Matters discussed in this annual report may constitute forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include all matters that are
not historical facts or matters of fact at the date of this document.
We are 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. These forward-looking statements may generally, but not always, be identified by the use of works such as “anticipate,” “believe,”
“targets,” “likely,” “will,” “would,” “could,” “should,” “seeks,” “continue,” “contemplate,” “possible,” “might,” “expect,” “intend,” “estimate,” “forecast,” “project,” “plan,” “objective,” “potential,” “may,” “anticipates” or similar expressions
or phrases.
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 uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these forward-looking statements, including these expectations, beliefs or
projections.
In addition to these assumptions, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include generally:
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, we undertake no obligation to update any
forward-looking statement or statements, whether as a result of new information, future events or otherwise. 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. See “Item 3. Key Information—D. Risk Factors” for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. These factors and the other risk factors described in this annual report are not
necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements.
Not applicable.
Not applicable.
The descriptions of agreements contained herein are summaries that set forth certain material provisions. Such descriptions do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the applicable provisions of each agreement, each of which is an exhibit to this annual report on Form 20-F or included as an exhibit to certain of our other of our reports and other information filed with the
Securities and Exchange Commission (the “SEC”). We encourage you to refer to each agreement for additional information.
Not applicable.
Not applicable.
Not applicable.
Some of the following risks relate principally to the industry in which we operate. Other risks relate principally to the ownership of our common shares. The occurrence of any of the events
described in this section could significantly and negatively affect our business, financial condition, operating results, cash available for dividends, as and if declared, or the trading price of our common shares.
Charter hire rates for dry bulk and tanker vessels are volatile. A decrease in charter rates may adversely affect our business, financial condition and
operating results.
Fluctuations in charter rates may impact both our dry bulk and tanker operations and result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the
major commodities carried by water internationally, including oil and oil products.
The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and profitability, and in the past, time charter and spot market rates for dry bulk vessels have declined
below operating costs of vessels. The degree of charter hire rate volatility among different types of dry bulk vessels has varied widely. The tanker industry is also both cyclical and volatile in terms of charter rates and profitability.
Fluctuations in charter rates result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products.
Deterioration of charter rates resulting from various factors relating to the cyclicality and volatility of our business may adversely affect our ability to profitably charter or re-charter our
vessels or to sell our vessels on a profitable basis. This could negatively impact our operating results, liquidity and financial condition.
As a result of the ongoing COVID-19 pandemic, it is likely that our dry bulk and tanker charter rates will continue to be exposed to volatility in the near to medium term. Such exposure could have
a material adverse effect on our business, financial condition and operating results.
Demand for dry bulk capacity is affected by supply of and demand for, and changes in the production or manufacturing, of commodities, semi-finished and finished consumer and industrial products.
Demand for tanker capacity is affected by supply of and demand for crude oil (for our Aframax/LR2 tanker segment) and supply and demand for oil and petroleum products (for our Handysize tanker segment). A variety of
factors may impact supply of and demand for crude oil, oil and petroleum products, including regional availability of refining capacity and inventories and competition from alternative sources of energy.
Factors that influence demand for both dry bulk and tanker vessel capacity include:
For a discussion of factors affecting the supply of both dry bulk and tanker vessel capacity, see “—An oversupply of dry bulk and/or tanker vessel capacity may
prolong or further depress low charter rates when they occur, which may limit our ability to operate our vessels profitably.” These factors are outside of our control and are unpredictable, and accordingly we may not be able to correctly
assess the nature, timing and degree of changes in charter rates. Any of these factors could have a material adverse effect on our business, financial condition and operating results. In particular, a significant decrease in charter rates would
cause asset values to decline. See “—A decline in the market values of our vessels could limit the amount of funds that we can borrow, cause us to breach certain financial covenants in our credit facilities and/or
result in impairment charges or losses on sale. Elevated vessel values could also adversely affect our business, cash flows, financial condition and operating results.”
An oversupply of dry bulk and/or tanker vessel capacity may prolong or further depress low charter rates when they occur, which may limit our ability to
operate our vessels profitably.
Global economic and financial conditions may negatively impact the dry bulk and tanker sectors of the shipping industry, including the extension of credit.
As the shipping industry is highly dependent on economic growth and the availability of credit to finance and expand operations, it may be negatively affected by a decline in economic activity or a
deterioration of economic growth and financial conditions. This may have a number of adverse consequences for dry bulk and tanker shipping sectors in which we operate, including, among other things:
The occurrence of one or more of these events could have a material adverse effect on our business, cash flows, compliance with debt covenants, financial condition, and operating results.
Further, on the tanker side, sustained periods of low oil prices typically result in reduced exploration and extraction because oil companies’ capital expenditure budgets are subject to cash flow
from such activities and are therefore sensitive to changes in energy prices, a fact which could limit oil supply and lead to increases in oil and petroleum product prices. Consumer demand for oil and oil products, and as a result oil and oil
product prices, could also be affected by a shift towards other (renewable) energy resources such as wind energy, solar energy, electricity or water energy. Changes in oil supply balance and oil prices can have a material effect on demand for oil
and oil product shipping services. In particular, changes to the trade patterns of crude and refined oil products may have a significant negative or positive impact on the ton-mile, and therefore the demand for our tankers. Periods of low demand
can cause excess vessel supply and intensify the competition in the industry, which often results in vessels being idle for long periods of time, which could reduce our revenues and materially harm the profitability of our Aframax/LR2 and Handysize
tanker segments, our business, results of operations and available cash. The COVID-19 pandemic has also negatively impacted demand for oil and petroleum products during 2021. The global economy and demand for oil and
oil products currently remains and is expected to continue to remain subject to substantial uncertainty due to the COVID-19 pandemic and related containment efforts throughout the world and disruptions in oil supply due to the recent conflict in
Ukraine and related against Russia and Belarus, which may have a material effect on demand for tanker shipping services, and, consequently, on our business, financial condition, cash flows and operating results. See also “—Political instability, terrorist attacks, international hostilities and global public health threats can affect the seaborne transportation
industry, which could adversely affect our business.”
Increases in bunker prices could affect our operating results and cash flows.
Fuel is a significant, if not the largest, expense in our shipping operations when vessels are under voyage charter and is an important factor in negotiating charter rates. Bunker prices have
increased significantly during 2021. Prices for Very Low Sulphur Fuel Oil (VLSFO) in Singapore started at around $415 per metric ton in January 2021 and reached $640 per metric ton by the end of November 2021, or an increase of more than 50%,
before falling to $600 per metric ton due to fears of global economic slowdown due to the new “Omicron” variant of COVID-19. Our bunker costs have further risen as a result of the eruption of armed conflict in Ukraine. As a result, our bunker costs
for our vessels operating in the spot voyage charter market have increased substantially in 2021 and may increase further in the future, a fact which has and could further affect our operating results and cash flows.
Risks involved in operating ocean-going vessels could affect our business and reputation.
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
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. A spill, either of oil or oil products cargo carried by our tankers or of bunkers on our vessels, or an accidental release of other hazardous substances from our vessels, could result in significant liability, including
fines, penalties and criminal liability and remediation costs for natural resource damages, as well as third-party damages.
Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an oil spill or other environmental incident may harm our reputation as a safe
and reliable dry bulk and tanker operator, which could have a material adverse effect on our business, cash flows, financial condition, and operating results.
In addition to the foregoing risks, the operation of tankers and transportation of oil presents unique operational risks. See “¾The operation of tankers has unique operational risks associated with the transportation of oil.”
The operation of tankers has unique operational risks associated with the transportation of oil.
Should either we or our managers and third-party sub-managers not continue to successfully clear the oil majors’ risk assessment processes on an ongoing basis, our tanker vessels’ present and
future employment, as well as our relationship with our existing charterers and our ability to obtain new charterers, whether medium or long-term, could be adversely affected. Such a situation may lead to the oil majors’ terminating existing
charters and refusing to use our tanker vessels which would adversely affect the growth of our tanker segments, our cash flows and segment and overall operating results.
We are new entrants to the tanker shipping business and may face difficulties in establishing our Aframax/LR2 and Handysize tanker segments.
We established our tanker operations and two reportable segments relating to tanker shipping in 2021 by acquiring seven Aframax/LR2 and two Handysize tanker vessels. As new entrants to the tanker
shipping business, we may struggle to establish market share and broaden our customer base for our tanker operations due to our lesser known reputation for tanker shipping, while incurring high operating costs associated with the operation and
upkeep of our tankers. Further, we likely possess less operational expertise relative to more experienced competitors and may be more heavily reliant on the knowledge and services of third-party providers for our operations. Accordingly, as of the
date of this annual report, Pavimar, has subcontracted the technical management for our tanker vessels to third-party management companies. Failure to partner with third-party providers with
the appropriate expertise to effectively deliver our services could tarnish our reputation as a tanker operator and impact the growth of our tanker operations, our financial condition and operating profits.
A decline in the market values of our vessels could limit the amount of funds that we can borrow, cause us to breach certain financial covenants in our
credit facilities and/or result in impairment charges or losses on sale.
If the fair market values of our vessels decline, we might not be in compliance with various covenants in our credit facilities, some of which require the maintenance of a certain percentage of
the fair market values of the vessels securing the facility to the principal outstanding amount of the respective facility or a maximum ratio of total net debt to the market value adjusted total assets. See “—Our
credit facilities contain, and we expect that any new or amended credit facility we enter into will contain, restrictive covenants that we may not be able to comply with due to economic, financial or operational reasons and may limit our business
and financing activities.”
In addition, if the fair market values of our vessels decline, our access to additional funds may be affected and/or we may need to record impairment charges in our consolidated financial
statements or incur loss on sale of vessels which can adversely affect our financial results. Because the market values of our vessels may fluctuate significantly, we may also incur losses when we sell vessels, which may adversely affect our
earnings. Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of such acquisitions may increase and this could adversely affect our business, cash flows, financial condition and operating
results.
Acts of piracy or other attacks 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 South China Sea, the Indian Ocean and, in particular, the Gulf of Aden off the coast of
Somalia and the Gulf of Guinea region off Nigeria, which experienced increased incidents of piracy in recent years. Sea piracy incidents continue to occur with dry bulk and tanker vessels particularly vulnerable to such attacks. Political conflicts
have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping. An attack on one of our vessels or merely the perception that our vessels are a potential piracy or terrorist target could have a
material adverse effect on our business, financial condition and operating results.
Further, if these piracy attacks occur in regions in which our vessels are deployed that insurers characterize as “war risk” zones or by the Joint War Committee as “war and strikes” listed areas,
premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain, if available at all. In addition, crew costs, including costs that may be incurred to the extent we employ on-board
security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents. This may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their
ability to make payments to us under our charters, which could have a material adverse impact on our business, cash flows, financial condition and operating results.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports in areas where smugglers 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 vessel 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.
Political instability, terrorist attacks, international hostilities and global public health threats can affect the seaborne transportation industry, which
could adversely affect our business.
We conduct most of our operations outside of the United States, or the U.S., and our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the
future may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels 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 conflicts.
Currently, the world economy faces a number of challenges, including public health concerns stemming from the ongoing COVID-19 pandemic, trade tensions between the United States and China and
between the United States and the European Union, continuing turmoil and hostilities in the Middle East, the Korean Peninsula, North Africa, Venezuela, Iran and other geographic areas and countries, continuing economic weakness in the European
Union, geopolitical events such as the withdrawal of the U.K. from the European Union (“Brexit”) the continuing threat of terrorist attacks around the world, and slowing growth in China.
In particular, the recent eruption of armed conflict between Russia and Ukraine and a severe worsening of Russia’s relations with Western economies has created significant uncertainty in global
markets, including increased volatility in fuel and oil products prices and shifts in trading patterns that may continue into the future. These changes are due in part to the imposition of sanctions against Russia and Belarus. See “¾Our charterers calling on ports located in countries or territories that are the subject of sanctions or
embargoes imposed by the U.S. government (including OFAC) or other authorities or failure to comply with the U.S. Foreign Corrupt Practices Act (the “FCPA”) or similar laws could lead to monetary fines or penalties and adversely affect our
reputation. Such failures and other events could adversely affect the market for our common shares.” The shipping industry may be negatively affected by rising costs and changing patterns of supply and demand, and our tanker business in
particular may be adversely affected by volatility in oil and oil products prices.
Additionally, in Europe, large sovereign debts and fiscal deficits, low growth prospects and high unemployment rates in a number of countries have contributed to the rise of Eurosceptic parties,
which would like their countries to leave the Euro. Brexit has increased the risk of additional trade protectionism and has created supply chain disruptions. 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, results of operations, financial condition and cash
flows.
The threat of future terrorist attacks around the world also continues to cause uncertainty in the world’s financial markets and international commerce and may affect our business, operating
results and financial condition. Continuing conflicts and recent developments in the Middle East, including continuing unrest in Syria and Iran and the overthrow of Afghanistan’s democratic government by the Taliban, may lead to additional acts of
terrorism and armed conflict around the world. This may contribute to further economic instability in the global financial markets and international commerce. Additionally, any escalations between the United States and Iran could result in
retaliation from Iran that could potentially affect the shipping industry, through increased attacks on vessels in the Strait of Hormuz (which already experienced an increased number of attacks on and seizures of vessels in 2019 and 2020). Any of
these occurrences could have a material adverse impact on our operating results, revenues and costs. See also “—Acts of piracy on ocean-going vessels could adversely affect our business.”
Also, China and the US have implemented certain increasingly protective trade measures with continuing trade tensions, including significant tariff increases, between these countries. These trade
barriers to protect domestic industries against foreign imports, depress shipping demand. Protectionist developments, such as the imposition of trade tariffs or the perception 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 (a) the cost of goods exported from regions globally, (b) the length of time required to transport goods and (c) the risks
associated with exporting goods. Such increases may significantly affect 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 renew and increase the number of their time charters with us. This could have a material adverse effect on our
business, financial condition and operating results.
In addition, public health threats such as influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we
operate, including China, Japan and South Korea, which may even become pandemics, could lead to a significant decrease of demand for the transportation of dry bulk commodities, crude-oil and other petroleum products. Such events have and may also
in the future adversely impact our operations, including timely rotation of our crews, the timing of completion of any outstanding or future newbuilding projects or repair works in drydock as well as the operations of our customers. Delayed
rotation of crew may adversely affect the mental and physical health of our crew and the safe operation of our vessels as a consequence.
A cyber-attack could materially disrupt our business and may result to a significant financial cost to us.
We rely on information technology systems and networks in our operations, our vessels and administration of our business. Information systems are vulnerable to security breaches by computer hackers
and cyber terrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However, these measures and technology may not adequately
prevent security breaches. Our business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, to steal data, or to ask for ransom. As a result of the ongoing COVID-19
pandemic, governmental actions have occasionally urged organizations across industries to have their employees to operate on a rotational basis remotely, which significantly increases the risk of cybersecurity attacks. A successful cyber‐attack
could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release, alteration or unavailability of information in our systems. Any such attack or other breach of our information technology systems
could have a material adverse effect on our business and operating results. In addition, the unavailability of our 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 operating results to suffer.
Major outbreaks of diseases (such as COVID-19) and governmental responses thereto, have affected our crews and operations, and could adversely affect our
business and financial condition.
Since the beginning of 2020, the outbreak of the COVID-19 pandemic around the world has negatively affected economic conditions, the supply chain, the labor market and the demand for certain
shipping sectors both regionally and globally. The COVID-19 pandemic has resulted in numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus, including travel bans, quarantines and other
emergency public health measures, and a number of countries implemented lockdown measures. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets. In the shipping
industry, the pandemic has caused delays and uncertainties relating to the operation of the vessels, newbuilding projects, our ability to timely dry-dock our vessels and has affected our ability to timely rotate the crews of our vessels.
