shares, the holders of the Class C Warrants will be entitled to receive upon exercise of the Class C Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised
the Class C Warrants immediately prior to such fundamental transaction.
Rights as a Shareholder. Except as otherwise provided in the Class C
Warrants or by virtue of such holder’s ownership of our common shares, the holder of a Class C Warrant does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the warrant.
Governing Law. The Class C Warrants and the Class C Warrant Agreement are governed by New York law.
Description of February 2023 Warrants
On February 14, 2023, we entered into a securities purchase agreement with certain unaffiliated institutional investors to purchase up to 837,094 units, each unit consisting of
(i) one common share, par value $0.01 per share (each, a “Common Share”) of the Company and (ii) warrants to purchase one Common Share in a registered direct offering. On February 16, 2023, we issued 837,094 Common Shares and 10,045,185
warrants (the “February 2023 Warrants”) to purchase 837,094 common shares with an exercise price of $16.20 per common share.
The following description of the characteristics of the February 2023 Warrants is a summary and does not purport to be complete and is qualified by reference to the Form of
Common Stock Purchase Warrant attached as an exhibit to our Report on Form 6-K filed with the SEC on February 16, 2023.
Exercisability. The February 2023 Warrants are exercisable at any time after their original issuance and through
February 16, 2028. The February 2023 Warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the
common shares underlying the February 2023 Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by
payment in full in immediately available funds for the number of common shares purchased upon such exercise. If a registration statement registering the issuance of the common shares underlying the February 2023 Warrants under the Securities
Act is not effective or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise,
in which case the holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. No fractional common shares will be issued in connection with the exercise of a warrant. In
lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any
portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of our common shares outstanding immediately after giving effect to the exercise, as such percentage ownership
is determined in accordance with the terms of the February 2023 Warrants.
Exercise Price. The exercise price per whole common share purchasable upon
exercise of the February 2023 Warrants is $16.20 per share. The exercise price is subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar
events affecting our common shares and also upon any distributions of assets, including cash, stock or other property to our shareholders.
Transferability. Subject to compliance with any applicable securities laws
and the additional conditions set forth in the February 2023 Warrants certificate, the February 2023 Warrants and all rights hereunder are transferable, in whole or in part, upon surrender of the February 2023 Warrants at our principal office
or our designated agent, together with a written assignment of the February 2023 Warrants substantially in the form attached thereto duly executed by the holder or its agent or attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer.
Fundamental Transactions. In the event of a fundamental transaction, as
described in the February 2023 Warrants and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our common shares, the sale, transfer or other disposition of all or substantially all of our
properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our
outstanding common shares, the holders of the February 2023 Warrants will be entitled to receive upon exercise of the February 2023 Warrants the kind and amount of securities, cash or other property that the holders would have received had they
exercised the February 2023 Warrants immediately prior to such fundamental transaction.
Rights as a Shareholder. Except as otherwise provided in the February 2023
Warrants or by virtue of such holder’s ownership of our common shares, the holder of a February 2023 Warrants does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the
warrant.
Governing Law. The February 2023 Warrants and the February 2023 Warrants Agreement are governed by New York law.
Shareholder Meetings
Under our Amended and Restated By-Laws, annual shareholder meetings will be held at a time and place selected by our Board of Directors. The meetings may be held in or outside
of the Marshall Islands. Special meetings of the shareholders, unless otherwise prescribed by law, may be called for any purpose or purposes at any time exclusively by our Board of Directors. Notice of every annual and special meeting of
shareholders shall be given at least 15 but not more than 60 days before such meeting to each shareholder of record entitled to vote thereat.
Directors
Our directors are elected by a plurality of the votes cast at a meeting of the shareholders by the holders of shares entitled to vote in the election. Our Third Amended and
Restated Articles of Incorporation and Amended and Restated By-laws, as further amended, prohibit cumulative voting in the election of directors.
Our Board of Directors must consist of at least one member and not more than twelve, as fixed from time to time by the vote of not less than 66 2/3% of the entire board. Each
director shall be elected to serve until the third succeeding annual meeting of shareholders and until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination
of his term of office. Our Board of Directors has the authority to fix the amounts which shall be payable to the members of our Board of Directors, and to members of any committee, for attendance at any meeting or for services rendered to us.
Classified Board
Our Third Amended and Restated Articles of Incorporation provide for the division of our Board of Directors into three classes of directors, with each class as nearly equal in
number as possible, serving staggered, three-year terms. Approximately one-third of our Board of Directors will be elected each year. This classified board provision could discourage a third party from making a tender offer for our shares or
attempting to obtain control of our company. It could also delay shareholders who do not agree with the policies of our Board of Directors from removing a majority of our Board of Directors for two years.
Election and Removal
Our Third Amended and Restated Articles of Incorporation and Amended and Restated By-Laws require parties other than our Board of Directors to give advance written notice of
nominations for the election of directors. Our Third Amended and Restated Articles of Incorporation provide that our directors may be removed only for cause and only upon the affirmative vote of the holders of at least 80% of the outstanding
shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Dissenters’ Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions, including certain mergers or consolidations or sales of all or substantially all of our
assets not made in the usual course of our business, and receive payment of the fair value of their shares, subject to exceptions. For example, the right of a dissenting shareholder to receive payment of the fair value of his shares is not
available if for the shares of any class or series of shares, which shares at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting of shareholders to act upon the agreement of merger or
consolidation, were either (1) listed on a securities exchange or admitted for trading on an interdealer quotation system or (2) held of record by more than 2,000 holders. In the event of any further amendment of the articles, a shareholder
also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the
event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the High Court of the Republic of the Marshall Islands or in any appropriate
court in any jurisdiction in which our shares are primarily traded on a local or national securities exchange. The value of the shares of the dissenting shareholder is fixed by the court after reference, if the court so elects, to the
recommendations of a court-appointed appraiser.
Shareholders’ Derivative Actions
Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder
bringing the action is a holder of common shares both at the time the derivative action is commenced and at the time of the transaction to which the action relates. Our Bylaws provide that unless we consent in writing to the selection of
alternative forum, the sole and exclusive forum for (i) any shareholders’ derivative action or proceeding brought on behalf of us, including any such action arising under the Exchange Act or the Securities Act (ii) any action asserting a claim
of breach of a fiduciary duty owed by any director, officer or other of our employees or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the BCA, or (iv) any action asserting a claim governed by the
internal affairs doctrine shall be the High Court of the Republic of the Marshall Islands, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. However, the enforceability of
similar forum selection provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that in connection with any action a court could find the forum selection provision contained in our Bylaws
to be inapplicable or unenforceable in such action. In particular, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and
regulations thereunder. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and
regulations thereunder. Shareholders’ derivative actions, including those arising under the Exchange Act or Securities Act, are subject to our forum selection provision. To the extent that the exclusive forum provision would apply to restrict
the courts in which our shareholders may bring claims arising under the Exchange Act or the Securities Act and the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such a provision. Investors cannot
waive compliance with the federal securities laws and the rules and regulations promulgated thereunder. For more information regarding the risks connected to the forum selection provision in our Bylaws, see “Item 3. Key Information—D. Risk
Factors—Risks Related to our Common Shares— We may not achieve the intended benefits of having a forum selection provision if it is found to be unenforceable.”