We expect that the COVID-19 pandemic will continue to impact our operations and the operations of our customers and suppliers and increase our operating costs. The extent of COVID-19’s continuous
impact on our financial and operational results, which could be material in the long run, will depend on the length of time that the pandemic continues, the ability to effectively vaccinate a large percentage of the population and whether
subsequent waves of the virus happen globally or in certain geographic regions. Uncertainties regarding the economic impact of the ongoing COVID-19 pandemic are likely to result in sustained market volatility, which could impact our business,
financial condition and cash flows to a greater extent. Governments have been approving large stimulus packages to mitigate the effects of the sudden decline in economic activity caused by the pandemic; however, we cannot predict the extent to
which these measures will continue or will be sufficient to restore or sustain the business and financial condition of companies in the shipping industry.
It remains difficult to determine the full impact of COVID-19 on our business in the long run. Effects of the ongoing pandemic have included or may include, among others:
The occurrence or continued occurrence of any of the foregoing events or other epidemics or an increase in the severity or duration of the COVID-19 pandemic could have a material adverse effect on
our business, cash flows, financial condition and operating results.
In particular, we face significant risks to our onshore or offshore personnel and operations due to the COVID-19 pandemic, which have resulted in increased operational costs and decreased revenues
by reason of off-hires associated with crew rotation and related logistical complications associated with supplying our vessels with spares or other supplies. Our crews generally work on a rotation basis, relying largely on international air
transport for crew changes plan fulfillment. Quarantine restrictions placed on persons and limitations on commercial aviation and other forms of public transportation have at times delayed our crew in embarking or disembarking on our ships and
resulted in additional operating complexities. While such delays have not functionally affected our ability to sufficiently crew our vessels, such disruptions have affected the cost of rotating our crew and could impact our ability to maintain a
full crew synthesis on-board all our vessels at any given time. In 2021, we experienced, and we expect to continue to experience, disruptions to our normal vessel operations caused by deviation time associated with positioning our vessels to
countries in which we can undertake a crew rotation in compliance with applicable measures against COVID-19. Delays in crew rotations have led to issues with crew fatigue and may continue to do so, which may result in delays or other operational
issues. We have had and expect to continue to have increased expenses due to incremental fuel consumption and days in which our vessels are unable to earn revenue in order to deviate to certain ports on which we would ordinarily not call during a
typical voyage. It may also be difficult for our team to inspect new vessels we acquire as part of our growth strategy or our in-house technical teams to travel to shipyards to observe vessel maintenance, and we may need to hire local experts, who
may vary in skill and are difficult to supervise remotely for work we ordinarily address in-house.
Our crews also face risk of exposure to COVID-19 as a result of travel to ports in which cases of COVID‑19 have been reported. Our shore-based personnel likewise face risk of such exposure, as we
maintain offices in areas that have been impacted by the spread of COVID-19.
Although our vessels’ deviations, repositioning and/or delays in ports that are or will be open for crew rotations should be considered as the most notable impact of the COVID-19 pandemic on us, we
have incurred and expect to continue to incur considerable expenses in relation to health protocols imposed by both departure and arrival countries for the incoming and outgoing of crew members, which must be strictly followed (e.g., repeated PCR
tests, quarantine periods of up to 21 days, governmental special permissions and/or visas, personal protective equipment etc.). Furthermore, reduced flights availability, limitation of selected routes for our flight schedule and imposed health
measures by air carrier companies, caused us and may continue to cause us significant increases in the average airfare costs.
Our charterers calling on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S. government (including
OFAC) or other authorities or failure to comply with the U.S. Foreign Corrupt Practices Act (the “FCPA”) or similar laws could lead to monetary fines or penalties and adversely affect our reputation. Such failures and other events could adversely
affect the market for our common shares.
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., EU, and/or
other international bodies. Further, it is possible that, in the future, our vessels may call on ports located in sanctioned jurisdictions on charterers’ instructions, without our consent and in violation of their charter party. 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. As a result, we may be required to terminate existing or future
contracts to which we, or our
subsidiaries,
are party.
We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable
anti-corruption laws, and have adopted a code of business conduct and ethics. However, we are subject to the risk that we, or our affiliated entities, or our or our affiliated entities’ respective officers, directors, employees or agents actions
may be deemed to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions.
If
the company, our affiliated entities, or our or their respective officers, directors, employees and agents, or any of our charterers are deemed to have violated economic sanctions and embargo
laws, or any applicable anti-corruption laws, our results of operations may be adversely affected due to the resultant monetary fines, penalties or other sanctions. In addition, we may suffer reputational harm as a result of any actual or alleged
violations. This may affect 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. 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. 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 the countries or territories in which we operate in. Any of these factors could adversely affect our business, financial condition, and operating results.
Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management and adversely affect our
business, results of operations or financial condition as a result.
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our net cash flows and negatively
impact our results of operations.
The hull and machinery of every commercial vessel must be certified as being “in class” 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 Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be placed on a continuous survey cycle, under which the
machinery would be surveyed periodically over a five-year period. We expect our vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Most vessels are also required to be dry-docked, or
inspected by divers, every two to three years for inspection of underwater parts.
While
the Company believes that it has adequately budgeted for compliance with all currently applicable safety and other vessel operating requirements, newly enacted regulations applicable to the
Company and its vessels may result in significant and unanticipated future expense. If any vessel does not maintain its class or fails any annual, intermediate, or special survey, the vessel will be unable to trade between ports and will be
unemployable, which could have a material adverse effect on our business, cash flows, financial condition and operating results.
We are subject to laws, regulations and standards (including environmental standards such as IMO 2020, standards regulating ballast water
discharge, etc.), which can adversely affect our business, results of operations, cash flows, and financial condition. In particular, climate change and greenhouse gas (“GHG”) restrictions may adversely impact our operations and markets.
Our operations are subject to numerous international, national, state and local laws, regulations, treaties and conventions in force in international waters and the jurisdictions in which our
vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. See “
Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in
the Shipping Industry” for a discussion of certain of these laws, regulations and standards. Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or implementation of
operational changes and may affect the resale value or useful lives of our vessels. These costs could have a material adverse effect on our business, cash flows financial condition, and operating results. 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 emergency response and 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. See “—Risks involved in operating ocean-going vessels could affect our business and reputation. In particular, the operation of tankers has unique
operational risks associated with the transportation of oil.”
Fuel is a significant, if not the largest, expense in our shipping operations when vessels are under voyage charter and is an important factor in negotiating charter rates. In connection with IMO
2020 regulations and requirements relating fuel sulfur levels, as of the date of this report one of our vessels is equipped with scrubbers and for our remaining vessels that are not equipped with scrubbers, we have transitioned to burning IMO
compliant fuels. Low sulfur fuel is more expensive than standard marine fuel containing 3.5% sulfur content and may become more expensive or difficult to obtain as a result of increased demand.
The IMO has also imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel’s ballast water.
Depending on the date of the International Oil Pollution Prevention (IOPP) renewal survey, existing vessels constructed before
September 8, 2017, must comply with the updated D-2 standard on or after
September 8, 2019. For most vessels,
compliance with the D-2 standard involves installing on-board systems to treat ballast water and eliminate unwanted organisms. Currently, four of our dry bulk vessels and four of our tanker vessels will be required to comply with the regulation
at our IOPP renewal surveys scheduled for 2022. The costs of compliance may be substantial and adversely affect our revenues and profitability. The 21 remaining vessels in our fleet are currently in compliance with this regulation.
Due to concern over climate change, a number of countries and the IMO have adopted 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. In addition, although the emissions of GHG from international shipping currently are not subject to the Paris
Agreement or the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which required adopting countries to implement national programs to reduce emissions of certain gases, a new treaty may be adopted in the future that
includes restrictions on shipping emissions.
In June 2021, IMO’s Marine Environment Protection Committee (“MEPC”) adopted amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL)
Annex VI that will require ships to reduce their GHG emissions. These amendments combine technical and operational approaches to improve the energy efficiency of ships, also providing important building blocks for future GHG reduction measures.
The new measures require the IMO to review the effectiveness of the implementation of the Carbon Intensity Indicator (“CII”) and Energy Efficiency Existing Ship Index (“EEXI”) requirements by 1 January 2026 at the latest.
The EEXI and CII regulations require reductions in the CO
2 emissions of vessels. Based on the pertinent official
calculations and estimations, merchant vessels built before 2013, including certain of our older vessels, do not satisfy the upcoming EEXI requirements which will come into force on
January 1, 2023. To ensure compliance with EEXI requirements
most owners/operators, including us, may choose to limit engine power, a solution less costly than applying energy saving devices and/ or effecting certain alterations on existing propeller designs. The engine power limitation is predicted to
lead to reduced ballast and laden speeds (at scantling draft,) in the non-compliant vessels which will affect their commercial utilization but also decrease the global availability of vessel capacity. Furthermore, required software and hardware
alterations as well as documentation and recordkeeping requirements will increase a vessel’s capital and operating expenditures.
On
November 13, 2021, the Glasgow Climate Pact was announced following discussions at the 2021 United Nations Climate Change Conference (
“COP26”). The Glasgow Climate Pact calls for signatory
states to voluntarily phase out unabated coal usage and fossil fuels subsidies. A shift away from these products could potentially affect the demand for our dry bulk, crude and product tankers and negatively impact our future business, operating
results, cash flows and financial position. COP26 also produced the Clydebank Declaration, in which 22 signatory states (including the United States and United Kingdom) announced their intention to voluntarily support the establishment of
zero-emission shipping routes. Governmental and investor pressure to voluntarily participate in these green shipping routes could cause
the Company to incur significant additional expenses to
“green” our vessels.
Developments in safety and environmental requirements relating to the recycling and demolition of vessels may result in escalated and unexpected costs.
The 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, or the Hong Kong Convention, aims to ensure ships, being recycled once they reach the end of
their operational lives, do not pose any unnecessary risks to the environment, human health and safety. On
November 28, 2019, the Hong Kong Convention was ratified by the required number of countries but as of
January 10, 2022, was not yet in
force as the ratifying states do not represent 40% of world merchant shipping by gross tonnage. Upon the Hong Kong Convention’s entry into force, each ship sent for recycling will have to carry an inventory of its hazardous materials. The
hazardous materials, the use or installation of which are prohibited in certain circumstances, are listed in an appendix to the Hong Kong Convention. Ships will be required to have surveys to verify their inventory of hazardous materials
initially, throughout their lives and prior to the ship being recycled. When implemented, the foregoing requirement may lead to cost escalation by shipyards, repair yards and recycling yards. This may then result in a decrease in the residual
scrap value of a vessel, and a vessel could potentially not cover the cost to comply with latest requirements, which may have an adverse effect on our future performance, cash flows, financial position and operating results.
Further, on
November 20, 2013, the European Parliament and the Council of the EU adopted the Ship Recycling Regulation, which, among other things, requires any non-EU flagged vessels calling at a
port or anchorage of an EU member state, including ours, to set up and maintain an Inventory of Hazardous Materials from
December 31, 2020. Such a system includes information on the hazardous materials with a quantity above the threshold values
specified in relevant EU Resolution and are identified in the ship’s structure and equipment. This inventory must be properly maintained and updated, especially after repairs, conversions or unscheduled maintenance on board the ship.
We are subject to international safety standards 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 International Safety Management Code, or the ISM Code, promulgated by the IMO under the SOLAS Convention. 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 of vessels and describing procedures for dealing with emergencies. In addition, vessel classification societies impose significant safety and other requirements on our vessels. 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, and have a material adverse effect on our business, financial condition and operating results.
Maritime claimants could arrest our vessels, which could interrupt our cash flow and business.
Crew members, suppliers of goods and services to a vessel, shippers and receivers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or
damages. In many jurisdictions, a maritime lien holder may enforce its lien by
“arresting” or
“attaching” a vessel through judicial proceedings. The arrest or attachment of our vessels could have significant ramifications for
the Company,
including off-hire periods and/or potential cancellations of charters, high costs incurred in discharging the maritime lien, other expenses to the extent such arrest or attachment is not covered under our insurance coverage, breach of covenants
in certain of our credit facilities and reputational damage. This in turn could negatively affect the market for our shares and adversely affect our business, financial condition, results of operations, cash flows and ability to service or
refinance our debt. In addition, in jurisdictions where the
“sister ship” theory of liability applies, such as South Africa, a claimant may arrest the vessel that 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 then own, compounding the negative effects of an
arrest or attachment on
the Company.
Governments could requisition our vessels during a period of war or emergency resulting in a loss of earnings.
A government of a vessel’s registry could requisition for title or seize a vessel. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government
could also requisition a vessel for hire. 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.
Government requisition of our vessels could have a material adverse effect on our business, cash flows, 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 and trans-shipment points. Inspection procedures may
result in the seizure of contents of our vessels, delays in the loading, offloading, trans-shipment or delivery and the levying of customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. 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
operating results.
Our business has inherent operational risks, which may not be adequately covered by insurance.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, adverse weather conditions, mechanical failures, human error, environmental
accidents, war, terrorism, piracy and other circumstances or events. In addition, transporting cargoes across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign
countries, hostilities, labor strikes and boycotts, the potential changes in tax rates or policies, and the potential for government expropriation of our vessels. Any of these events may result in loss of revenues, increased costs and decreased
cash flows to our customers, which could impair their ability to make payments to us under our charters.
We procure insurance for our vessels against those risks that we believe the shipping industry commonly insures against. This insurance includes marine hull and machinery insurance, protection
and indemnity insurance, which include environmental damage, pollution insurance coverage, crew insurance, and war risk insurance. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially
reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per occurrence. For certain of our vessels, we also maintain insurance against loss of hire, which covers business interruptions that
result from the loss of use of a vessel.
Despite the above policies, we may not be insured in amounts sufficient to address all risks and may not be able to obtain adequate insurance coverage for our fleet in the future or may not be
able to obtain certain coverage at reasonable rates. For example, in the past more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of
environmental damage or pollution.
Further, insurers may not pay particular claims. Our insurance policies contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower
our revenues. Moreover, insurers may default on claims they are required to pay. Any of these factors could have a material adverse effect on our financial condition.
We have grown our fleet exponentially and we may have difficulty managing our growth properly which may adversely affect our operations and profitability.
We are a company formed for the purpose of acquiring, owning, chartering, and operating oceangoing cargo vessels. Since
December 31, 2020, and as of the date of this annual report, we have grown
our fleet from six vessels to 29 vessels.
Growing any business presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and
suppliers and integrating newly acquired operations into existing infrastructures. The significant expansion of our fleet may impose significant additional responsibilities on our management and the management and staff of our commercial and
technical managers, and may necessitate that we, and/or they, increase the number of our and/or their personnel.
Our or our managers’ current operating and financial systems may not be adequate as we continue to implement our plan to expand the size of our fleet and our attempts to improve those systems may
be ineffective. In addition, if we further expand our fleet, we will need to recruit suitable additional seafarers and shore-side administrative and management personnel. We cannot guarantee that we will be able to hire suitable employees as we
expand our fleet. If we encounter business or financial difficulties, we may not be able to adequately staff our vessels or our shore-side personnel. If we are unable to grow our financial and operating systems or to recruit suitable employees as
we expand our fleet, our financial performance may be adversely affected and, among other things, the amount of our available free cash may be reduced.
We may be dependent on a small number of charterers for the majority of our business.
Historically, a small number of charterers have accounted for a significant part of our revenues. Indicatively, for the years ended December 31, 2021 and 2020,
we derived 43% and 58% of our consolidated operating revenues from three and two charterers, respectively. In particular, for the years ended December 31, 2021 and 2020, we derived 55% and 58% of our dry bulk segment operating revenues from
three and two charterers, respectively. Further, for year ended December 31, 2021, we derived 100% of our Handysize tanker segment operating revenues from the pool in which both our Handysize tankers participate and 52% of our Aframax/LR2
tanker segment revenues from two charterers. All the charters for our fleet have fixed terms, but may be terminated early due to certain events, such as a charterer’s failure to make charter payments to us because of financial inability,
disagreements with us or otherwise. The ability of each of our counterparties to perform their obligations under a charter 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 shipping industry, prevailing prices for commodities and oil and oil related products and the overall financial condition of the counterparty. Should a counterparty fail to honor its obligations under
an agreement with us, we may be unable to realize revenue under that charter and could sustain losses. In addition, if we lose an existing charterer, it may be difficult for us to promptly replace the revenue we derived from that customer. Any
of these factors could have a material adverse effect on our business, financial condition, cash flows and operating results. For further information, see Note 2 of our consolidated financial statements included elsewhere in this annual
report.
We may not be able to execute our growth strategy and we may not realize the benefits we expect from past acquisitions or future acquisitions or other
strategic transactions.
As our business grows, we intend to acquire additional dry bulk, tanker and other vessels and expand our activities. Our future growth will primarily depend upon a number of factors, some of
which may not be within our control. These factors include our ability to:
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identify suitable vessels, including newbuilding slots at reputable shipyards and/or shipping companies for acquisitions at attractive prices;
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realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements from past acquisitions;
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obtain required financing for our existing and new operations;
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integrate any acquired vessels, assets or businesses successfully with our existing operations, including obtaining any approvals and qualifications necessary to operate vessels that we acquire;
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hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
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improve our operating, financial and accounting systems and controls; and
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cope with competition from other companies, many of which have significantly greater financial resources than we do, and may reduce our acquisition opportunities or cause us to pay higher prices.
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Our failure to effectively identify, acquire, develop and integrate any vessels could adversely affect our business, financial condition, investor sentiment and operating results. Finally,
acquisitions may require additional equity issuances, which may dilute our common shareholders if issued at lower prices than the price they acquired their shares, or debt issuances (with amortization payments), both of which could lower our
available cash. See “—Recent share issuances and future issuances of additional shares, or the potential for such issuances, may impact the price of our common shares and could impair our ability to raise capital
through subsequent equity offerings. Shareholders may experience significant dilution as a result of any such issuances.” If any such events occur, our financial condition may be adversely
affected.
We operate secondhand vessels with an age above the industry average which may lead to increased technical problems for our vessels, higher operating
expenses, affect our ability to profitably charter our vessels, to comply with environmental standards and future maritime regulations and result in a more rapid deterioration in our vessels’ market and book values.
Our current fleet consists only of secondhand vessels. While we have inspected our vessels and we intend to inspect any potential future vessel acquisition, this does not provide us with the same
knowledge about its condition that we would have had if the vessel had been built for and operated exclusively by us. Generally, purchasers of secondhand vessels do not receive the benefit of warranties from the builders for the secondhand
vessels that they acquire.
The average age of our current fleet is 13.9 years. The average age of our dry bulk vessels is 12.3 years, compared to an industry standard of 11.0 years; the average age of our Aframax/LR2
vessels is 17.5 years, compared to an industry standard of 11.5 years; and the average age of our Handysize vessels is 16.1 years, compared to an industry average of 14.7 years. In general, the cost of maintaining a vessel in good operating
condition and operating it increases with the age of the vessel, because, amongst other things:
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as our vessels age, typically, they become less fuel-efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology and increased maintenance
requirements;
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cargo insurance rates increase with the age of a vessel, making our vessels more expensive to operate;
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governmental regulations, environmental and safety or other equipment standards related to the age of vessels may also 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.
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Charterers also have age restrictions on the vessels they charter which may result to a lower utilization of our vessels resulting to lower revenues. Our charterers 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.
The 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, operate in extreme climates, 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. We face competition from companies with more modern vessels with more fuel-efficient designs than our vessels (“eco–vessels”). If new dry bulk vessels
and tanker vessels are built that are more efficient or more flexible or have longer physical lives than even the current eco-vessels, competition from the current eco-vessels and any more technologically
advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels once their charters expire and the resale value of our vessels could significantly decrease. We cannot assure you that, as our vessels age,
market conditions will justify expenditures to maintain or update our vessels or enable us to operate our vessels profitably during the remainder of their useful lives. This could have a material adverse effect
on our business, financial condition and operating results.
We are subject to certain risks with respect to our counterparties on
contracts, 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.
We have entered into, and may enter into in the future, various
contracts, including charter agreements, pool agreements, management agreements, shipbuilding
contracts and credit facilities. Such
agreements subject us to counterparty risks. The ability of each of our counterparties to perform its 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 and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. For example, the combination of a
reduction of cash flow resulting from a decline in world trade and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us. In addition, in
depressed market conditions, our 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 and our pool operators may not be able to profitably employ
our participating vessels. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those
contracts and pool operators may terminate the pool agreements or admit
inability to comply with their obligations under those agreements. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our business, cash
flows, financial condition, and operating results.
We are dependent upon Castor Ships and Pavimar, which are related parties, and other third-party sub-managers for the management of our fleet and business, particularly for
our tanker segments, 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.
The management of our business, including, but not limited, the commercial and technical management of our fleet as well as administrative, financial and other business functions, is carried out
by Castor Ships S.A. (
“Castor Ships”), which is a company controlled by our Chairman, Chief Executive Officer and Chief Financial Officer,
Petros Panagiotidis, and Pavimar S.A. (
“Pavimar”), which is a company controlled by Ismini Panagiotidis,
the sister of our Chairman, Chief Executive Officer and Chief Financial Officer. We are reliant on Castor Ships and/or Pavimar continued and satisfactory provision of their services.
As of the date of this annual report, Pavimar has subcontracted, with our consent, the technical management for our nine tanker vessels and three of our dry bulk vessels to third-party management
companies. Our subcontracting arrangements with these third-parties may expose us to risks such as low customer satisfaction with the service provided by these subcontractors, increased operating costs compared to those we would achieve for our
vessels, and an inability to maintain our vessels according to our standards or our current or potential customers’ standards, such as the rigorous vetting requirements of some of the world’s most selective
major international oil companies.
Moreover, we currently have subcontracted the commercial management for six of our tanker vessels to third-party managers. Our ability to enter into new charters and expand our customer
relationships depends largely on our ability to leverage our relationship with our commercial managers and Pavimar and their reputations and relationships in the shipping industry. If our commercial managers and/or Pavimar suffer material damage
to their reputations or relationships, it may also harm our ability to renew existing charters upon their expiration, obtain new charters or maintain satisfactory relationships with suppliers and other third parties. In addition, the inability of
our commercial managers to fix our vessels at competitive charter rates either due to prevailing market conditions at the time or due to their inability to provide the requisite quality of services, could adversely affect our revenues and
profitability and we may have difficulty meeting our working capital and debt obligations.
Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory and continued performance of these services by our managers and/or sub-managers,
as well as their reputations. Any of the foregoing factors could have an adverse effect on our and their reputations and on our business, financial condition and operating results. Although we may have rights
against our managers and/or sub-managers if they default on their obligations to us, our shareholders will share that recourse only indirectly to the extent that we recover funds.
We periodically employ vessels in the spot market and exposing us to risk of losses based on short-term decreases in shipping rates.
We periodically employ some of our vessels in the spot market, either in the trip charter market or in spot-market oriented pools. The spot charter market
is highly competitive and rates within this market are highly volatile, fluctuating significantly based upon supply of and demand of vessels and cargoes. Conversely,
longer-term charter contracts
have pre-determined rates over more extended periods of time providing, a fixed source of revenue to us
. The successful operation of our vessels in the competitive spot charter market depends
upon, among other things, our commercial and pool managers obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo.
We cannot assure you that we will be successful in keeping our vessels fully employed in these short-term markets, or that future spot rates will be sufficient to enable such vessels to operate profitably. In the past, there
have been periods when trip charter rates have declined below the operating cost of vessels.
A significant decrease in spot market rates or our inability to fully employ our vessels by taking advantage of the
spot market would result in a reduction of the revenues received from spot chartering and adversely affect operating results, including our profitability and cash flows, with the result that our ability to serve our working capital and debt
service needs could be impaired.
Additionally, if spot market rates or short-term time charter rates become significantly lower than the time charter equivalent rates that some of our charterers are
obligated to pay us under our 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 might have to attempt to re-charter our
vessels at lower charter rates, which could affect our ability to comply with our loan covenants and operate our vessels profitably.
Our credit facilities contain, and we expect that any new or amended credit facility we enter into will contain, restrictive covenants that we may not be
able to comply with due to economic, financial or operational reasons and may limit our business and financing activities.
The operating and financial restrictions and covenants in our current credit agreements, and any new or amended credit facility we may enter into in the future, could adversely affect our ability
to finance future operations or capital needs or to engage, expand or pursue our business activities.
For example, our current facilities require the consent of our lenders to, among other things:
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incur or guarantee additional indebtedness outside of our ordinary course of business;
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charge, pledge or encumber our vessels;
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change the flag, class, management or ownership of our vessels;
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change the commercial and technical management of our vessels;
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declare or pay any dividends or other distributions at a time when the Company has an event of default or the payment of such distribution would cause an event of default; |
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make any investments in any person, asset, firm, corporation, joint venture or other entity;
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merge or consolidate with any other person;
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sell or change the beneficial ownership or control of our vessels if there has been a change of control directly or indirectly in our subsidiaries or us; and |
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to enter into time charter contracts above a certain duration or bareboat charters. |
Our facilities also require us to comply with certain financial covenants, in each case subject to certain exceptions, including:
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maintaining a certain minimum level of cash on pledged deposit accounts with the borrowers;
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maintaining a certain minimum value ratio at the borrowers’ level, which is the ratio of the aggregate market value of the mortgaged vessels plus the value of any additional security and value of the pledged deposit and/or the value of
dry dock reserve accounts to the aggregate principal amounts due under the facilities;
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maintaining a dry dock reserve at the borrowers’ level;
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not having a ratio of net debt to assets adjusted for the market value of the vessels above a certain level;
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maintaining a certain level of minimum free cash at Castor Maritime; and
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maintaining a trailing 12 months EBITDA to net interest expense ratio at and above a certain level.
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Our ability to comply with the covenants and restrictions contained in our current or future credit facilities may be affected by events beyond our control, including prevailing economic,
financial and industry conditions, interest rate developments, changes in the funding costs of our banks and changes in vessel earnings and asset valuations. If market or other economic conditions deteriorate, our ability to comply with these
covenants may be impaired. We may be obligated to prepay part of our outstanding debt in order to remain in compliance with the relevant covenants in our current or future credit facilities. If we are in breach of any of the restrictions,
covenants, ratios or tests in our current or future credit facilities, or if we trigger a cross-default contained in our current or future credit facilities, a significant portion of our obligations may become immediately due and payable. We may
not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, obligations under our current and future credit facilities are and are expected to be secured by our vessels, and if we are unable to repay debt
under our current or future credit facilities, the lenders could seek to foreclose on those assets. Any of these factors could have a material adverse effect on our business, financial condition and operating results.
Furthermore, any contemplated vessel acquisitions will have to be at levels that do not impair the required ratios set out above. If the estimated asset values of the vessels in our fleet
decrease, such decreases may limit the amounts we can draw down under our future credit facilities to purchase additional vessels, limit our ability to raise equity capital and our ability to expand our fleet. If funds under our current or future
credit facilities become unavailable or we need to repay them as a result of a breach of our covenants or otherwise, we may not be able to perform our business strategy which could have a material adverse effect on our business, financial
condition and operating results.
Most of our outstanding debt is exposed to Interbank Offered Rate (“LIBOR”) Risk. We may be adversely affected by the transition from LIBOR as a reference
rate and are exposed to volatility in LIBOR and the Secured Overnight Financing Rate, or SOFR. If volatility in LIBOR and/or SOFR occurs, the interest on our indebtedness could be higher than prevailing market interest rates and our
profitability, earnings and cash flows may be materially and adversely affected.
We are exposed to the risk of interest rate variations, principally in relation to the U.S. dollar LIBOR. Most of our outstanding indebtedness is exposed to LIBOR risk, including amounts borrowed
under six of our credit facilities which bear interest at annual rates ranging from 3.10% to 4.50% over LIBOR. We have also entered into one credit facility which is based on adjusted SOFR, an adjusted new
index that measures the cost of borrowing cash overnight, backed by U.S. Treasury securities and may enter into additional SOFR-based loans in the future.
On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”) announced that it expected, by no later than the end of 2021, to cease taking steps
aimed at ensuring the continuing availability of LIBOR in its current form. On November 24, 2017, the FCA announced that the panel banks that submit information to ICE Benchmark Administration Limited (“IBA”), as administrator of LIBOR, had
undertaken to continue to do so until the end of 2021. On
November 30, 2020, the IBA announced that it would consult on ceasing to determine one-week and two-month U.S. dollar LIBOR with effect from
December 31, 2021, but ceasing to
determine the remaining U.S. dollar LIBOR tenors on
June 30, 2023.
These reforms may cause LIBOR to perform differently than in the past or to disappear entirely.
In accordance with recommendations from the committee appointed by the U.S. Federal Reserve Board to manage the transition away from LIBOR, U.S. dollar LIBOR is expected to
be replaced with SOFR. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less
likely to correlate with the funding costs of financial institutions. As a result, parties may seek to adjust the spreads relative to such reference rate in underlying contractual arrangements. Certain market constituencies have also
criticized SOFR’s suitability as a LIBOR replacement, and the extent of SOFR-based instruments issued or trading in the market remains a fraction of LIBOR-based instruments. As a result, there remains uncertainty regarding the future utilization
of LIBOR and the nature of any replacement rates. The consequences of these developments with respect to LIBOR cannot be entirely predicted but may result in financial market disruptions and may impact the level of interest payments on the
portion of our indebtedness that bears interest at variable rates. This may increase the amount of our interest payments under such debt.
The majority of our senior secured credit facilities described in “Item 5. Operating and Financial Review and
Prospects—B. Liquidity and Capital Resources—Our Borrowing Activities” provide that interest may be based on LIBOR and for the use of an alternate rate to LIBOR in the event LIBOR is phased-out. We and
the lenders under our LIBOR-based senior secured credit facilities may seek to amend such agreements to replace LIBOR with a different benchmark index that is expected to mirror developments in the rest of the debt markets at the time and make
certain other conforming changes to the agreements. However, the new rate may not be as favorable as those in effect prior to any LIBOR phase-out. In some cases, our lenders have insisted on provisions that entitle the lenders,
following consultation with the borrowers and in the absence of agreement, in their discretion, and under certain market disruption events, to replace published LIBOR as the base for the interest calculation with another benchmark or with their
cost-of-funds rate. As a result, our lending costs under our LIBOR-based credit facilities could increase significantly.
LIBOR has historically been volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of the disruptions in the
international credit markets. SOFR or any other replacement reference rate may behave similarly. Because the interest rates borne by our variable interest-bearing outstanding indebtedness fluctuate with changes in LIBOR and SOFR, if this
volatility were to occur, it would affect the amount of interest payable on our debt.
In order to manage our exposure to interest rate fluctuations, we may from time to time use interest rate derivatives to effectively fix some of our floating rate debt obligations. We currently
do not have any derivative instruments in place. LIBOR and SOFR are currently at relatively low levels, but may rise in the future as the current low interest rate environment comes to an end. Our financial condition could be materially adversely
affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future.
Conversely, the use of derivative instruments, if any, may not effectively protect us from adverse interest rate movements. The use of interest rate derivatives may result in substantial losses and 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. Interest rate derivatives may also be impacted by the transition from LIBOR
to SOFR or other alternative rates. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses.
Any of the foregoing factors, including any combination of them, could have an adverse effect on our business, financial condition, cash flow and operating results.