Anti-takeover Provisions of our Charter Documents
Several provisions of our Third Amended and Restated Articles of Incorporation and Amended and Restated By-Laws may have anti-takeover effects. These provisions are intended to
avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these
anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a shareholder may consider in its best
interest and (2) the removal of incumbent officers and directors.
Business Combinations
Our Third Amended and Restated Articles of Incorporation include provisions which prohibit us from engaging in a business combination with an interested shareholder for a period
of three years after the date of the transaction in which the person became an interested shareholder, unless:
|
● |
prior to the date of the transaction that resulted in the shareholder becoming an interested shareholder, the Board approved either the business combination or the transaction that resulted in the shareholder
becoming an interested shareholder;
|
|
● |
upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced;
|
|
● |
at or subsequent to the date of the transaction that resulted in the shareholder becoming an interested shareholder, the business combination is approved by the Board and authorized at an annual or special
meeting of shareholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested shareholder; and
|
|
● |
the shareholder became an interested shareholder prior to the consummation of the initial public offering.
|
Limited Actions by Shareholders
Our Third Amended and Restated Articles of Incorporation and our Amended and Restated By-Laws provide that any action required or permitted to be taken by our shareholders must
be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders.
Our Third Amended and Restated Articles of Incorporation and our Amended and Restated By-Laws provide that only our Board of Directors may call special meetings of our
shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a shareholder may be prevented from calling a special meeting for shareholder consideration of a proposal over the
opposition of our Board of Directors and shareholder consideration of a proposal may be delayed until the next annual meeting.
Blank Check Preferred Stock
Under the terms of our Third Amended and Restated Articles of Incorporation, our Board of Directors has authority, without any further vote or action by our shareholders, to
issue up to 20,000,000 shares of blank check preferred stock. Our Board of Directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our company or the removal of our management.
Super-majority Required for Certain Amendments to Our By-Laws
On February 28, 2007, we amended our by-laws to require that amendments to certain provisions of our by-laws may be made when approved by a vote of not less than 66 2/3% of the
entire Board of Directors. These provisions that require not less than 66 2/3% vote of our Board of Directors to be amended are provisions governing: the nature of business to be transacted at our annual meetings of shareholders, the calling of
special meetings by our Board of Directors, any amendment to change the number of directors constituting our Board of Directors, the method by which our Board of Directors is elected, the nomination procedures of our Board of Directors, removal
of our Board of Directors and the filling of vacancies on our Board of Directors.
Stockholders Rights Agreement
On September 14, 2016, our Board of Directors declared a dividend of one preferred share purchase right, or a Right, for each outstanding common share and adopted a shareholder
rights plan, as set forth in the Stockholders Rights Agreement dated as of September 22, 2016, or the Rights Agreement, by and between us and Computershare Trust Company, N.A. (now taken over by our new transfer agent, AST), as rights agent.
The Board adopted the Rights Agreement to protect shareholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty
upon any person or group that acquires 15% or more of our outstanding common shares without the approval of our Board of Directors. If a shareholder’s beneficial ownership of our common shares as of the time of the public announcement of the
rights plan and associated dividend declaration is at or above the applicable threshold, that shareholder’s then-existing ownership percentage would be grandfathered, but the rights would become exercisable if at any time after such
announcement, the shareholder increases its ownership percentage by 1% or more.
The Rights may have anti-takeover effects. The Rights will cause substantial dilution to any person or group that attempts to acquire us without the approval of our Board of
Directors. As a result, the overall effect of the Rights may be to render more difficult or discourage any attempt to acquire us. Because our Board of Directors can approve a redemption of the Rights for a permitted offer, the Rights should not
interfere with a merger or other business combination approved by our Board.
For those interested in the specific terms of the Rights Agreement, we provide the following summary description. Please note, however, that this description is only a summary,
and is not complete, and should be read together with the entire Rights Agreement, which is an exhibit to the Form 8-A filed by us on September 22, 2016 and incorporated herein by reference. The foregoing description of the Rights Agreement is
qualified in its entirety by reference to such exhibit.
The Rights. The Rights trade with, and are inseparable from, our common shares. The Rights are evidenced only by certificates that
represent our common shares. New Rights will accompany any new of our common shares issued after October 5, 2016 until the Distribution Date described below.
Exercise Price. Each Right allows its holder to purchase from us one one-thousandth of a share of Series A Participating Preferred
Stock, or a Series A Preferred Share, for $50.00, or the Exercise Price, once the Rights become exercisable. This portion of a Series A Preferred Share will give the shareholder approximately the same dividend, voting and liquidation rights as
would one common share. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.
Exercisability. The Rights are not exercisable until ten days after the public announcement that a person or group has become an
“Acquiring Person” by obtaining beneficial ownership of 15% or more of our outstanding common shares.
Certain synthetic interests in securities created by derivative positions—whether or not such interests are considered to be ownership of the underlying common shares or are
reportable for purposes of Regulation 13D of the Exchange Act—are treated as beneficial ownership of the number of our common shares equivalent to the economic exposure created by the derivative position, to the extent our actual common shares
are directly or indirectly held by counterparties to the derivatives contracts. Swaps dealers unassociated with any control intent or intent to evade the purposes of the Rights Agreement are excepted from such imputed beneficial ownership.
For persons who, prior to the time of public announcement of the Rights Agreement, beneficially own 15% or more of our outstanding common shares, the Rights Agreement
“grandfathers” their current level of ownership, so long as they do not purchase additional shares in excess of certain limitations.
The date when the Rights become exercisable is the “Distribution Date.” Until that date, our common share certificates (or, in the case of uncertificated shares, by notations in
the book-entry account system) will also evidence the Rights, and any transfer of our common shares will constitute a transfer of Rights. After that date, the Rights will separate from our common shares and will be evidenced by book-entry
credits or by Rights certificates that we will mail to all eligible holders of our common shares. Any Rights held by an Acquiring Person are null and void and may not be exercised.