We may not be able to obtain debt or equity financing on acceptable terms which may negatively impact our planned growth. In particular, in the past we
have relied on financial support from our Chairman, Chief Executive Officer and Chief Financial Officer,
Petros Panagiotidis, which may not be available in the future.
As a result of concerns about the stability of financial markets generally and the solvency of counterparties, among other factors, the ability to obtain money from the credit markets has become
more difficult as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers.
Due to these factors, we cannot be certain that financing or refinancing will be available if needed and to the extent required, on acceptable terms. If financing is not available when needed, or is available only on unfavorable terms, we may be
unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
In the past, we have obtained loans from
Petros Panagiotidis to meet vessel purchase obligations of
the Company. These loans may not be available to
the Company in the future or may only be
available on more unfavorable terms. Even if we are able to borrow money from Mr. Panagiotidis, such borrowing could create a conflict of interest of management. See also
“—Our Chairman, Chief Executive Officer
and Chief Financial Officer, who may be deemed to own, directly or indirectly, 100% of our Series B Preferred Shares, has control over us.”
Any of these factors could have a material adverse effect
on our business, financial condition and operating results.
We are a holding company, and we depend on the ability of our
subsidiaries to distribute funds to us to satisfy our financial and other obligations.
We are a holding company and have no significant assets other than the equity interests in our
subsidiaries. Our
subsidiaries own all of our existing vessels, and
subsidiaries we form or acquire
will own any other vessels we may acquire in the future. All payments under our charters are made to our
subsidiaries. As a result, our ability to meet our financial and other obligations, and to pay dividends in the future, as and if declared,
will depend on the performance of our
subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, by the
terms of our financing arrangements, or by the applicable law regulating the payment of dividends in the jurisdictions in which our
subsidiaries are organized.
In particular, the applicable loan agreements entered into by our
subsidiaries, prohibit such
subsidiaries from paying any dividends to us if we or such subsidiary breach a covenant in a loan
agreement or any financing agreement we may enter into. See “—
Our credit facilities contain, and we expect that any new or amended credit facility we enter into will contain, restrictive covenants that we may not
be able to comply with due to economic, financial or operational reasons and may limit our business and financing activities.” If we are unable to obtain funds from our
subsidiaries, we will not be able to meet our liquidity needs unless
we obtain funds from other sources, which we may not be able to do.
Our Board may never declare dividends.
Our Board will continue to assess our dividend policy. The declaration and payment of dividends, if any, will always be subject to the discretion of our Board, restrictions contained in our debt
agreements or debt agreements that we may enter into in the future and the requirements of Marshall Islands law. If the Board determines to declare dividends, the timing and amount of any dividends declared will depend on, among other things, our
earnings, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy, our compliance with the terms of our outstanding indebtedness and
the ability of our
subsidiaries to distribute funds to us. The dry bulk and tanker industries are highly volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any
period. Also, there may be a high degree of variability from period to period in the amount of cash that is available for the payment of dividends.
We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including
as a result of the risks described herein. Our growth strategy contemplates that we will finance our acquisitions of additional vessels using cash from operations, through debt financings and/or from the net proceeds of future equity issuances on
terms acceptable to us. If financing is not available to us on acceptable terms or at all, our Board may determine to finance or refinance acquisitions with cash from operations, which would reduce the amount of any cash available for the payment
of dividends, if any.
The Republic of Marshall Islands laws generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above
the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in the future to pay dividends and our
subsidiaries may not have sufficient funds or
surplus to make distributions to us. We currently pay no dividends and we may never pay dividends.
Worldwide inflationary pressures could negatively impact our results of operations and cash flows.
It has been recently observed that worldwide economies have experienced inflationary pressures, with price increases seen across many sectors globally.
Indicatively, the U.S. consumer price index, an inflation gauge that measures costs across dozens of items, rose 7% in December 2021 compared to the prior year, the fastest pace since June 1982, and further rose to 7.9% in February 2022. Certain
goods, including fuel, oil and oil products, as well as certain grains such as wheat and corn, have experienced disproportionate price increases due to trading pattern disruptions attributable to the armed conflict in Ukraine. It remains to be
seen whether inflationary pressures will continue, and to what degree, as central banks begin to respond to price increases. In the event that inflation becomes a significant factor in the global economy
generally and in the shipping industry more specifically, inflationary pressures would result in increased operating, voyage and administrative costs which could in turn negatively impact our operating results, and in particular, our
cash flows.
Increasing 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 practices and 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,
especially given the highly focused and specific trade of dry bulk, crude oil and petroleum products transportation in which we are engaged. If we do not meet these standards, our business and/or our ability to access capital could be harmed.
These limitations in both the debt and equity capital markets may affect our ability to grow 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 could impair our ability to service our indebtedness. Further, it is likely
that we will incur additional costs and require additional resources to monitor, report, comply with and implement wide ranging ESG requirements. Any of the foregoing factors could have a material adverse effect on our business, financial
condition and operating results.
We are a relatively new company, and our anti-fraud and corporate governance procedures might not be as advanced as those implemented by our listed peer
competitors having a longer presence in the shipping industry.
We are a listed company with a relatively limited operating history. As a publicly traded company, the SEC, Nasdaq
Capital Market, and other regulatory bodies subject us to increased scrutiny on the way we manage and operate our business by urging us or mandating us to a series of actions that have nowadays become an area of focus among policymakers and
investors. Listed companies are occasionally encouraged to follow best practices, while often must comply with these rules and/or practices addressing a variety of corporate governance and anti-fraud matters such as director independence, board
committees, corporate transparency, ethical behavior, prevention and controls of corruption and fraud etc. While we believe we follow all requirements that regulatory bodies may from time to time impose on us, our internal processes and
procedures might not be as advanced or mature as those implemented by other listed shipping companies with a longer experience and presence in the US capital markets, with could be an area of concern to our investors and expose us to greater
operational risks.
We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.
We may, from time to time, be involved in various litigation matters. These matters may include, among other things,
contract disputes, personal injury claims, environmental claims or
proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. We cannot predict with certainty the outcome or effect of any
claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve it may have a material adverse effect on our business. Insurance may not be applicable or sufficient in all cases and/or insurers may
not remain solvent, which could have a material adverse effect on our financial condition.
A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could result in a higher tax rate on our
worldwide earnings, which could result in a significant negative impact on our earnings and cash flows from operations.
We conduct our operations through
subsidiaries which can trade worldwide. Tax laws and regulations are highly complex and subject to interpretation. Consequently, we are subject to changing tax
laws, treaties and regulations in and between countries in which we operate. Our income tax expense, if any, is based upon our interpretation of tax laws in effect in various countries at the time that the expense was incurred. A change in these
tax laws, treaties or regulations, or in the interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings, and such change could be significant to our financial results. If any
tax authority successfully challenges our operational structure, or the taxable presence of our operating
subsidiaries in certain countries, or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our
structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase substantially. An increase in our taxes could have a material adverse effect on our earnings and cash flows from these
operations.
Our
subsidiaries may be subject to taxation in the jurisdictions in which its activities are conducted. The amount of any such taxation may be material and would reduce the amounts available for
distribution to us.
Investors are encouraged to consult their own tax advisors concerning the overall tax consequences of the ownership of the common shares arising in an investor’s particular situation under U.S.
federal, state, local or foreign law.
We are dependent on our management and their ability to hire and retain key personnel, in particular our Chairman, Chief Executive Officer and Chief
Financial Officer,
Petros Panagiotidis.
Our success will depend upon our and our management’s ability to hire and retain key members of our management team, including
Petros Panagiotidis. The loss of Mr. Panagiotidis 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.
Risks Relating To Our Common Shares
Our share price has recently been highly volatile and may continue to be volatile in the future, and as a result, investors in our common shares could
incur substantial losses.
The stock market in general, and the market for shipping companies in particular, have experienced extreme volatility that has often been unrelated or disproportionate to the operating
performance of particular companies. As a result of this volatility, investors may experience rapid and substantial losses on their investment in our common shares that are unrelated to our operating performance. Our stock price has recently been
volatile and may continue be volatile, which may cause our common shares to trade above or below what we believe to be their fundamental value. During 2021, the market price of our common shares on the Nasdaq Capital Market has fluctuated from an
intra-day low of $1.36 per share on
December 30, 2021 to an intra-day high of $19.50 per share on
February 11, 2021. On
December 31, 2021, the closing price of our common shares was $1.42 per share. Significant historical fluctuations in the
market price of our common shares have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums.
The market volatility and trading patterns we have experienced may create several risks for investors, including but not limited to the following:
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the market price of our common shares may experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals;
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to the extent volatility in our common shares is caused by a “short squeeze” in which coordinated trading activity causes a spike in the market price of our common shares as traders with a short position make market purchases to avoid
or to mitigate potential losses, investors may purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has
abated;
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if the market price of our common shares declines, you may be unable to resell your shares at or above the price at which you acquired them. We cannot assure you that the equity issuance of our common shares will not fluctuate,
increase or decline significantly in the future, in which case you could incur substantial losses.
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We may continue to incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by
or affecting us. Accordingly, the market price of our common shares may decline or fluctuate rapidly, regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could negatively
affect the market price of our common shares or result in fluctuations in the price or trading volume of our common shares, which include but are not limited to:
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investor reaction to our business strategy;
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the sentiment of the significant number of retail investors whom we believe to hold our common shares, in part due to direct access by retail investors to broadly available trading platforms, and whose investment thesis may be
influenced by views expressed on financial trading and other social media sites and online forums;
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the amount and status of short interest in our common shares, access to margin debt, trading in options and other derivatives on our common shares and any related hedging and other trading factors;
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our continued compliance with the listing standards of the Nasdaq Capital Market;
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regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our industry;
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variations in our financial results or those of companies that are perceived to be similar to us;
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our ability or inability to raise additional capital and the terms on which we raise it;
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our continued compliance with our debt covenants;
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variations in the value of our fleet;
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declines in the market prices of stocks generally;
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trading volume of our common shares;
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sales of our common shares by us or our shareholders;
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speculation in the press or investment community about our Company or industry; |
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general economic, industry and market conditions; and
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other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, including
the ongoing COVID-19 pandemic, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations or
result in political or economic instability.
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In addition, some companies that have experienced volatility in the market price of their common shares have been subject to securities class-action litigation. If instituted against us, such
litigation could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, operating results and growth prospects. There can be no guarantee that the price of our common shares will remain at its current level or that future sales of our common shares will not be at prices lower than those sold to investors.
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.
On
April 14, 2020, we received written notification from Nasdaq indicating that because the closing bid price of
the Company’s common shares for 30 consecutive business days, from
February 27,
2020 to
April 13, 2020, was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq Capital Market,
the Company was not in compliance with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2).
Following certain extension periods obtained, we had until
June 28, 2021, to regain compliance with the minimum bid price requirement.
On May 28, 2021, we effected a one-for-ten reverse stock split in order to
regain compliance with the minimum bid price requirement, and, as a result, we regained compliance on
June 14, 2021.
During the month of January 2022, our closing bid price ranged between $1.08 and $1.53 per share. If a breach of the minimum bid price requirement of Nasdaq were to occur again, we might be
unable to regain compliance, which, in turn could lead to a suspension or delisting of our common shares. If a suspension or delisting of our common shares were to occur, there would be significantly less liquidity in the suspended or delisted
common shares. In addition, our ability to raise additional capital through equity or debt financing would be greatly impaired. A suspension or delisting may also breach the terms of certain of our
material contracts, such as our at-the-market
program Equity Distribution Agreement. Please see
“Item 5. Operating and Financial Review and Prospects—B. Equity Transactions” for further details on this program. There can be no assurance that we will
maintain compliance with the minimum bid price requirements of Nasdaq in the future.
Recent share issuances and future issuances of additional shares, or the potential for such issuances, may impact the price of our common shares and could
impair our ability to raise capital through subsequent equity offerings. Shareholders may experience significant dilution as a result of any such issuances.
We have already issued and sold large quantities of our common shares pursuant to previous public and private offerings of our equity and equity-linked securities.
The Company had 94,610,088
issued and outstanding common shares as of
December 31, 2021. Upon the exercise of our outstanding warrants,
the Company may issue up to an additional 19,360,978 common shares. Additionally,
the Company has an authorized share capital of
1,950,000,000 common shares that it may issue without further shareholder approval. Our growth strategy may require the issuance of a substantial amount of additional shares. We cannot assure you at what price the offering of our shares in the
future, if any, will be made but they may be offered and sold at a price significantly below the current trading price of our common shares or the acquisition price of common shares by shareholders and may be at a discount to the trading price of
our common shares at the time of such sale. 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, without shareholder approval, in a number of circumstances. 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.
Our issuance of additional common shares or other equity securities of equal or senior rank, or the perception that such issuances may occur, could have the following effects:
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our existing shareholders’ proportionate ownership interest in us will decrease;
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the earnings per share and the per share amount of cash available for dividends on our common shares (as and if declared) could decrease;
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the relative voting strength of each previously outstanding common share could be diminished;
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the market price of our common shares could decline; and
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our ability to raise capital through the sale of additional securities at a time and price that we deem appropriate, could be impaired.
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The market price of our common shares could also decline due to sales, or the announcements of proposed sales, of a large number of common shares by our large shareholders, or the perception that
these sales could occur.
We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate and case law.
We are organized in the Republic of the Marshall Islands, which does not have a well-developed body of corporate or case 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
Articles of Incorporation and
Bylaws and by the Marshall Islands Business Corporations Act (the
“BCA”). The provisions of
the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under
the laws of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in the United States. The rights of shareholders of companies incorporated
in the Marshall Islands may differ from the rights of shareholders of companies incorporated in the United States. While the BCA provides that it is to be interpreted according to the laws of the State of Delaware and other states with
substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we cannot predict whether Marshall Islands courts would reach the same conclusions as U.S. courts. Thus, you
may have difficulty in protecting your interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction which has developed a
relatively more substantial body of case law.
We are incorporated in the Marshall Islands, and all of our officers and directors are non-U.S. residents. It may be difficult to serve legal process or
enforce judgments against us, our directors or our management.
We are incorporated under the laws of the Republic of the Marshall Islands, and substantially all of our assets are located outside of the United States. Our principal executive office is located
in Cyprus. In addition, all of our directors and officers are non-residents of the United States, and substantially all of their assets are located outside the United States. As a result, it may be difficult or impossible for you to bring an
action against us or against these individuals in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Republic of
the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or our directors and officers. Although you may bring an original action against us or our affiliates in the courts of the
Marshall Islands, and the courts of the Marshall Islands may impose civil liability, including monetary damages, against us or our affiliates for a cause of action arising under Marshall Islands law, it may be impracticable for you to do so.
We are subject to certain anti-takeover provisions that could have the effect of discouraging, delaying or preventing a merger or acquisition, or could
make it difficult for our shareholders to replace or remove our current Board, and could adversely affect the market price of our common shares.
Several provisions of our
Articles of Incorporation and
Bylaws could make it difficult for our shareholders to change the composition of our Board 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:
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authorizing our Board to issue “blank check” preferred shares without shareholder approval;
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providing for a classified Board with staggered, three-year terms;
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establishing certain advance notice requirements for nominations for election to our Board or for proposing matters that can be acted on by shareholders at shareholder meetings;
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prohibiting cumulative voting in the election of directors;
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limiting the persons who may call special meetings of shareholders; and
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On November 21, 2017, our Board declared a dividend of one preferred share purchase right (a “Right”), for each outstanding common share and adopted a
shareholder rights plan, as set forth in the Stockholders Rights Agreement dated as of November 20, 2017 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. Each Right
allows its holder to purchase from the Company one one-thousandth of a share of Series C Participating Preferred Stock, or a Series C Preferred Share, for the Exercise Price of $150.00
once the
Rights become exercisable. This portion of a Series C Preferred Share will give the shareholder approximately the same dividend, voting and liquidation rights as would one common share. The Board adopted the
Rights Agreement to
protect shareholders from coercive or otherwise unfair takeover tactics. In general terms, it imposes a significant penalty upon any person or group that acquires 15% or more of our outstanding common shares without the approval of our Board.
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.
Our Chairman, Chief
Executive Officer and Chief Financial Officer, Petros Panagiotidis and Thalassa Investment Co. S.A. (
“Thalassa”) are
exempt from these provisions. For
a full description of the rights plan, see
“Item 10. Additional Information¾B. Stockholders Rights
Agreement” and
Exhibit 2.2 to this annual report.
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. 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 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.
In addition to the Rights above, we have issued 12,000 Series B Preferred Shares (representing all the issued and outstanding Series B Preferred Shares) to a company controlled by Petros
Panagiotidis, Thalassa, each of which has the voting power of 100,000 common shares. The Series B Preferred Shares currently represent 92.7% of the aggregate voting power of our total issued and outstanding share capital and therefore grant Mr.
Panagiotidis a controlling vote in most shareholder matters. See
“—Our Chairman, Chief Executive Officer and Chief Financial Officer, who may be deemed to beneficially own, directly or indirectly, 100% of our
Series B Preferred Shares, has control over us” and
“Item 10. Additional Information—B. Memorandum and Articles of Association.”
Further, lenders have imposed provisions prohibiting or limiting a change of control, subject to certain exceptions, on all of our credit facilities. See “—Our
credit facilities contain, and we expect that any new or amended credit facility we may enter into will contain, restrictive covenants that we may not be able to comply with due to economic, financial or operational reasons and can limit, or
may limit the future, our business and financing activities.” Our management agreements similarly permit our fleet managers to terminate these agreements in the event of a change of control. For further information on our management
agreements, see “Item 7.B. Major Shareholders and Related Party Transactions — Related Party Transactions” and Note 3 to our consolidated financial statements included elsewhere in this annual report.
The foregoing anti-takeover provisions 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.
Our Chairman, Chief Executive Officer and Chief Financial Officer, who may be deemed to beneficially own, directly or indirectly, 100% of our Series B
Preferred Shares, has control over us.
Our Chairman, Chief Executive Officer and Chief Financial Officer, Mr.
Petros Panagiotidis, may be deemed to beneficially own, directly or indirectly, all of the 12,000 outstanding shares of our
Series B Preferred Shares. The shares of Series B Preferred Shares each carry 100,000 votes. The Series B Preferred Shares currently represent 0.01% of our total issued and outstanding share capital and 92.7% of the aggregate voting power of our
total issued and outstanding share capital. By his ownership of 100% of our Series B Preferred Shares, Mr. Panagiotidis has control over our actions. The interests of Mr. Panagiotidis may be different from your interests.
We are an “emerging growth company”, and we cannot be certain if the reduced requirements applicable to emerging growth companies make our securities less
attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we are not required to comply with, among other
things, the auditor attestation requirements of the Sarbanes-Oxley Act. Investors may find our securities less attractive because we rely on this provision. If investors find our securities less attractive as a result, there may be a less active
trading market for our securities and prices of the securities may be more volatile.
U.S. 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” (a “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, and 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. For purposes of these tests, income derived from the performance of services does not constitute “passive income,” whereas rental income would generally constitute “passive income” to the extent not attributable to the active conduct of
a trade or business. 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 do not believe that we will be treated as a PFIC for any taxable year. However, our status as a PFIC is determined on an annual basis and will depend upon the operations of our vessels and our
other activities during each taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our spot chartering and 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, however, no direct legal authority under the PFIC rules addressing our method of operation. Accordingly, no assurance can be given that the U.S. Internal Revenue Service (the “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 taxable year we become unable to
acquire vessels in a timely fashion or if there were to be changes in the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. federal income tax consequences and information reporting obligations.
Under the PFIC rules, unless those shareholders made an election available under the Internal Revenue Code (which election could itself have adverse consequences for such shareholders, as discussed below under “Taxation—U.S. Federal Income Tax
Considerations—Passive Foreign Investment Company Status and Significant Tax Consequences”), such shareholders would be liable to pay U.S. federal income tax upon excess distributions and upon any gain from the disposition of our common shares at
the then prevailing income tax rates applicable to ordinary income plus interest as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of our common shares. Please see the section of this annual
report entitled “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—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 if we are treated as a PFIC.
We may have to pay tax on United States source income, which would reduce our earnings, cash from operations and cash available for distribution to our
shareholders.
Under the United States Internal Revenue Code of 1986 (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, may be subject to a 4% U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from
tax under Section 883 of the Code and the applicable Treasury Regulations promulgated thereunder.
We intend to take the position that we and each of our
subsidiaries qualify for this statutory tax exemption for our 2021 and future taxable years. However, as discussed below under “
Taxation—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of Our Company”, whether we qualify for this exemption in view of our share structure is unclear, and there can be no assurance that
the exemption from tax under Section 883 of the Code will be available to us.
If we or our
subsidiaries are not entitled to this exemption, we would be subject to an effective 2% U.S. federal income tax on the gross shipping income we derive during the year that are
attributable to the transport of cargoes to or from the United States. If this tax were imposed for our 2021 taxable year, we anticipate that U.S. source income taxes of approximately $497,339 would be recognized for the year ended
December 31,
2021, and we have included a reserve for this amount in our annual consolidated financial statements. However, there can be no assurance that such taxes would not be materially higher or lower in future taxable years.
We are a growth-oriented global shipping company that was incorporated in the Republic of the Marshall Islands in September 2017 for the purpose of acquiring, owning, chartering and operating
oceangoing cargo vessels. We are a provider of worldwide seaborne transportation services for dry bulk cargo as well as crude oil and refined petroleum products. During 2021 and as of the date of this report, we grew our dry bulk fleet from six
to 20 dry bulk vessels, and we established our tanker operations by acquiring seven Aframax/LR2 and two Handysize tanker vessels. As a result, as of the date of this annual report, our fleet consisted of 20 dry bulk carriers with an aggregate
cargo carrying capacity of 1.7 million dwt and an average age of 12.3 years, seven Aframax/LR2 tankers with an aggregate cargo carrying capacity of 0.8 million dwt and an average age of 17.5 years and two Handysize tankers with an aggregate cargo
carrying capacity of 0.1 million dwt and an average age of 16.1 years. The average age of our entire fleet is 13.9 years.
Our fleet vessels operate in the time charter and voyage charter markets, while some of our tanker vessels currently operate in pools. Our commercial strategy primarily focuses on deploying our
fleet under a mix of period time charters and trip time charters according to our assessment of market conditions, adjusting the mix of these charters to take advantage of the relatively stable cash flows and high utilization rates associated
with period time charters or to profit from attractive trip charter rates during periods of strong charter market conditions.
Our principal executive office is at 223 Christodoulou Chatzipavlou Street, Hawaii Royal Gardens, 3036 Limassol, Cyprus. Our telephone number at that address is + 357 25 357 767. Our
website is
www.castormaritime.com. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC’s internet site is
www.sec.gov. None of the information contained on, or that can be accessed through, these
websites is incorporated into or forms a part of this annual report.
For an overview of our fleet and information regarding the development of our fleet, including vessel acquisitions, please see “—Item 4.B. Business Overview—Our
fleet.”
Equity Transactions
For a description of our recent equity transactions, please see “Item 5.B. Operating and Financial Review and Prospects— Liquidity and Capital Resources—Equity
Transactions.”
Fleet Development and Vessel Capital Expenditures
From the end of 2020 until the date of this annual report, we grew our fleet from six vessels to 29 vessels through the acquisition of 23 new vessels, consisting of two Handysize tanker vessels
that currently comprise our Handysize tanker segment, seven Aframax/LR2 tanker vessels that currently comprise our Aframax/LR2 tanker segment and 14 dry bulk vessels that brought the current size of our dry bulk segment to 20 vessels. For further
information on vessel acquisitions and the series of financing transactions that enabled our vessel acquisitions, see “—B. Business Overview—Fleet Development” below and Notes 6 and 7 to our consolidated
financial statements included in this annual report.
As of the date of this annual report, 16 of the 20 dry-bulk segment vessels, one of the two Handysize tanker segment vessels and four of the seven Aframax/LR2 tanker segment vessels are equipped
with ballast water management system (
“BWMS”). We expect to retrofit the seven non-fully equipped and one non-equipped vessels with BWMS during 2022, obtaining operational flexibility worldwide. As of
December 31, 2021, we had entered into
contracts for the purchase and installation of a BWMS on all of these eight discussed vessels. It is estimated that the contractual obligations related to the purchases on these four dry bulk, one Handysize and three Aframax/LR2 vessels,
excluding installation costs, will be approximately $1.0 million, $0.2 million and $2.1 million, respectively, with scheduled payments of $2.6 million in 2022 and $0.7 million in 2023. As of
December 31, 2021, we also had outstanding contractual
commitments on one fully equipped dry-bulk vessel and one fully equipped Handysize tanker vessel amounting to $0.1 million, expected to be settled in 2022, bringing our total capital commitment for BWMS to $3.4 million. All remaining BWMS
commitments are expected to be settled until 2023 and we expect to finance these capital expenditures with cash on hand.
During the years ended
December 31, 2019,
2020 and
2021, we made capital expenditures of approximately $0.2 million, $1.0 million and $1.8 million, respectively, relating to the installation of
BWMS on our vessels.
Financing Transactions
On
January 22, 2021, we entered into a $15.29 million senior term loan facility with Hamburg Commercial AG, through and secured by two of
the Company’s dry bulk vessel ship-owning
subsidiaries,
those owning the
Magic Horizon and the
Magic Nova. This facility has a tenor of four years from the drawdown date and bears interest at a 3.30% margin over LIBOR
per annum. The loan was drawn down in full on
January 27, 2021. We used the net proceeds from the facility to support our growth plans and for general corporate purposes
.
On
April 27, 2021, we entered into a $18.0 million senior term loan facility with Alpha Bank S.A., through and secured by two of
the Company’s tanker vessel ship-owning
subsidiaries, those owning
the
Wonder Sirius and the
Wonder Polaris. This facility has a tenor of four years from the drawdown date and bears interest at a 3.20% margin over LIBOR per
annum. The loan was drawn down in full in two tranches on
May 7, 2021. We used the net proceeds from the facility to support our growth plans and for general corporate purposes
.
On
July 23, 2021, we entered into a $40.75 million senior term loan facility with
Hamburg Commercial Bank AG, through and secured by four of the
Company’s dry bulk vessel ship-owning
subsidiaries, those owning the
Magic Thunder, the
Magic Nebula, the
Magic Eclipse and
the
Magic Twilight. This facility has a tenor of five years from the drawdown date and bears interest at a 3.10% margin over LIBOR per annum. The loan was drawn down in full in four tranches on
July 27,
2021. We used the net proceeds from the respective facility to support our growth plans and for general corporate purposes
.
On November 22, 2021, we entered into a $23.15 million term loan facility with
Chailease International Financial
Services (Singapore) Pte. Ltd., through and secured by the two of the Company’s dry bulk vessel ship-owning subsidiaries, those owning the Magic Rainbow and Magic Phoenix, and guaranteed by the Company. This facility has a tenor of five years and bears interest at a 4.00%
margin over LIBOR per annum. The loan was drawn down in full in two tranches on
November 24, 2021. We have used and intend to further use the net proceeds from the facility to support our growth plans and for general corporate purposes.
On January 12, 2022, we entered into a $55.0 million term loan facility with Deutsche Bank AG
, through and secured by
the five of the Company’s dry bulk vessel ship-owning subsidiaries, those owning the Magic Starlight, the
Magic Mars, the
Magic Pluto,
the
Magic Perseus and the
Magic Vela, and guaranteed by the
Company. This facility has a tenor of five years and bears interest at a 3.15% margin over adjusted SOFR per annum. The loan was drawn down in full in five tranches on
January 13, 2022. We intend to use the net proceeds from the
facility to support our growth plans and for general corporate purposes.
For more information about our financing agreements which we have entered into in connection with the expansion of our fleet and for other general corporate purposes, please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Borrowing Activities.”
Nasdaq Listing Standards Compliance
On
April 14, 2020, we received written notification from the Nasdaq indicating that because the closing bid price of our common shares for 30 consecutive business days, from
February 27, 2020, to
April 13, 2020, was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq, we were not in compliance with Nasdaq Listing Rule 5550(a)(2). Due to the COVID-19 crisis, we were granted temporary relief and our
compliance period was suspended until
June 30, 2020. Following certain extension periods obtained, we had until
June 28, 2021 to regain compliance with Nasdaq’s minimum bid price requirement.
On May 28, 2021,
we effected a one-for-ten reverse stock split of our common shares, and, as a result, on June 14, 2021, we regained compliance.
We operate dry-bulk vessels that engage in the worldwide transportation of
commodities such as iron ore, coal, soybeans etc., Aframax/LR2 tanker vessels that
are engaged in the worldwide transportation of crude oil and Handysize tanker vessels that carry oil and petroleum products. Our management reviews and analyzes operating results for our business over three reportable segments, (i) Dry
bulk vessels, (ii) Aframax/LR2 tanker vessels, and (iii) Handysize tanker vessels. During the year ended
December 31, 2021, our dry-bulk vessels operated exclusively under time charter
contracts, our Aframax/ LR2 tanker vessels operated under
time charter
contracts, voyage charter
contracts and pools and our Handysize tanker vessels operated in a pool. We do not disclose geographic information relating to our segments. When
the Company charters a vessel to a charterer, the charterer
is free, subject to certain exemptions, to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable. For further information, see Note 2 to our consolidated financial statements included elsewhere in
this annual report.