Series A Preferred Share Provisions
Each one one-thousandth of a Series A Preferred Share, if issued, will, among other things:
|
● |
entitle holders to quarterly dividend payments in an amount per share equal to the aggregate per share amount of all cash dividends, and the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in our common shares or a subdivision of our outstanding common shares (by reclassification or otherwise), declared on our common shares since the immediately preceding
quarterly dividend payment date; and
|
|
● |
entitle holders to one vote on all matters submitted to a vote of our shareholders.
|
The value of one one-thousandth interest in a Series A Preferred Share should approximate the value of one common share.
Consequences of a Person or Group Becoming an Acquiring Person.
|
● |
Flip In. If an Acquiring Person obtains beneficial ownership of 15% or more of our common shares, then each Right will entitle the holder thereof to purchase, for the
Exercise Price, a number of our common shares (or, in certain circumstances, cash, property or other of our securities) having a then-current market value of twice the Exercise Price. However, the Rights are not exercisable following
the occurrence of the foregoing event until such time as the Rights are no longer redeemable by us, as further described below.
|
Following the occurrence of an event set forth in preceding paragraph, all Rights that are or, under certain circumstances specified in the Rights Agreement, were beneficially
owned by an Acquiring Person or certain of its transferees will be null and void.
|
● |
Flip Over. If, after an Acquiring Person obtains 15% or more of our common shares, (i) we merge into another entity; (ii) an acquiring entity merges into us; or (iii)
we sell or transfer 50% or more of its assets, cash flow or earning power, then each Right (except for Rights that have previously been voided as set forth above) will entitle the holder thereof to purchase, for the Exercise Price, a
number of our common shares of the person engaging in the transaction having a then-current market value of twice the Exercise Price.
|
|
● |
Notional Shares. Shares held by affiliates and associates of an Acquiring Person, including certain entities in which the Acquiring Person beneficially owns a majority
of the equity securities, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights Agreement) with an Acquiring Person, will be deemed to be beneficially
owned by the Acquiring Person.
|
Redemption. Our Board of Directors may redeem the Rights for $0.01 per Right at any time before any person or group becomes an Acquiring
Person. If our Board of Directors redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of the Rights will be to receive the redemption price of $0.01 per Right. The redemption price
will be adjusted if we have a stock dividend or a stock split.
Exchange. After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of our outstanding common
shares, the Board may extinguish the Rights by exchanging one common share or an equivalent security for each Right, other than Rights held by the Acquiring Person. In certain circumstances, we may elect to exchange the Rights for cash or other
of our securities having a value approximately equal to one common share.
Expiration. The Rights expire on the earliest of (i) September 22, 2026; or (ii) the redemption or exchange of the Rights as described
above.
Anti-Dilution Provisions. The Board may adjust the purchase price of the Series A Preferred Shares, the number of Series A Preferred
Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, or a reclassification of the Series A Preferred Shares or our common shares. No adjustments to the Exercise Price of
less than 1% will be made.
Amendments. The terms of the Rights and the Rights Agreement may be amended in any respect without the consent of the holders of the
Rights on or prior to the Distribution Date. Thereafter, the terms of the Rights and the Rights Agreement may be amended without the consent of the holders of Rights, with certain exceptions, in order to (i) cure any ambiguities; (ii) correct
or supplement any provision contained in the Rights Agreement that may be defective or inconsistent with any other provision therein; (iii) shorten or lengthen any time period pursuant to the Rights Agreement; or (iv) make changes that do not
adversely affect the interests of holders of the Rights (other than an Acquiring Person or an affiliate or associate of an Acquiring Person).
Taxes. The distribution of Rights should not be taxable for federal income tax purposes. However, following an event that renders the
Rights exercisable or upon redemption of the Rights, shareholders may recognize taxable income.
We refer you to “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Facilities,” “Item 5. Operating and Financial Review and
Prospects—B. Liquidity and Capital Resources—Financing Commitments under Sale and Leaseback Arrangements,” “Item 6. Directors, Senior Management and Employees—B. Compensation”, “Item 7. Major Shareholders and Related Party Transactions—B.
Related Party Transactions”, “Item 18. Financial Statements—Note 5—Transactions with related parties”, “Item 18. Financial Statements—Note 6—Leases” and “Item 18. Financial Statements—Note 7—Debt” for a discussion of our material agreements
that we have entered into outside the ordinary course of our business.
Certain of these material agreements that are to be performed in whole or in part at or after the date of this annual report are attached as exhibits to this annual report.
Other than these contracts, we have no other material contracts, other than contracts entered into in the ordinary course of business, to which we are a party.
The Marshall Islands impose no exchange controls on non-resident corporations.
The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations relevant to a U.S. Holder and a Non-U.S. Holder, each as defined below,
with respect to the ownership and disposition of our common shares. The discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative
pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. This discussion does not purport to deal
with the tax consequences of owning common shares to all categories of investors, some of which, such as financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, insurance companies,
persons holding our common shares as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities that have elected the mark-to-market method of accounting for their securities, persons liable
for the alternative minimum tax or the “base erosion and anti-avoidance” tax, dealers in securities or currencies, U.S. Holders, as defined below, whose functional currency is not the U.S. dollar, persons required to recognize income for U.S.
federal income tax purposes no later than when such income is included on an “applicable financial statement” and investors that own, actually or under applicable constructive ownership rules, 10% or more of the vote or value of our outstanding
shares, may be subject to special rules. This discussion deals only with holders who own hold the common shares as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own
particular situation under U.S. federal, state, local or non-U.S. law of the ownership of common shares.
Marshall Islands Tax Consequences
We are incorporated in the Republic of the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands
withholding tax will be imposed upon payments of dividends by us to our shareholders.
U.S. Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation is subject to U.S. federal income taxation in respect of any income that
is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating agreement or other joint venture
it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as “shipping income,” to the extent that the shipping income is derived from
sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the
United States, which we refer to as “U.S.-source shipping income.”
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are not
permitted by law to engage in transportation that produces income which is considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping income
derived from sources outside the United States will not be subject to any U.S. federal income tax.
In the absence of exemption from tax under Section 883 of the Code, our gross U.S.-source shipping income generally would be subject to a 4% tax imposed without allowance for
deductions as described below.
Exemption of Operating Income from U.S. Federal Income Taxation
Under Section 883 of the Code and the regulations thereunder, we will be exempt from U.S. federal income tax on our U.S.-source shipping income if:
|
(1) |
we are organized in a foreign country, or our country of organization, that grants an “equivalent exemption” to corporations organized in the United States; and
|
|
A. |
more than 50% of the value of our stock is owned, directly or indirectly, by individuals who are “residents” of our country of organization or of another foreign country that grants an “equivalent exemption”
to corporations organized in the United States (each such individual a “qualified shareholder” and such individuals collectively, “qualified shareholders”), which we refer to as the “50% Ownership Test,” or
|
|
B. |
our stock is “primarily and regularly traded on an established securities market” in our country of organization, in another country that grants an “equivalent exemption” to U.S. corporations, or in the United
States, which we refer to as the “Publicly Traded Test.”
|
The Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are incorporated, grants an “equivalent exemption” to U.S. corporations. Therefore, we will be
exempt from U.S. federal income tax with respect to our U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.
In order to satisfy the 50% Ownership Test, a non-U.S. corporation must be able to substantiate that more than 50% of the value of its shares is owned, for at least half of the
number of days in the non-U.S. corporation’s taxable year, directly or indirectly, by “qualified shareholders.” For this purpose, qualified shareholders are: (1) individuals who are residents (as defined in the Treasury Regulations) of
countries, other than the United States, that grant an equivalent exemption, (2) non-U.S. corporations that meet the Publicly-Traded Test and are organized in countries that grant an equivalent exemption, or (3) certain foreign governments,
non-profit organizations, and certain beneficiaries of foreign pension funds. In order for a shareholder to be a qualified shareholder, there generally cannot be any bearer shares in the chain of ownership between the shareholder and the
taxpayer claiming the exemption (unless such bearer shares are maintained in a dematerialized or immobilized book-entry system as permitted under the Treasury Regulations). A corporation claiming the Section 883 exemption based on the 50%
Ownership Test must obtain all the facts necessary to satisfy the IRS that the 50% Ownership Test has been satisfied (as detailed in the Treasury Regulations). We believe that we satisfied the 50% Ownership Test for the taxable year 2023 and
intend to take this position on our U.S. federal income tax return for the 2023 year. This is a factual determination made on an annual basis, and no assurance can be given that we will satisfy the 50% Ownership Test in future taxable years.
In order to satisfy the Publicly-Traded Test, Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be “primarily traded” on
an established securities market if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during
that year on established securities markets in any other single country. Our common shares, which are our sole class of issued and outstanding stock that is traded, is and we anticipate will continue to be “primarily traded” on the Nasdaq
Capital Market. The Treasury Regulations also require that our stock be “regularly traded” on an established securities market. Under the Treasury Regulations, our stock will be considered to be “regularly traded” if one or more classes of our
stock representing more than 50% of our outstanding shares, by total combined voting power of all classes of stock entitled to vote and by total combined value of all classes of stock, are listed on one or more established securities markets,
which we refer to as the “listing threshold.” Our common stock, which is listed on the Nasdaq Capital Market and is our only class of publicly-traded stock, did not constitute more than 50% of our outstanding shares by vote for the 2023 taxable
year, and accordingly, we did not satisfy the listing threshold for the 2023 taxable year.
Taxation in the Absence of Exemption under Section 883 of the Code
To the extent the benefits of Section 883 of the Code are unavailable, our U.S.-source shipping income, to the extent not considered to be “effectively connected” with the
conduct of a U.S. trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the “4% gross basis tax regime.” Since under the
sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4% gross
basis tax regime.
To the extent the benefits of the exemption under Section 883 of the Code are unavailable and our U.S.-source shipping income is considered to be “effectively connected” with
the conduct of a U.S. trade or business, as described below, any such “effectively connected” U.S.-source shipping income, net of applicable deductions, would be subject to the U.S. federal corporate income tax imposed at a current rate of 21%.
In addition, we may be subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of such U.S. trade or business, as determined after allowance for certain adjustments.
Our U.S.-source shipping income would be considered “effectively connected” with the conduct of a U.S. trade or business only if:
|
● |
We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and
|
|
● |
substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular
intervals between the same points for voyages that begin or end in the United States, or is leasing income that is attributable to such fixed place of business in the United States.
|
We do not currently have, nor intend to have or permit circumstances that would result in having, any vessel operating to the United States on a regularly scheduled basis. Based
on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S.-source shipping income will be “effectively connected” with the conduct of a U.S. trade or business.
U.S. Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal income taxation with respect to gain realized on a sale of a
vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the
vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States or will otherwise not be subject to
U.S. federal income taxation.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term “U.S. Holder” means a beneficial owner of our common shares that:
|
● |
is a U.S. citizen or resident, U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust (i)
if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has in
effect a valid election to be treated as a United States person for U.S. federal income tax purposes;
|
|
● |
owns the common shares as a capital asset, generally, for investment purposes; and
|
|
● |
owns less than 10% of our common shares for U.S. federal income tax purposes.
|
If a partnership holds our common shares, the tax treatment of a partner of such partnership will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a
partnership holding our common shares, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies, or PFIC, below, any distributions made by us with respect to our common shares to a U.S. Holder will generally
constitute dividends to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of such earnings and profits will be treated first as a nontaxable return of
capital to the extent of the U.S. Holder’s tax basis in his common shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a U.S. corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends-received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common shares will generally be treated as “passive category income” for purposes of computing allowable foreign tax credits
for U.S. foreign tax credit purposes.
Dividends paid on our common shares to a U.S. Holder who is an individual, trust or estate (a “U.S. Non-Corporate Holder”) will generally be treated as “qualified dividend
income” that is taxable to such U.S. Non-Corporate Holder at preferential tax rates provided that (1) the common shares are readily tradable on an established securities market in the United States (such as the Nasdaq Capital Market on which
our common shares are traded); (2) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (as discussed in more detail below); (3) the U.S. Non-Corporate Holder has owned the common
shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend; and (4) the U.S. Non-Corporate Holder is not under an obligation to make related payments with respect to
positions in substantially similar or related property.
We believe that we were not a PFIC for our 2014 through 2023 taxable years, and we do not expect to be a PFIC for subsequent taxable years. If we were treated as a PFIC for our
2023 or 2024 taxable year, any dividends paid by us during 2024 will not be treated as “qualified dividend income” in the hands of a U.S. Non-Corporate Holder. Any dividends we pay which are not eligible for the preferential rates applicable to
“qualified dividend income” will be taxed as ordinary income to a U.S. Non-Corporate Holder.
Special rules may apply to any “extraordinary dividend,” generally, a dividend paid by us in an amount which is equal to or in excess of 10% of a shareholder’s adjusted tax
basis in (or, in certain circumstances, fair market value of) a common share or dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder’s adjusted tax basis (or fair market value upon the
shareholder’s election) in a common share. If we pay an “extraordinary dividend” on our common shares that is treated as “qualified dividend income,” then any loss derived by a U.S. Non-Corporate Holder from the sale or exchange of such common
shares will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common shares
Subject to the discussion of our status as a PFIC below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common
shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such stock. Such gain or loss will be treated as long-term capital gain
or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax
credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
3.8% Tax on Net Investment Income
A U.S. Holder that is an individual, estate, or, in certain cases, a trust, will generally be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s net investment income
for the taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000). A U.S. Holder’s net investment income
will generally include distributions made by us which constitute a dividend for U.S. federal income tax purposes and gain realized from the sale, exchange or other disposition of our common shares. This tax is in addition to any income taxes
due on such investment income.