Our Fleet
The following tables summarize key information about our fleet in each segment as of
March 28, 2022:
Dry Bulk Segment
|
Vessel Name
|
Year
Built
|
Type of
Charter
|
|
Capacity
(dwt)
|
|
Delivered to
Castor
|
|
Gross Charter Rate ($/day)
|
Estimated Earliest Charter Expiration
|
Estimated Latest Charter Expiration
|
|
Panamax
|
|
|
|
|
|
|
|
|
|
|
|
Magic Nova
|
2010
|
Period Time Charter
|
|
|
78,833
|
|
October 2020
|
|
$25,300(1)
|
October 2022
|
February 2023
|
|
Magic Mars
|
2014
|
Period Time Charter
|
|
|
76,822
|
|
September 2021
|
|
$21,500(2)
|
November 2022
|
February 2023
|
|
Magic Phoenix
|
2008
|
Period Time Charter
|
|
|
76,636
|
|
October 2021
|
|
102% of BPI4TC(3) (4)
|
September 2022
|
December 2022
|
|
Magic Horizon
|
2010
|
Trip Time Charter
|
|
|
76,619
|
|
October 2020
|
|
$20,100(5)
|
March 2022
|
March 2022
|
|
Magic Moon
|
2005
|
Trip Time Charter
|
|
|
76,602
|
|
October 2019
|
|
$25,000
|
April 2022
|
April 2022
|
|
Magic P
|
2004
|
Period Time Charter
|
|
|
76,453
|
|
February 2017
|
|
$27,500
|
April 2022
|
July 2022
|
|
Magic Sun
|
2001
|
Trip Time Charter
|
|
|
75,311
|
|
September 2019
|
|
$17,500 plus $750,000 Ballast Bonus
|
April 2022
|
April 2022
|
|
Magic Vela
|
2011
|
Trip Time Charter
|
|
|
75,003
|
|
May 2021
|
|
$16,000 plus $550,000 Ballast Bonus
|
April 2022
|
April 2022
|
|
Magic Eclipse
|
2011
|
Period Time Charter
|
|
|
74,940
|
|
June 2021
|
|
$28,500
|
April 2022
|
July 2022
|
|
Magic Pluto
|
2013
|
Period Time Charter
|
|
|
74,940
|
|
August 2021
|
|
$24,000(6)
|
November 2022
|
February 2023
|
|
Magic Callisto
|
2012
|
Period Time Charter
|
|
|
74,930
|
|
January 2022
|
|
$27,000(7)
|
October 2022
|
January 2023
|
|
Magic Rainbow
|
2007
|
Trip Time Charter
|
|
|
73,593
|
|
August 2020
|
|
$16,000
|
April 2022
|
April 2022
|
|
Kamsarmax
|
|
|
|
|
|
|
|
|
|
|
|
|
Magic Venus
|
2010
|
Trip Time Charter
|
|
|
83,416
|
|
March 2021
|
|
$16,300 plus $630,000 Ballast Bonus (8)
|
April 2022
|
April 2022
|
|
Magic Thunder
|
2011
|
Period Time Charter
|
|
|
83,375
|
|
April 2021
|
|
100% of BPI5TC
|
October 2022
|
January 2023
|
|
Magic Argo
|
2009
|
Trip Time Charter
|
|
|
82,338
|
|
March 2021
|
|
$16,600(9)
|
April 2022
|
April 2022
|
|
Magic Perseus
|
2013
|
Period Time Charter
|
|
|
82,158
|
|
August 2021
|
|
100% of BPI5TC
|
October 2022
|
January 2023
|
|
Magic Starlight
|
2015
|
Period Time Charter
|
|
|
81,048
|
|
May 2021
|
|
$32,000(10)
|
September 2022
|
March 2023
|
|
Magic Twilight
|
2010
|
Period Time Charter
|
|
|
80,283
|
|
April 2021
|
|
$25,000(11)
|
January 2023
|
April 2023
|
|
Magic Nebula
|
2010
|
Period Time Charter
|
|
|
80,281
|
|
May 2021
|
|
$23,500
|
September 2022
|
November 2022
|
|
Capesize
|
|
|
|
|
|
|
|
|
|
|
|
|
Magic Orion
|
2006
|
Period Time Charter
|
|
|
180,200
|
|
March 2021
|
|
101% of BCI5TC (12)
|
October 2022
|
January 2023
|
|
(1) |
The vessels’ daily gross charter rate is equal to 92% of BPI5TC. In accordance with the prevailing charter party, on 17/02/2022 owners converted the index-linked rate to fixed from 01/03/2022 until 30/09/2022, at a rate of $25,300 per
day. Upon completion of said period, the rate will be converted back to index linked. The benchmark vessel used in the calculation of the average of the Baltic Panamax Index 5TC routes is a non-scrubber fitted 82,500mt dwt vessel
(Kamsarmax) with specific age, speed - consumption, and design characteristics.
|
|
(2) |
The vessels’ daily gross charter rate is equal to 91% of BPI5TC. In accordance with the prevailing charter party, on 20/01/2022 owners converted the index-linked rate to fixed from 01/02/2022 until 30/09/2022, at a rate of $21,500 per
day. Upon completion of said period, the rate will be converted back to index linked.
|
|
(3) |
The benchmark vessel used in the calculation of the average of the Baltic Panamax Index 4TC routes is a non-scrubber fitted 74,000mt dwt vessel (Panamax) with specific age, speed - consumption, and design characteristics.
|
|
(4) |
In accordance with the prevailing charter party, on 03/03/2022 owners converted the index-linked rate to fixed from 01/04/2022 until 30/09/2022, at a rate of $28,100 per day. Upon completion of said period, the rate will be converted
back to index linked.
|
|
(5) |
Upon completion of current time charter trip, estimated within April, the vessel has been fixed on a time charter period at a gross daily charter rate equal to 103% of the average of Baltic Panamax Index 4TC routes, with a minimum
duration of 12 months and a maximum duration of 15 months, at the charterer’s option.
|
|
(6) |
The vessels’ daily gross charter rate is equal to 91% of BPI5TC. In accordance with the prevailing charter party, on 08/02/2022 owners converted the index-linked rate to fixed from 01/03/2022 until 30/09/2022, at a rate of $24,000 per
day. Upon completion of said period, the rate will be converted back to index linked.
|
|
(7) |
The vessels’ daily gross charter rate is equal to 101% of BPI4TC. In accordance with the prevailing charter party, on 22/02/2022 owners converted the index-linked rate to fixed from 01/03/2022 until 30/09/2022, at a rate of $27,000 per
day. Upon completion of said period, the rate will be converted back to index linked.
|
|
(8) |
Upon completion of current time charter trip, estimated within April, the vessel has been fixed on a time charter period at a gross daily charter rate equal to 100% of the average of Baltic Panamax Index 5TC routes, with a minimum
duration of about 13 months and a maximum duration of about 15 months, at the charterer’s option.
|
|
(9) |
Upon completion of current time charter trip, estimated within April, the vessel has been fixed on a time charter period at a gross daily charter rate equal to 103% of the average of Baltic Panamax Index 5TC routes, with a minimum
duration of 12 months and a maximum duration of 15 months, at the charterer’s option.
|
|
(10) |
The vessels’ daily gross charter rate is equal to 114% of BPI4TC. In accordance with the prevailing charter party, on 19/10/2021 owners converted the index-linked rate to fixed from 01/01/2022 until 30/09/2022, at a rate of $32,000 per
day. Upon completion of said period, the rate will be converted back to index linked.
|
|
(11) |
In accordance with the prevailing charter party, the vessel’s daily gross charter rate is $25,000 per day for the first 30 days and thereafter index-linked at a rate equal to 93% of BPI5TC.
|
|
(12) |
The benchmark vessel used in the calculation of the average of the Baltic Capesize Index 5TC routes is a non-scrubber fitted 180,000mt dwt vessel (Capesize) with specific age, speed - consumption, and design characteristics.
|
Aframax/LR2 Tanker Segment
|
Vessel Name
|
Year
Built
|
Type of
Charter
|
|
Capacity
(dwt)
|
|
Delivered to
Castor
|
|
Gross Charter Rate ($/day)
|
|
|
Estimated Earliest Charter Expiration
|
|
|
Estimated Latest Charter Expiration
|
|
|
Aframax/LR2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wonder Polaris
|
2005
|
Voyage
|
|
|
115,351
|
|
March 2021
|
|
$
|
6,500
|
(1)
|
|
31 March 2022 (2)
|
|
|
|
N/A
|
|
|
Wonder Sirius
|
2005
|
Unfixed
|
|
|
115,341
|
|
March 2021
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Wonder Bellatrix
|
2006
|
Voyage
|
|
|
115,341
|
|
December 2021
|
|
$
|
21,024
|
(1)
|
|
3 April 2022 (2)
|
|
|
|
N/A
|
|
|
Wonder Musica
|
2004
|
Unfixed
|
|
|
106,290
|
|
June 2021
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Wonder Avior
|
2004
|
Voyage
|
|
|
106,162
|
|
May 2021
|
|
$
|
7,440
|
(1)
|
|
16 April 2022 (2)
|
|
|
|
N/A
|
|
|
Wonder Arcturus
|
2002
|
Unfixed
|
|
|
106,149
|
|
May 2021
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Aframax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wonder Vega
|
2005
|
Tanker Pool (3)
|
|
|
106,062
|
|
May 2021
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
(1) |
For vessels that are employed on the voyage/spot market, the gross daily charter rate is considered as the Daily TCE Rate on the basis of the
expected completion date.
|
|
(2) |
Estimated completion date of the voyage.
|
|
(3) |
The vessel is currently participating in an unaffiliated tanker pool specializing in the employment of Aframax tanker vessels.
|
Handysize Tanker Segment
|
Vessel Name
|
Year
Built
|
Type of
Charter
|
|
Capacity
(dwt)
|
|
Delivered to
Castor
|
|
Gross Charter Rate ($/day)
|
|
|
Estimated Earliest Charter Expiration
|
|
|
Estimated Latest Charter Expiration
|
|
|
Wonder Mimosa
|
2006
|
Tanker Pool (1)
|
|
|
36,718
|
|
May 2021
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Wonder Formosa
|
2006
|
Tanker Pool (1)
|
|
|
36,660
|
|
June 2021
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The vessel is currently participating in an unaffiliated tanker pool specializing in the employment of Handysize tanker vessels.
|
Fleet Development
During the years ended
December 31, 2019,
2020 and
2021 and further as of the date of this annual report, we implemented our strategic fleet growth plan by acquiring the vessels listed below:
|
Dry Bulk Carriers
|
|
Vessel Name
|
Vessel Type
|
|
DWT
|
|
|
Year
Built
|
|
Country of
Construction
|
|
Purchase Price
(in million)
|
|
Delivery Date
|
|
2019 Acquisitions
|
|
Magic Sun
|
Panamax
|
|
|
75,311
|
|
|
|
2001
|
|
S. Korea
|
|
$
|
6.71
|
|
09/05/2019
|
|
Magic Moon
|
Panamax
|
|
|
76,602
|
|
|
|
2005
|
|
Japan
|
|
$
|
10.20
|
|
10/20/2019
|
|
2020 Acquisitions
|
|
Magic Rainbow
|
Panamax
|
|
|
73,593
|
|
|
|
2007
|
|
China
|
|
$
|
7.85
|
|
08/08/2020
|
|
Magic Horizon
|
Panamax
|
|
|
76,619
|
|
|
|
2010
|
|
Japan
|
|
$
|
12.75
|
|
10/09/2020
|
|
Magic Nova
|
Panamax
|
|
|
78,833
|
|
|
|
2010
|
|
Japan
|
|
$
|
13.86
|
|
10/15/2020
|
|
2021 Acquisitions
|
|
Magic Orion
|
Capesize
|
|
|
180,200
|
|
|
|
2006
|
|
Japan
|
|
$
|
17.50
|
|
03/17/2021
|
|
Magic Venus
|
Kamsarmax
|
|
|
83,416
|
|
|
|
2010
|
|
Japan
|
|
$
|
15.85
|
|
03/02/2021
|
|
Magic Argo
|
Kamsarmax
|
|
|
82,338
|
|
|
|
2009
|
|
Japan
|
|
$
|
14.50
|
|
03/18/2021
|
|
Magic Twilight
|
Kamsarmax
|
|
|
80,283
|
|
|
|
2010
|
|
S. Korea
|
|
$
|
14.80
|
|
04/09/2021
|
|
Magic Nebula
|
Kamsarmax
|
|
|
80,281
|
|
|
|
2010
|
|
S. Korea
|
|
$
|
15.45
|
|
05/20/2021
|
|
Magic Thunder
|
Kamsarmax
|
|
|
83,375
|
|
|
|
2011
|
|
Japan
|
|
$
|
16.85
|
|
04/13/2021
|
|
Magic Eclipse
|
Panamax
|
|
|
74,940
|
|
|
|
2011
|
|
Japan
|
|
$
|
18.48
|
|
06/07/2021
|
|
Magic Starlight
|
Kamsarmax
|
|
|
81,048
|
|
|
|
2015
|
|
China
|
|
$
|
23.50
|
|
05/23/2021
|
|
Magic Vela
|
Panamax
|
|
|
75,003
|
|
|
|
2011
|
|
China
|
|
$
|
14.50
|
|
05/12/2021
|
|
Magic Perseus
|
Kamsarmax
|
|
|
82,158
|
|
|
|
2013
|
|
Japan
|
|
$
|
21.00
|
|
08/09/2021
|
|
Magic Pluto
|
Panamax
|
|
|
74,940
|
|
|
|
2013
|
|
Japan
|
|
$
|
19.06
|
|
08/06/2021
|
|
Magic Mars
|
Panamax
|
|
|
76,822
|
|
|
|
2014
|
|
S. Korea
|
|
$
|
20.40
|
|
09/20/2021
|
|
Magic Phoenix
|
Panamax
|
|
|
76,636
|
|
|
|
2008
|
|
Japan
|
|
$
|
18.75
|
|
10/26/2021
|
|
2022 Acquisitions
|
|
Magic Callisto
|
Panamax
|
|
|
74,930
|
|
|
|
2012
|
|
Japan
|
|
$
|
23.55
|
|
01/04/2022
|
|
Aframax/LR2 Tankers
|
|
2021 Acquisitions
|
|
Wonder Polaris
|
Aframax LR2
|
|
|
115,351
|
|
|
|
2005
|
|
S. Korea
|
|
$
|
13.60
|
|
03/11/21
|
|
Wonder Sirius
|
Aframax LR2
|
|
|
115,341
|
|
|
|
2005
|
|
S. Korea
|
|
$
|
13.60
|
|
03/22/21
|
|
Wonder Vega
|
Aframax
|
|
|
106,062
|
|
|
|
2005
|
|
S. Korea
|
|
$
|
14.80
|
|
05/21/21
|
|
Wonder Avior
|
Aframax LR2
|
|
|
106,162
|
|
|
|
2004
|
|
S. Korea
|
|
$
|
12.00
|
|
05/27/21
|
|
Wonder Arcturus
|
Aframax LR2
|
|
|
106,149
|
|
|
|
2002
|
|
S. Korea
|
|
$
|
10.00
|
|
05/31/21
|
|
Wonder Musica
|
Aframax LR2
|
|
|
106,290
|
|
|
|
2004
|
|
S. Korea
|
|
$
|
12.00
|
|
06/15/21
|
|
Wonder Bellatrix
|
Aframax LR2
|
|
|
115,341
|
|
|
|
2006
|
|
S. Korea
|
|
$
|
18.15
|
|
12/23/21
|
|
Handysize Tankers
|
|
2021 Acquisitions
|
|
Wonder Mimosa
|
Handysize
|
|
|
36,718
|
|
|
|
2006
|
|
S. Korea
|
|
$
|
7.25
|
|
05/31/21
|
|
Wonder Formosa
|
Handysize
|
|
|
36,660
|
|
|
|
2006
|
|
S. Korea
|
|
$
|
8.00
|
|
06/22/21
|
All the above-mentioned acquisitions were financed using a mix of cash from operations and the net cash proceeds from our equity and financing transactions, as further discussed under “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”
Chartering of our Fleet
We actively market our vessels, in the short, medium and long-term charter markets in order to secure optimal employment in the dry bulk and tanker shipping markets. As of
December 31,
2021, seven of our dry bulk vessels were chartered on the trip time charter market, our two Handysize tankers and one of our Aframax/LR2 tankers were participating in pools and three of our Aframax/LR2 tankers were chartered on the voyage charter
market, totaling 13 vessels employed in the spot market. Our remaining 15 vessels as of
December 31, 2021 (excluding the
Magic Callisto that was delivered to us in January 2022), consisting of 12 dry bulk
vessels and three Aframax/ LR2 tankers were employed under medium-term time charters which have either a fixed or floating (i.e., index-linked) charter hire rate. Among them, three of our Aframax/ LR2 tankers also incorporated a profit-sharing
arrangement over and above the fixed charter rate level.
Charter rates in the spot market are volatile and sometimes fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargoes for shipment and the
number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable than those under period time charters but may enable us to capture increased profit margins
during periods of improvements in the dry bulk and tanker markets. Downturns in the dry bulk and/or tanker industries would result in a reduction in profit margins and could lead to losses. Following the dry bulk market recovery in 2021, we may
opportunistically look to employ more of our dry bulk
vessels in the spot market under trip time charter
contracts, voyage charter
contracts or pooling arrangements.
Management of our Business
Our vessels are technically managed by Pavimar, a company controlled by Ismini Panagiotidis, the sister of our Chairman, Chief Executive Officer and Chief Financial Officer,
Petros Panagiotidis. Under the technical management agreements, our ship-owning
subsidiaries pay a $600 daily fee to Pavimar for the provision of a wide range of shipping services such as crew management, technical management, operational
employment management, insurance management, provisioning, bunkering, accounting and audit support services, which Pavimar may choose to subcontract to other parties at its discretion. As of
December 31, 2021, Pavimar had subcontracted the
technical management of three of
the Company’s dry bulk vessels and nine of its tanker vessels to third-party ship-management companies. Pavimar pays, at its own expense, these third-party management companies a fee for the services it has
subcontracted to them, without burdening
the Company with any additional cost.