If you are a U.S. Holder that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of the 3.8% tax on net investment
income to the ownership and disposition of our common shares.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for U.S. federal income tax purposes. In general, we
will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held our common shares, either
|
● |
at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or
|
|
● |
at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income.
|
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our
subsidiary corporations in which we own at least 25% of the value of the subsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute “passive income” for these purposes. By
contrast, rental income would generally constitute “passive income” unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
In general, income derived from the bareboat charter of a vessel will be treated as “passive income” for purposes of determining whether we are a PFIC and such vessel will be
treated as an asset which produces or is held for the production of “passive income.” On the other hand, income derived from the time charter of a vessel should not be treated as “passive income” for such purpose, but rather should be treated
as services income; likewise, a time chartered vessel should generally not be treated as an asset which produces or is held for the production of “passive income.”
We believe that we were not a PFIC for our 2014 through 2023 taxable years because we had no bareboat chartered-out vessels and consequently no gross income from vessels on
bareboat charter. Furthermore, based on our current assets and activities, we do not believe that we will be a PFIC for the subsequent taxable years. Although there is no legal authority directly on point, and we are not relying upon an opinion
of counsel on this issue, our belief is based principally on the position that, for purposes of determining whether we are a passive foreign investment company, the gross income we derive or are deemed to derive from the time chartering and
voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly-owned
subsidiaries own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we were a passive foreign investment company. We believe there
is substantial legal authority supporting our position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However,
there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. In the absence of any legal authority specifically relating to the statutory provisions governing passive
foreign investment companies, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a passive foreign investment company with respect to any taxable
year, we cannot assure you that the nature of our operations will not change in the future.
If we are a PFIC for any taxable year, a U.S. Holder will be treated as owning his proportionate share of the stock of any of our subsidiaries which is a PFIC. The PFIC rules
discussed below will apply on a company-by-company basis with respect to us and each of our subsidiaries which is treated as a PFIC.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different U.S. federal income taxation rules depending
on whether the U.S. Holder makes an election to treat us as a “Qualified Electing Fund,” which election is referred to as a “QEF Election.” As discussed below, as an alternative to making a QEF Election, a U.S. Holder should be able to make a
“mark-to-market” election with respect to our common shares, which election is referred to as a “Mark-to-Market Election”. A U.S. Holder holding PFIC shares that does not make either a “QEF Election” or “Mark-to-Market Election” will be subject
to the Default PFIC Regime, as defined and discussed below in “Taxation—U.S. Federal Income Taxation of U.S. Holders—Taxation of U.S. Holders Not Making a Timely QEF or “Mark-to-Market” Election.”
If we were to be treated as a PFIC, a U.S. Holder would be required to file IRS Form 8621 to report certain information regarding us.
A U.S. Holder who held our common shares during any period in which we were treated as a PFIC and who neither made a QEF Election nor a
Mark-to-Market Election may continue to be subject to the Default PFIC Regime, notwithstanding that we are no longer a PFIC. If you are a U.S. Holder who held our common shares during any period in which we were a PFIC but failed to make either
of the foregoing elections, you are strongly encouraged to consult your tax advisor regarding the U.S. federal income tax consequences to you of holding our common shares in periods in which we are no longer a PFIC.
The QEF Election
If a U.S. Holder makes a timely QEF Election, which U.S. Holder we refer to as an “Electing Holder,” the Electing Holder must report each year for United States federal income
tax purposes such holder’s pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were made by
us to the Electing Holder. The Electing Holder’s adjusted tax basis in the common shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result
in a corresponding reduction in the adjusted tax basis in the common shares and will not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common
shares. A U.S. Holder would make a QEF Election with respect to any year that our company is a PFIC by filing one copy of IRS Form 8621 with his United States federal income tax return and a second copy in accordance with the instructions to
such form. It should be noted that if any of our subsidiaries is treated as a corporation for U.S. federal income tax purposes, a U.S. Holder must make a separate QEF Election with respect to each such subsidiary.
Taxation of U.S. Holders Making a “Mark-to-Market” Election
Making the Election. Alternatively, if, as is anticipated, our common shares are treated as “marketable stock,” a U.S. Holder would be allowed to make a Mark-to-Market
Election with respect to the common shares, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. The common shares will be treated as “marketable stock” for
this purpose if they are “regularly traded” on a “qualified exchange or other market.” The common shares will be “regularly traded” on a qualified exchange or other market for any calendar year during which they are traded (other than in de
minimis quantities) on at least 15 days during each calendar quarter. The Nasdaq Capital Market should be treated as a “qualified exchange or other market” for this purpose. However, it should be noted that a separate Mark-to-Market Election
would need to be made with respect to each of our subsidiaries which is treated as a PFIC. The stock of these subsidiaries is not expected to be “marketable stock.” Therefore, a “mark-to-market” election is not expected to be available with
respect to these subsidiaries.
Current Taxation and Dividends. If the Mark-to-Market Election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if
any, of the fair market value of the common shares at the end of the taxable year over such U.S. Holder’s adjusted tax basis in the common shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the
U.S. Holder’s adjusted tax basis in its common shares over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the Mark-to-Market Election. Any income
inclusion or loss under the preceding rules should be treated as gain or loss from the sale of common shares for purposes of determining the source of the income or loss. Accordingly, any such gain or loss generally should be treated as
U.S.-source income or loss for U.S. foreign tax credit limitation purposes. A U.S. Holder’s tax basis in his common shares would be adjusted to reflect any such income or loss amount. Distributions by us to a U.S. Holder who has made a
Mark-to-Market Election generally will be treated as discussed above under “Taxation—U.S. Federal Income Taxation of U.S. Holders—Distributions.”
Sale, Exchange or Other Disposition. Gain realized on the sale, exchange, redemption or other disposition of the common shares would be treated as ordinary income, and
any loss realized on the sale, exchange, redemption or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S.
Holder. Any loss in excess of such previous inclusions would be treated as a capital loss by the U.S. Holder. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations. Any such gain or loss generally should be treated
as U.S.-source income or loss for U.S. foreign tax credit limitation purposes.
Taxation of U.S. Holders Not Making a Timely QEF or “Mark-to-Market” Election
Finally, a U.S. Holder who does not make either a QEF Election or a Mark-to-Market Election with respect to any taxable year in which we are treated as a PFIC, or a U.S. Holder
whose QEF Election is invalidated or terminated, or a Non-Electing Holder, would be subject to special rules, or the Default PFIC Regime, with respect to (1) any excess distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period
for the common shares), and (2) any gain realized on the sale, exchange, redemption or other disposition of the common shares.
Under the Default PFIC Regime:
|
● |
the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common shares;
|
|
● |
the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and
|
|
● |
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed
tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
|
Any distributions other than “excess distributions” by us to a Non-Electing Holder will be treated as discussed above under “Taxation—U.S. Federal Income Taxation of U.S.
Holders—Distributions.”
These penalties would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with
its acquisition of the common shares. If a Non-Electing Holder who is an individual dies while owning the common shares, such Non-Electing Holder’s successor generally would not receive a step-up in tax basis with respect to the common shares.
U.S. Federal Income Taxation of “Non-U.S. Holders”
A beneficial owner of our common shares (other than a partnership) that is not a U.S. Holder is referred to herein as a “Non-U.S. Holder.”
Dividends on Common shares
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on dividends received from us with respect to our common shares, unless that income
is effectively connected with a trade or business conducted by the Non-U.S. Holder in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to those dividends, that income is taxable only
if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common shares
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common
shares, unless:
|
● |
the gain is effectively connected with a trade or business conducted by the Non-U.S. Holder in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to
that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or
|
|
● |
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
|
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common shares, including dividends and the gain from the
sale, exchange or other disposition of the stock that is effectively connected with the conduct of that trade or business will generally be subject to U.S. federal income tax in the same manner as discussed in the previous section relating to
the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, the earnings and profits of such Non-U.S. Holder that are attributable to effectively connected income, subject to certain adjustments, may be subject to an
additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. In addition, such
payments will be subject to backup withholding tax if you are a non-corporate U.S. Holder and you:
|
● |
fail to provide an accurate taxpayer identification number;
|
|
● |
are notified by the IRS that you have failed to report all interest or dividends required to be shown on your U.S. federal income tax returns; or
|
|
● |
in certain circumstances, fail to comply with applicable certification requirements.
|
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an applicable IRS Form W-8.
If you sell your common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless
you certify that you are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the
United States, then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that
payment is made to you outside the United States, if you sell your common shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Backup withholding tax is not an additional tax.
Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that exceed your U.S. federal income tax liability by filing a refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in applicable Treasury Regulations, certain individuals who are Non-U.S. Holders and certain U.S. entities) who
hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000
at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our common
shares, unless the shares are held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due
to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury regulations, an individual Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such
form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders
(including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under this legislation.
| F. |
Dividends and Paying Agents
|
Not applicable.
Not applicable.
We file annual reports and other information with the SEC. Our SEC filings are available to the public at the website maintained by the SEC at http://www.sec.gov, as
well as on our website at http://www.topships.org. The information contained on, or that can be accessed through, these websites is not incorporated by reference herein and does not form part of this annual report.
| I. |
Subsidiary Information
|
Not applicable.
| J. |
Annual Report to Security Holders
|
We are currently not required to provide an annual report to security holders in response to the requirements of Form 6-K.
| ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our Risk Management Policy
Market risks relating to adverse movements in freight rates in the product tanker and crude oil tanker markets are minimized due to the fact that all the vessels in our fleet
are under period employment earning fixed time charter rates. Our policy is to continuously monitor our exposure to other business risks, including the impact of changes in interest rates, currency rates, and bunker prices on earnings and cash
flows. We assess these risks and, when appropriate, enter into derivative contracts with credit-worthy counterparties to minimize our exposure to the risks. With regard to bunker prices, as our employment policy for our vessels has been and is
expected to continue to be with a high percentage of our fleet on period employment, we are not directly exposed with respect to those vessels to increases in bunker fuel prices, as these are the responsibility of the charterer under period
charter arrangements.
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our floating-rate borrowings that require us to make interest payments based on LIBOR (as,
although we amended our financing arrangements to transition from LIBOR to SOFR, such arrangements previously used LIBOR, including during the fiscal years ended December 31, 2022 and 2023) (See “Item 18. Financial Statements—Note 7—Debt”).
Furthermore we may be subject to additional market risks relating to changes in interest rates when we take on additional indebtedness. Significant increases in interest rates could adversely affect operating margins, results of operations
and ability to service debt. As of December 31, 2023, our total indebtedness excluding unamortized financing fees and debt discounts was $246.2 million, of which $23.1
million refer to the Cargill SLB, the interest rate of which does not fluctuate.
Based on the amount of our outstanding fluctuating interest rate indebtedness, as of December 31, 2023, a hypothetical one percentage point increase in the U.S.
dollar LIBOR would increase our interest rate expense for 2024, on an annualized basis, by approximately $2.2 million.
Based on the amount of our outstanding fluctuating interest rate indebtedness, as of December 31, 2022, a hypothetical one percentage point increase in the U.S. dollar LIBOR
would increase our interest rate expense for 2023, on an annualized basis, by approximately $2.2 million.
Foreign Exchange Rate Fluctuation
We generate all of our revenues in U.S. dollars but incur certain expenses in currencies other than U.S. dollars, mainly the Euro. During 2023, approximately 97.2%
of our expenses were in U.S. Dollars, 2.3% were in Euro and approximately 0.5% were in other currencies than the U.S. dollar or Euro. For accounting purposes,
expenses incurred in other currencies are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. We have not hedged currency exchange risks associated with our expenses and our operating results could be
adversely affected as a result. We constantly monitor the U.S. dollar exchange rate and we try to achieve the most favorable exchange rates from the financial institutions we work with.
Based on our total expenses for the year ended December 31, 2023 and using as an average exchange rate of $1.0824 to €1, a 5%
decrease in the exchange rate to $1.0283 to €1 would result in an expense saving of approximately $0.1 million. Since we have no revenues in Euros an inverse 5% change
in the exchange rate would lead to an equivalent additional expense of the same amount.
Based on our total expenses for the year ended December 31, 2022 and using as an average exchange rate of $1.0522 to €1, a 5% decrease in the exchange rate to $0.9996 to €1
would result in an expense saving of approximately $0.07 million. Since we have no revenues in Euros an inverse 5% change in the exchange rate would lead to an equivalent additional expense of the same amount.
| ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not Applicable.
| ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
Neither we nor any of our subsidiaries have been subject to a material default in the payment of principal, interest, a sinking fund or purchase fund installment or any other
material default that was not cured within 30 days.