Our vessels are commercially managed by Castor Ships, a company controlled by our Chairman, Chief Executive Officer and Chief Financial Officer. Castor Ships manages our business overall and
provides us with commercial, chartering and administrative services, including, but not limited to, securing employment for our fleet, arranging and supervising the vessels’ commercial operations, handling all of
the Company’s vessel sale and
purchase transactions, undertaking related shipping project and management advisory and support services, as well as other associated services requested from time to time by us and our ship-owning
subsidiaries. In exchange for these services, we
and our
subsidiaries pay Castor Ships (i) a flat quarterly management fee in the amount of $0.3 million for the management and administration of our business, (ii) a daily fee of $250 per vessel for the provision of commercial services, (iii) a
commission of 1.25% on all charter agreements and (iv) a commission of 1% on each vessel sale and purchase transaction.
For further information, see “Item 7. Major Shareholders and Related Party Transactions—B. Related
Party Transactions.”
Environmental and Other Regulations in the Shipping Industry
Government regulations 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 international conventions, laws, regulations, insurance and other requirements entails significant expense,
including for 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 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 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 serious marine
incident that causes significant adverse environmental impact could result in additional legislation or regulation that could have a material adverse effect on our business, financial condition, and operating results.
International Maritime Organization
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the
“IMO”), has 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. 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 broken 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. Annex VI, which relates to air emissions,
was separately adopted by the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on
January 1, 2020.
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 tankers,
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 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. On
October
27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from
January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels,
or certain exhaust gas cleaning systems. Ships are now required to obtain bunker delivery notes and International Air Pollution Prevention 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 were adopted and took effect on
March 1, 2020. These regulations subject ocean-going vessels to stringent emissions controls and may cause us to incur substantial costs. As
of the date of this annual report, one of our vessels is equipped with a scrubber while our remaining vessels are not equipped with scrubbers and have transitioned to burning IMO compliant fuels.
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 area. Ocean-going vessels in these areas are subject to more stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. 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 other
jurisdictions 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. At the MEPC meeting held from March
to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American
and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after
January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx
in the future. 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 respects stricter) emissions standards in
2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
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 having commenced on
January 1, 2019. The IMO intends to use 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 brings 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. This may require us to incur additional operating or other costs. Further, MEPC 75
proposed draft amendments requiring that, on or before January 1, 2023,
all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP would need to include certain mandatory content.
In addition to the recently implemented emission control regulations, the IMO has been devising strategies to reduce greenhouse gases and carbon emissions from ships.
According to its latest announcement, IMO plans to initiate measures to reduce CO2 emissions by at least 40% by 2030 and 70% by 2050 from the levels in 2008. It also plans to introduce measures to reduce GHG emissions by 50% by 2050 from the
2008 levels. These are likely to be achieved by setting energy efficiency requirements and encouraging ship owners to use alternative fuels such as biofuels, and electro-/synthetic fuels such as hydrogen or ammonia and may also include limiting
the speed of the ships. However, there is still uncertainty regarding the exact measures that the IMO will undertake to achieve these targets. IMO-related uncertainty is also a factor discouraging ship owners from ordering newbuild vessels, as
these vessels may have a high future environmental compliance costs.
In June 2021, IMO’s Marine Environment Protection Committee (
“MEPC”) adopted amendments to MARPOL Annex VI that will require ships to reduce their greenhouse gas emissions.
These amendments combine technical and operational approaches to improve the energy efficiency of ships, also providing important building blocks for future GHG reduction measures. The new measures require the IMO to review the effectiveness of
the implementation of the Carbon Intensity Indicator (
“CII”) and Energy Efficiency Existing Ship Index (
“EEXI”) requirements, by
January 1, 2026 at the latest. EEXI is a technical measure and will apply to ships above 400 GT. It indicates the
energy efficiency of the ship compared to a baseline and is based on a required reduction factor (expressed as a percentage relative to the EEDI baseline). On the other hand, CII is an operational measure which specifies carbon intensity
reduction requirements for vessels with 5,000 GT and above. The CII determines the annual reduction factor needed to ensure continuous improvement of the ship’s operational carbon intensity within a specific rating level. The operational carbon
intensity rating would be given on a scale of A, B, C, D or E indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level, respectively. The performance level would be recorded in the ship’s SEEMP. A
ship rated D or E for three consecutive years would have to submit a corrective action plan to show how the required index (C or above) would be achieved. Further, the European Union has endorsed a binding target of at least 55% domestic
reduction in economy wide GHG reduction by 2030 compared to 1990. The amendments to MARPOL Annex VI (adopted in a consolidated revised Annex VI) are expected to enter into force on
November 1, 2022, with the requirements for EEXI and CII
certification coming into effect from
January 1, 2023. This means that the first annual reporting on carbon intensity will be completed in 2023, with the first rating given in 2024. EU shipowners including us are required to comply with this
regulation.
We may incur costs to comply with these revised standards including introduction of new emissions software platform applications which will enable continuous monitoring of CIIs as well as
automatic generation of CII reports, amendment of SEEMP part II plans and adoption and implementation of ISO 500001 procedures. 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, cash flows, financial condition, and operating results.
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 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, issued by each flag state, under the ISM Code. We have obtained applicable documents
of compliance for our offices and safety management certificates for our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificate are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention on goal-based ship construction standards for bulk carriers and oil tankers stipulates that ships over 150 meters in length must have adequate
strength, integrity and stability to minimize risk of loss or pollution.
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.
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.
The IMO’s Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (the
“Polar Code”). The Polar Code, which
entered into force on
January 1, 2017, covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also
includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions. The Polar Code applies to new ships constructed after
January 1, 2017, and from
January 1, 2018, ships constructed before
January 1, 2017,
are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed
in the near future in an attempt to combat cybersecurity threats. Companies may create additional procedures for monitoring cybersecurity in addition to those required by the IMO, which could require additional expenses and/or capital
expenditures.
Fuel Regulations in Arctic Waters
MEPC 76 adopted amendments to MARPOL Annex I (addition of a new regulation 43A) to introduce a prohibition on the use and carriage for use as fuel of heavy fuel
oil (HFO) by ships in Arctic waters on and after July 1, 2024. The prohibition will cover the use and carriage for use as fuel of oils having a density at 15°C higher than 900 kg/m3 or a kinematic viscosity at 50°C higher than 180
mm2/s. Ships engaged in securing the safety of ships, or in search and rescue operations, and ships dedicated to oil spill preparedness and response would be exempted. Ships which meet certain construction standards with regard to oil fuel tank
protection would need to comply on and after
July 1, 2029.
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 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.
On
December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates
originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date
“existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil
Pollution Prevention (
“IOPP”) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM
Convention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. 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. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after
September 8, 2019. For most ships, compliance with the D-2 standard will involve 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). As of
October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management
Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by
September 8,
2024. Significant costs of may be incurred to comply with these regulations. Additionally, in November 2020, MEPC 75 adopted amendments to the BWM Convention which would require a commissioning test of the ballast water management system for the
initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have an installed BWM system certified under the BWM Convention. These amendments are expected to enter into force on
June 1,
2022. To date, we have made $2.8 million in capital expenditures relating to the installation of BWMS on our vessels. For further information on these installations, see
“—A—Fleet
Development and Vessel Capital Expenditures.”
Mandatory mid-ocean exchange ballast water treatment requirements under the BWM Convention may increase 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. Ballast water compliance requirements could adversely affect our
business, results of operations, cash flows and financial condition.
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, the Oil Pollution Act of 1990 along with various legislative schemes and common law standards of conduct 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 (the
“Anti‑fouling Convention”). The Anti‑fouling Convention, which entered into
force on
September 17, 2008, 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 are also 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.
In June 2021, MEPC 76 adopted amendments to the Anti-fouling Convention to prohibit the use of biocide cybutryne contained in anti-fouling systems, which would apply to ships from
January 1,
2023, or, for ships already bearing such an anti-fouling system, at the next scheduled renewal of the system after that date, but no later than 60 months following the last application to the ship of such a system, as studies have proven that the
substance is harmful to a variety of marine organisms.
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 have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from
trading in U.S. and European Union ports, respectively. As of the date of this report, our vessels are ISM Code certified through Pavimar, the technical operator of our vessels. The technical managers have obtained the documents of compliance in
order to operate the vessels in accordance with the ISM Code and the Anti-fouling Convention. 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) loss of subsistence use of natural resources that are injured, destroyed or lost;
(iv) 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;
(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. Effective
December 12, 2019, the USCG adjusted the limits of OPA liability for non-tank
vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,200 per gross ton or $997,100 (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 be in compliance 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. 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, the BSEE amended the Well
Control Rule, effective
July 15, 2019, which rolled back certain reforms regarding the safety of drilling operations, and the Trump administration had proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling.
The effects of these proposals and changes are currently unknown, and recently, the Biden administration issued an executive order temporarily blocking new leases for oil and gas drilling in federal waters. While a U.S. federal court has since
granted an injunction against this executive order, the sale of a large number of previously auctioned oil and gas leases in the Gulf of Mexico has recently been blocked by another U.S. federal court. The U.S. Department of Justice is currently
appealing the injunction against the executive order. Compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could 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. Some of these laws are more stringent than U.S. federal law in some respects. 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 tanker owners’
responsibilities under these laws.
The Company intends to be in compliance with all applicable state regulations in the relevant ports where
the Company’s vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1.0 billion per incident for our vessels. If the damages from a catastrophic spill were to exceed our insurance
coverage, it could have an adverse effect on our business and operating results.
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 greenhouse gasses, volatile organic
compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, 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.
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 replaces the 2013 Vessel General
Permit (
“VGP”) program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements
for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act, such as 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. VIDA establishes a new framework for the regulation of vessel incidental discharges
under the CWA, requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA’s
promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. 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 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 which have not already installed this equipment or the implementation of
other port facility disposal procedures as a result of which we may incur additional capital expenditures or may otherwise have to restrict certain of our vessels from entering U.S. waters.
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 (amending EU Directive 2009/16/EC) 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.
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. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in MARPOL Annex VI relating to the sulfur
content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic, the North Sea and the English Channel (the so called “SOx-Emission Control Area”). As of January 2020, EU member
states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
On
September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime sector in the European Union’s carbon market. This will require shipowners to buy
permits to cover these emissions. On 14 July 2021, the EU Commission proposed legislation to amend the European Union Emissions Trading Scheme (
“EU ETS”) to include shipping emissions which would be phased in beginning in 2023.
International Labour Organization
The International Labour Organization 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 that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between
ports, in another country. Our vessels are certified as per MLC 2006 and, we believe, in substantial compliance with the MLC 2006.
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, 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 U.S. initially
entered into the agreement, but on
June 1, 2017, the Trump administration announced that the United States intended to withdraw from the Paris Agreement, and the withdrawal became effective on
November 4, 2020. On
January 20, 2021, U.S. President
Biden signed an executive order to rejoin the Paris Agreement, which took effect on
February 19, 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. The initial strategy identifies “levels of ambition” to reducing greenhouse gas emissions, including
(1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030,
pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy
notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. The MEPC 76 adopted amendments to MARPOL Annex VI that will require ships to reduce their
greenhouse gas emissions. These amendments combine technical and operational approaches to improve the energy efficiency of ships, in line with the targets established in the 2018 Initial IMO Strategy for Reducing GHG Emissions from Ships and
provide important building blocks for future GHG reduction measures. The new measures will require all ships to calculate their EEXI following technical means to improve their energy efficiency and to establish their annual operational carbon
intensity indicator (CII) and CII rating. Carbon intensity links the GHG emissions to the transport work of ships. These regulations could cause us to incur additional substantial expenses.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states by 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the
Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information. As previously
discussed, implementation of regulations relating to the inclusion of greenhouse gas emissions from the maritime sector in the European Union’s carbon market is also forthcoming.
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. However, in March 2017, U.S. President Trump signed an executive order to review and possibly eliminate elements of EPA’s plan to cut greenhouse gas emissions.
Subsequent rules rolled back standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, the Biden administration recently directed the EPA to publish a rules suspending, revising, or rescinding
certain of these regulations. The EPA or individual U.S. states could enact additional environmental regulations that would affect our operations.
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 or further implement the Kyoto Protocol or Paris Agreement which further restricts emissions of greenhouse gases could require us to make significant financial 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 results in sea level changes or increases in extreme 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 Facility
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 may be detained, expelled from, or 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; 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 financial impact on us. We intend to 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 in the Gulf of Aden and off the
coast of Nigeria in 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 have a material adverse effect on our
business, liquidity and operating results. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
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 contracted for
construction on or after
July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. Our vessels are certified as being
“in class” by the applicable IACS Classification Societies (e.g., American Bureau of Shipping,
Lloyd’s Register of Shipping, Nippon Kaiji Kyokai etc.).
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 dry-docked 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, dry-docking 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 operating results.
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 events, and the liabilities arising from
owning and operating vessels in international trade. 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. Any of these occurrences could have a material adverse effect on the business.
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, 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” or clubs, 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.
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. There are 13 P&I Associations that comprise the
“International Group”, a group of
P&I Associations that insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. The International Group’s
website states that the pool provides a mechanism
for sharing all claims in excess of US$ 10 million up to, currently, approximately US$ 3.1 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.
Competition
We operate in markets that are highly competitive. The process of obtaining new employment for our fleet generally involves intensive screening, and competitive bidding, and often extends for
several months. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an owner and operator. Demand for dry bulk and Aframax/LR2 and Handysize tanker vessels
fluctuates in line with the main patterns of trade of the major dry bulk and Aframax/LR2 and Handysize tanker cargoes and varies according to their supply and demand. Ownership of dry bulk and tanker vessels is highly fragmented.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and
certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel’s crew and the age of a vessel. We have been able to obtain all permits, licenses and
certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase our cost of doing business.
Seasonality
Demand for our dry bulk vessels, Handysize tanker vessels and Aframax/LR2 tanker vessels has historically exhibited seasonal variations and, as a result, fluctuations in charter rates. These
variations may result in quarter-to-quarter volatility in our operating results for the vessels in our three business segments when trading in the spot trip or voyage charter market or if on period time charter when a new time charter is being
entered into. Seasonality in the sectors in which we operate could materially affect our operating results and cash flows.
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C. |
Organizational Structure
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We were incorporated in the Republic of the Marshall Islands in September 2017, with our principal executive offices located at 223 Christodoulou Chatzipavlou Street, Hawaii Royal Gardens, 3036
Limassol, Cyprus. A list of our
subsidiaries is filed as
Exhibit 8.1 to this annual report on Form 20-F.
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D. |
Property, Plants and Equipment
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We own no properties other than our vessels. For a description of our fleet, please see
“Item 4. Information on the Company—B. Business Overview—Our Fleet.”
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ITEM 4A. |
UNRESOLVED STAFF COMMENTS
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None.
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ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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The following discussion provides a review of the performance of our operations and compares our performance with that of the preceding year. All dollar amounts referred to in this discussion and
analysis are expressed in United States dollars except where indicated otherwise.
The Company’s business could be materially and adversely affected by the risks, or the public perception of the risks related to the COVID-19 pandemic. The following discussion of the results of
our operations and our financial condition should be read in conjunction with the financial statements and the notes to those statements included in “
Item 18. Financial Statements.” This discussion
contains forward-looking statements that involve risks, uncertainties, and assumptions. See “
Cautionary Statement Regarding Forward-Looking Statements.” Actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors, including those set forth in
“Item 3. Key Information—D. Risk Factors.”