As of December 31, 2023, we had no accrued or unpaid dividends under our Series F Preferred Shares (none of which are outstanding as of the date of this annual report).
| ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
On September 14, 2016, we adopted a Stockholders Rights Agreement, pursuant to which each of our common shares includes one preferred stock purchase right that entitles the
holder to purchase from us a unit consisting of one-thousandth of a share of our Series A Participating Preferred Stock if any third-party seeks to acquire control of a substantial block of our common shares without the approval of our Board of
Directors. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights Agreement” included in this annual report for a description of our Stockholders Rights Agreement.
Please also see “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of holders of our October 2022 Warrants, Class C
Warrants, February 2023 Warrants and Series D Preferred Shares relative to the rights of holders of our common shares.
| ITEM 15. |
CONTROLS AND PROCEDURES
|
| a) |
Disclosure Controls and Procedures
|
Management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act, as of December 31, 2023.
The term disclosure controls and procedures are defined under SEC rules as controls and other procedures of an issuer that are designed to ensure that information required to be
disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including
its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Our management, including the chief executive and chief financial officer, recognize that any controls and procedures, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, in the design and evaluation of our disclosure controls and procedures our management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on this evaluation, the chief executive officer and chief financial officer concluded that, as of December 31, 2023, our disclosure controls and procedures, which include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure, were effective in providing reasonable assurance that information that was required to be disclosed by us in reports we file or submit
under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
| b) |
Management’s Annual Report on Internal Control over Financial Reporting
|
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) promulgated under
the Exchange Act.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our
principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
● |
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
|
|
● |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of Company’s management and directors; and
|
|
● |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. The design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management with the participation of our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as
of December 31, 2023, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of its assessment, the Chief Executive Officer
and Chief Financial Officer concluded that our internal controls over financial reporting are effective as of December 31, 2023.
| c) |
Attestation Report of the Registered Public Accounting Firm
|
This annual report does not contain an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was
not subject to attestation by our registered public accounting firm since under the SEC adopting release implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, companies that are non-accelerated filers are exempt
from including auditor attestation reports in their Form 20-Fs.
| d) |
Changes in Internal Control over Financial Reporting
|
There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected or are
reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT
|
We have established an audit committee composed of three independent members that are responsible for reviewing our accounting controls and recommending to our Board of
Directors the engagement of our outside auditors.
We do not believe it is necessary to have a financial expert, as defined in Item 407 of Regulation S-K, because our Board of Directors has determined that the members of the
audit committee have the financial experience and other relevant experience necessary to effectively perform the duties and responsibilities of the audit committee.
Our Board of Directors has adopted a Corporate Code of Business Ethics and Conduct that applies to all employees, directors and officers, which complies with applicable
guidelines issued by the SEC. The finalized Code of Ethics has been approved by our Board of Directors and was distributed to all employees, directors and officers. This document is available under the “Corporate Governance” tab in the
“Investors Relations” section of our website at www.topships.org. Information on or accessed through our website does not constitute a part of this annual report and is not incorporated by reference herein. We will also provide any person a
hard copy of our code of ethics free of charge upon written request. Shareholders may direct their requests to the attention of Mr. Alexandros Tsirikos at our registered address and phone number.
| ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Aggregate fees billed to us for the years ended December 2022 and 2023 represent fees billed by our principal accounting firm, Deloitte Certified Public Accountants S.A., an
independent registered public accounting firm and member of Deloitte Touche Tohmatsu, Limited. Audit fees represent compensation for professional services rendered for the audit of the consolidated financial statements, fees for the review of
interim financial information as well as in connection with the review of registration statements and related consents and comfort letters and any other audit services required for SEC or other regulatory filings. In addition, it includes fees
billed for professional services rendered for the audit and reviews of Rubico Inc. Predecessor financial statements, as well as in connection with (i) the issuance of related consents and (ii) the review of Rubico Inc.’s registration statement.
For 2022 and 2023, no other non-audit, tax or other fees were charged.
|
U.S. dollars in thousands,
|
|
Year Ended
|
|
| |
|
2022
|
|
|
2023
|
|
|
Audit Fees
|
|
|
379.5
|
|
|
|
410.3
|
|
Audit Committee’s Pre-Approval Policies and Procedures
Our audit committee charter contains pre-approval policies and procedures in compliance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X that require our audit committee to review and pre-approve all auditing
services and permitted non-auditing services rendered to the Company by its outside auditors (subject to the exception provided in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X for certain de minimis non-audit services not recognized by
the Company at the time of the engagement), in each case including fees. Our audit committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees
prior to the engagement of the independent auditor with respect to such services.
| ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
| ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
None.
| ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
Not applicable.
| ITEM 16G. |
CORPORATE GOVERNANCE
|
We have certified to Nasdaq that our corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands.
Therefore, we are exempt from many of Nasdaq’s corporate governance practices other than the submission of a listing agreement, notification to Nasdaq of non-compliance with Nasdaq corporate governance practices, prohibition on disparate
reduction or restriction of shareholder voting rights, and the establishment of an audit committee satisfying Nasdaq Listing Rule 5605(c)(3) and ensuring that such audit committee’s members meet the independence requirement of Listing Rule
5605(c)(2)(A)(ii). The practices we follow in lieu of Nasdaq’s corporate governance rules applicable to U.S. domestic issuers are as follows:
|
● |
Audit Committee. Nasdaq requires, among other things, that a listed company has an audit committee with a minimum of three independent members, at least one of whom
meets certain standards of financial sophistication. As permitted under Marshall Islands law, our audit committee consists of three independent directors but we do not designate any one audit commit member as meeting the standards of
financial sophistication.
|
|
● |
As a foreign private issuer, we are not required to hold regularly scheduled board meetings at which only independent directors are present.
|
|
● |
In lieu of obtaining shareholder approval prior to the issuance of designated securities, we will comply with provisions of the BCA, which allows our Board of Directors to approve share issuances.
|
As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law.
Consistent with Marshall Islands law and as provided in our bylaws, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be
transacted at the meeting. In addition, our bylaws provide that shareholders must give us between 120- and 180-days’ advance notice to properly introduce any business at a meeting of shareholders.
Other than as noted above, we are in compliance with all other Nasdaq corporate governance standards applicable to U.S. domestic issuers.
| ITEM 16H. |
MINE SAFETY DISCLOSURE
|
Not applicable.
| ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
|
Not applicable.
| ITEM 16J. |
INSIDER TRADING POLICIES
|
We have adopted an insider trading policy, as a component of our Corporate Code of Business Ethics and Conduct, which applies to all of the Company’s
directors, officers and employees as well as their family members, and sets forth procedures governing the purchase, sale and other disposition of our securities by such parties. Our insider trading policy is reasonably designed to promote
compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of our insider trading policy has been filed as Exhibit 11.1 to this Annual Report.
We believe that cybersecurity is fundamental in our operations and, as such, we are committed to maintaining robust governance and oversight of cybersecurity risks and to implementing
comprehensive processes and procedures for identifying, assessing, and managing material risks from cybersecurity threats as part of our broader risk management system and processes. Our cybersecurity risk management strategy prioritizes
detection, analysis and response to known, anticipated or unexpected threats; effective management of security risks; and resiliency against incidents. With the ever-changing cybersecurity landscape and continual
emergence of new cybersecurity threats, our board of directors and senior management team ensure that adequate resources are devoted to cybersecurity risk management and the technologies, processes and people that support it. We implement
risk-based controls to protect our information, the information of our customers, suppliers, and other third parties, our information systems, our business operations, and our vessels.
As part of our cybersecurity risk management system, our information & technology management team tracks and logs privacy and security incidents across our Company and our vessels to
remediate and resolve any such incidents. Significant incidents are reviewed regularly by our information & technology management team to determine whether further escalation is appropriate. We also engage third parties, such as specialized
assessors and consultants to audit our information security systems, whose findings are reported to our senior management team. Any identified incident assessed as potentially being or potentially becoming
material is immediately escalated for further assessment, and then reported to our senior management team who is responsible to assess its overall materiality in due time and decide whether further reference to our board of directors is
necessary. We further consult with outside counsel as appropriate, including on materiality analysis and disclosure requirements’ matters, and our senior management, in cooperation if required with our board of directors, makes the final
materiality determinations and disclosure and other compliance decisions.
As we do not have a dedicated board committee solely focused on cybersecurity, our senior management team has oversight responsibility for risks and incidents relating to cybersecurity threats,
including compliance with disclosure requirements, cooperation with law enforcement, and related effects on financial and other risks, and it reports any material findings and recommendations, as appropriate, to our board of directors for
consideration.
Overall, our approach to cybersecurity risk management includes the following key elements:
(i) Continuous monitoring of cybersecurity threats, both internal and external. through the use of data analytics and network monitoring systems.
(ii) Engagement of third party consultants and other advisors to assist in assessing points of vulnerability of our information security systems.
(iii) Overall assessment of cybersecurity incidents materiality and potential impact on the company’s operations and financial condition by our senior management team and our
board of directors, in cooperation, if considered necessary, with specialized external consultants.
(iv) Oversight responsibility of cybersecurity risks and compliance with relevant disclosure requirements lies with our senior management team and our board of directors.
(v) Training and Awareness – we have various information technology policies relating to cybersecurity. We also provide employee training that is administered on a periodic
and on a case by case basis that reinforces our information technology policies, standards and practices, as well as the expectation that employees comply with these policies and identify and report potential cybersecurity risks.
We continue to invest in our cybersecurity systems and to enhance our internal controls and processes. Our business strategy, results of operations and financial condition have not been
materially affected by risks from cybersecurity threats, including as a result of previously identified cybersecurity incidents, but we cannot provide assurance that they will not be materially affected in the future by such risks or any future
material incidents. While we have dedicated appropriate resources to identifying, assessing, and managing material risks from cybersecurity threats, our efforts may not be adequate, may fail to accurately assess
the severity of an incident, may not be sufficient to prevent or limit harm, or may fail to sufficiently remediate an incident in a timely fashion, any of which could harm our business, reputation, results of operations and financial
condition. For more information certain risks associated with cybersecurity, see “Item 3.D. Risk Factors—Company-Specific Risk Factors—We rely on our information systems to conduct our business, and failure to protect these systems
against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.”
| ITEM 17. |
FINANCIAL STATEMENTS
|
See Item 18. “Financial Statements.”
| ITEM 18. |
FINANCIAL STATEMENTS
|
The financial statements beginning on page F-1 are filed as a part of this annual report.
|
Number
|
Description of Exhibits
|
|
1.1
|
|
|
|
|
|
1.2
|
|
|
|
|
|
1.3
|
|
|
|
|
|
1.4
|
|
|
|
|
|
1.5
|
|
|
|
|
|
1.6
|
|
|
|
|
|
1.7
|
|
|
|
|
|
1.8
|
|
|
|
|
|
1.9
|
|
|
|
|
|
1.10
|
|
|
|
|
|
1.11
|
|
|
|
|
|
1.12
|
|
|
|
|
|
1.13
|
|
|
|
|
|
1.14
|
|
|
|
|
|
2.1
|
|
|
|
|
|
2.2
|
|
|
|
|
|
2.3
|
|
|
2.6
|
|
|
|
|
|
2.7
|
|
|
|
|
|
2.8
|
|
|
|
|
|
4.1
|
|
|
|
|
|
4.2
|
|
|
|
|
|
4.3
|
|
|
|
|
|
4.4
|
|
|
|
|
|
4.5
|
|
|
|
|
|
4.6
|
|
|
|
|
|
4.7
|
|
|
|
|
|
4.8
|
|
|
|
|
|
4.9
|
|
|
|
|
|
4.10
|
|
|
|
|
|
4.11
|
|
|
|
|
|
4.12
|
|
|
4.13
|
|
|
|
|
|
4.14
|
|
|
|
|
|
4.15
|
|
|
|
|
|
4.16
|
|
|
|
|
|
4.17
|
|
|
|
|
|
4.18
|
|
|
4.19
|
|
|
|
|
|
4.20
|
|
| |
|
|
4.21
|
|
| |
|
|
4.22
|
|
| |
|
|
4.23
|
|
| |
|
|
4.24
|
|
| |
|
|
4.25
|
|
| |
|
|
4.26
|
|
| |
|
|
4.27
|
|
| |
|
|
4.28
|
|
|
|
|
|
4.29
|
|
|
|
|
|
4.30
|
|
|
|
|
|
4.31
|
|
|
|
|
|
4.32
|
|
|
4.33
|
|
|
|
|
|
4.34
|
|
|
|
|
|
8.1
|
|
|
|
|
|
11.1
|
|
|
|
|
|
12.1
|
|
|
|
|
|
12.2
|
|
|
|
|
|
13.1
|
|
|
|
|
|
13.2
|
|
|
|
|
|
15.1
|
|
|
|
|
|
97.1
|
|
|
|
|
|
101
|
The following materials from the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2023, formatted in Inline
eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of December 31, 2022 and 2023; (ii) Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2021, 2022 and 2023; (iii)
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2022 and 2023; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2022 and 2023; and (v) Notes to Consolidated
Financial Statements
|
|
|
|
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101
|
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
| |
TOP SHIPS INC.
|
| |
(Registrant)
|
| |
|
|
|
By:
|
/s/ Evangelos J. Pistiolis
|
| |
|
Evangelos J. Pistiolis
|
| |
|
President, Chief Executive Officer, and Director
|
98