During 2021, we acquired a number of tanker vessels for the first time. As a result of the different
characteristics of the Aframax/LR2 tanker vessels and the Handysize tanker vessels acquired, we determined that, with effect from the fourth quarter of 2021, we operated in three reportable segments: (i) dry bulk, (ii) Aframax/LR2 tanker and
(ii) Handysize tanker. The reportable segments reflect the internal organization of
the Company and the way the chief operating decision maker reviews the operating results and allocates capital within
the Company. In addition, the transport of
dry cargo commodities, which are carried by dry bulk vessels, has different characteristics to the transport of crude oil (carried by Aframax/LR2 tankers) and differs again from the transport of oil products (carried by Handysize tanker
vessels). Further, dry bulk vessels trade on different types of charter
contracts as compared to tanker vessels, predominantly being employed in the time charter market, whereas our tanker vessels participate in the voyage charter market and in
pooling agreements. The transportation of crude oil also has different characteristics to the transportation of oil products in terms of trading routes and cargo handling.
Principal factors impacting our business, results of operations and financial condition
Our results of operations are affected by numerous factors. The principal factors that have impacted the business during the fiscal periods presented in the following discussion and analysis and
that are likely to continue to impact our business are the following:
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The levels of demand and supply of seaborne cargoes and vessel tonnage in the dry bulk and tanker shipping industries;
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The cyclical nature of the shipping industry in general and its impact on charter rates and vessel values;
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The successful implementation of the Company’s growth business strategy, including our ability to obtain equity and debt financing at acceptable and attractive terms to fund future capital
expenditures and/or to implement our business strategy;
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The global economic growth outlook and trends;
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Economic, regulatory, political and governmental conditions that affect shipping and the dry-bulk and tanker industries;
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The employment and operation of our fleet including the utilization rates of our vessels;
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Our ability to successfully employ our vessels at economically attractive rates and our strategic decisions regarding the employment mix of our fleet in the time, voyage, and pool charter
markets, as our charters expire or are otherwise terminated;
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Management of the financial, general and administrative elements involved in the conduct of our business and ownership of our fleet, including the effective and efficient technical management of our fleet
by our head and sub-managers, and their suppliers;
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The number of charterers who use our services and the performance of their charterers’ obligations under their charter agreements, including ’their ability to make timely charter payments to us;
|
| - |
Our ability to maintain solid working relationships with our existing charterers and our ability to increase the number of our charterers through the development of new working relationships;
|
| - |
The vetting approvals by oil majors of our commercial and technical managers for the management of our tanker vessels;
|
| - |
Dry-docking and special survey costs and duration, both expected and unexpected;
|
| - |
The level of any distribution on all classes of our shares;
|
| - |
Our borrowing levels and the finance costs related to our outstanding debt as well as our compliance with our debt covenants; and
|
| - |
Management of our financial resources, including banking relationships and of the relationships with our various stakeholders;
|
| - |
Major outbreaks of diseases (such as COVID-19) and governmental responses thereto.
|
Hire Rates and Cyclical Nature of the Industry
One of the factors that impacts our profitability is the hire rates at which we are able to fix our vessels. The shipping industry is cyclical with attendant volatility in charter hire rates and,
as a result, profitability. The dry bulk and tanker sectors have both been characterized by long and short periods of imbalances between supply and demand, causing charter rates to be volatile.
The degree of charter rate volatility among different types of dry bulk and tanker vessels has varied widely, and charter rates for these vessels have also varied significantly in recent years.
Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried by ocean going vessels internationally. The factors and the nature, timing,
direction and degree of changes in industry conditions affecting the supply and demand for vessels are unpredictable to a great extent and outside our control.
Our vessel deployment strategy seeks to maximize charter revenue throughout industry cycles while maintaining cash flow stability and foreseeability. Our gross revenues for the year ended
December 31, 2021, consisted of hire earned under time charter
contracts, where charterers pay a fixed daily hire, and other compensation costs related to the
contracts (such as ballast positioning compensation, holds cleaning compensation,
etc.), revenue under voyage charter
contracts, where charterers pay a fixed amount per ton of cargo carried, and pool revenue for our Handysize tanker vessels and one of our Aframax/LR2 tanker vessels
. Pooling
arrangements aggregate vessels of similar types and sizes under a central administration, which are marketed as a single entity and for which revenues are pooled and distributed to owners based on an agreed key.
Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is separate from pool operations. Pools negotiate charters with customers primarily in
the spot market but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contract of
affreightment, generating higher revenues than otherwise might be obtainable in the spot market. We believe that pooling arrangements offer our customers greater flexibility and a higher level of service, while achieving scheduling efficiencies.
Our future gross revenues may be affected by the proportion of voyage and time charters, and pool revenues. See Note 12 to our consolidated financial statements included elsewhere in this annual
report for a discussion of revenues per category. Year-to-year comparisons of gross revenues are not necessarily indicative of vessel performance. We believe that the TCE rate provides a more accurate measure for comparison.
The Dry Bulk Industry
The Baltic Dry Index (BDI) average for the years ended
December 31, 2020 and
2021 was 1,066 points and 2,943 points, respectively. The charter rate volatility exhibited in 2020 due to the
COVID-19 pandemic was significant. In 2021, the dry bulk market benefited from recovering demand at a time of limited growth in new tonnage supply which was further constrained by port congestion and difficulties in docking repairs and crew
changes, often involving delays and deviations. However, this was still a year of significant volatility as the BDI recorded its annual high of 5,650 points on
October 7, 2021, but ended the year 61% lower, at 2,217 points. The global dry cargo
fleet deadweight carrying capacity for 2021 increased by approximately 3.6% and remains significantly lower from the substantial increases during the early 2000s, while demand of dry bulk commodities increased by approximately 3.5 to 4%. The
volatility in charter rates in the dry bulk market affects the value of dry bulk vessels, which follows the trends of dry bulk charter rates, and similarly affects our earnings, cash flows and liquidity.
The Tanker Industry
The tanker industry has also varied significantly, with Aframax LR2 tanker spot rates peaking at around $40,000 per day on average in April 2020 before falling significantly to below $10,000 per
day thereafter as a result of the global pandemic. In 2021, the spot tanker market performed at weak levels particularly during the second and the third quarters of the year, with a trend of recovery during the fourth quarter. Overall, 2021
turned out to be one of the worst years for spot crude tanker trades since 2009. The tanker fleet for 2021 increased by approximately 1.6% in terms of deadweight carrying capacity, while demand for crude oil and products is expected to increase
at a higher pace, but there is still significant uncertainty due to the COVID-19 pandemic which negatively affects mobility and oil demand. The volatility in charter rates in the tanker market also affects the value of tanker vessels, which
follows the trends of tanker charter rates, and similarly affects our earnings, cash flows and liquidity.
Employment and operation of our fleet
Another factor that impacts our profitability is the employment and operation of our fleet. The profitable employment of our fleet is highly dependent on the levels
of demand and supply in the dry bulk and tanker shipping industries, our commercial strategy including the decisions regarding the employment mix of our fleet among time, voyage and pool charters as well as our managers’ ability to leverage our
relationships with existing or potential customers. The effective operation of our fleet mainly requires regular maintenance and repair, effective crew selection and training, ongoing supply of our fleet
with the spares and the stores that it requires, contingency response planning, auditing of our vessels’ onboard safety procedures, arrangements for our vessels’ insurance, chartering of the vessels, training of onboard and on shore personnel
with respect to the vessels’ security and security response plans (ISPS), obtaining of ISM certifications, compliance with environmental regulations and standards, and performing the necessary audit for the vessels within the six months of taking
over a vessel and the ongoing performance monitoring of the vessels.
Financial, general and administrative management
The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires us to manage our financial resources, which includes
managing banking relationships, administrating our bank accounts, managing our accounting system, records and financial reporting, monitoring and ensuring compliance with the legal and regulatory requirements affecting our business and assets and
managing our relationships with our service providers and customers.
Because many of these factors are beyond our control and certain of these factors have historically been volatile, past performance is not necessarily indicative of future performance and it is
difficult to predict future performance with any degree of certainty.
Important Measures and Definitions for Analyzing Results of Operations
Our management uses the following metrics to evaluate our operating results, including the operating results of our segments level and to allocate capital accordingly:
Vessel Revenues.
Vessel revenues are primarily generated from time charters, voyage charters and pool arrangements. Vessel revenues are affected by the number of vessels in our fleet, hire rates and the number of days
a vessel operates which, in turn, are affected by several factors, including 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
age, condition and specifications of our vessels, and levels of supply and demand in the seaborne transportation market. Vessel revenues are also affected by our commercial strategy related to the employment mix of our fleet between vessels on
time charters, vessels operating on voyage charters and vessels in pools.
Vessels operating on time charters for a certain period provide more predictable cash flows over that period. Revenues from vessels in pools and on voyage charter are more volatile, as they are typically tied to prevailing market rates. We measure revenues in each segment for three separate
activities: (i) time charter revenues, (ii) voyage charter revenues, and (iii) pool revenues. For further discussion of vessel revenues, please refer to Notes 2 and 12 to our consolidated financial statements included elsewhere in this annual
report.
Voyage expenses. Our voyage expenses primarily consist of bunker expenses, port
and canal expenses and brokerage commissions paid in connection with the chartering of our vessels. Voyage expenses are incurred primarily during voyage charters or when the vessel is repositioning or unemployed. Bunker expenses, port and canal
dues increase in periods during which vessels are employed on voyage charters because these expenses are in this case borne by us. Gain/loss on bunkers may also arise where the cost of the bunker fuel sold to the new charterer is
greater or less than the cost of the bunker fuel acquired.
Operating expenses. We are responsible for vessel operating
costs, which include crewing, expenses for repairs and maintenance, the cost of insurance, tonnage taxes, the cost of spares and consumable stores, lubricating oils costs, communication expenses, and technical management fees. Expenses for
repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic drydocking. Our ability to control our vessels’ operating expenses also affects our financial results.
Daily vessel operating expenses are calculated by dividing fleet operating expenses by the Ownership days for the relevant period.
Off-hire. The period our fleet is unable to perform the services for which it is required under a charter for
reasons such as scheduled repairs, vessel upgrades, dry-dockings or special or intermediate surveys or other unforeseen events.
Dry-docking/Special Surveys. We periodically dry-dock and/ or perform special surveys on our fleet for inspection, repairs and maintenance and any modifications to comply with industry
certification or governmental requirements. Our ability to control our dry-docking and special survey expenses and our ability to complete our scheduled dry-dockings and/or special surveys on time also affects our financial results. Dry-docking
and special survey costs are accounted under the deferral method whereby the actual costs incurred are deferred and are amortized on a straight-line basis over the period through the date the next survey is scheduled to become due.
Ownership Days. Ownership Days are the total number of calendar days in a period during which we owned a vessel. Ownership Days are an
indicator of the size of our fleet over a period and determine both the level of revenues and expenses recorded during that specific period.
Available Days. Available Days are the Ownership Days in a period less the aggregate number of days
our vessels are off-hire due to scheduled repairs, dry-dockings or special or intermediate surveys. The shipping industry uses Available days to measure the aggregate number of days in a period during which vessels are available to
generate revenues. Our calculation of Available days may not be comparable to that reported by other companies.
Operating Days. Operating Days are the Available Days in a period after subtracting off-hire and
idle days.
Fleet Utilization. Fleet Utilization is calculated by
dividing the Operating Days during a period by the number of Available Days during that period. Fleet Utilization is used to measure a company’s ability to efficiently find suitable employment for its vessels and minimize the number of
days that its vessels are off-hire for reasons such as major repairs, vessel upgrades, dry-dockings or special or intermediate surveys and other unforeseen events.
Daily Time Charter Equivalent (“TCE”) Rate. The Daily Time Charter Equivalent Rate (“Daily TCE Rate”), is a measure of the average
daily revenue performance of a vessel. The Daily TCE Rate is calculated by dividing total revenues (time charter and/or voyage charter revenues, and/or pool revenues, net of charterers’ commissions), less voyage expenses, by the number of
Available Days during that period. Under a time charter, the charterer pays substantially all the vessel voyage related expenses. However, we may incur voyage related expenses when positioning or repositioning vessels before or after the period
of a time charter, during periods of commercial waiting time or while off-hire during dry docking or due to other unforeseen circumstances. The Daily TCE Rate is not a measure of financial performance under U.S. GAAP (non-GAAP measure) and should
not be considered as an alternative to vessel revenues, net, the most directly comparable GAAP measure, or any other measure of financial performance presented in accordance with U.S. GAAP. However, the
Daily TCE Rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance and, management believes that the Daily TCE Rate provides meaningful information to our investors
since it compares daily net earnings generated by our vessels irrespective of the mix of charter types (i.e., time charter, voyage charter or other) under which our vessels are employed between the periods while it further assists our management
in making decisions regarding the deployment and use of our vessels and in evaluating our financial performance. Our calculation of the Daily TCE Rates may not be comparable to that reported by other companies. See below for a reconciliation of
Daily TCE rate to Vessel revenue, net, the most directly comparable U.S. GAAP measure.
Daily vessel operating expenses. Daily vessel operating expenses are calculated by dividing vessel
operating expenses for the relevant period by the Ownership Days for such period.
EBITDA. We define EBITDA as earnings before interest and finance costs (if any), net of interest income, taxes (when incurred),
depreciation and amortization of deferred dry-docking costs. EBITDA is used as a supplemental financial measure by management and external users of financial statements to assess our operating performance. We believe that EBITDA assists our
management by providing useful information that increases the comparability of our performance operating from period to period and against the operating performance of other companies in our industry that provide EBITDA information. This
increased comparability 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 consolidated EBITDA to Net Income/(Loss), the most directly comparable U.S. GAAP measure.
The following tables reconcile the Daily TCE Rate and operational metrics of
the Company on a consolidated basis and per operating segment for the year ended
December 31, 2021, and their comparative information
(where applicable) and our consolidated EBITDA to the most directly comparable GAAP measures for the periods presented (amounts in U.S. dollars, except for utilization and days).
Reconciliation of Daily TCE Rate to vessel revenues, net — Consolidated
| |
|
Year Ended December 31,
|
|
|
(In U.S. dollars, except for Available Days)
|
|
2020
|
|
|
2021
|
|
|
Vessel revenues, net
|
|
$
|
12,487,692
|
|
|
$
|
132,049,710
|
|
|
Voyage expenses -including commissions from related parties
|
|
|
(584,705
|
)
|
|
|
(12,950,783
|
)
|
|
TCE revenues
|
|
$
|
11,902,987
|
|
|
$
|
119,098,927
|
|
|
Available Days
|
|
|
1,267
|
|
|
|
6,657
|
|
|
Daily TCE Rate
|
|
$
|
9,395
|
|
|
$
|
17,891
|
|
Reconciliation of Daily TCE Rate to vessel revenues, net — Dry Bulk Segment
| |
|
Year Ended December 31,
|
|
|
(In U.S. dollars, except for Available Days)
|
|
2020
|
|
|
2021
|
|
|
Vessel revenues, net
|
|
$
|
12,487,692
|
|
|
$
|
102,785,442
|
|
|
Voyage expenses -including commissions from related parties
|
|
|
(584,705
|
)
|
|
|
(1,891,265
|
)
|
|
TCE revenues
|
|
$
|
11,902,987
|
|
|
$
|
100,894,177
|
|
|
Available Days
|
|
|
1,267
|
|
|
|
4,843
|
|
|
Daily TCE Rate
|
|
$
|
9,395
|
|
|
$
|
20,833
|
|
Reconciliation of Daily TCE Rate to vessel revenues, net — Aframax/LR2 Tanker Segment
|
(In U.S. dollars, except for Available Days)
|
|
2021
|
|
|
Vessel revenues, net
|
|
$
|
26,559,413
|
|
|
Voyage expenses -including commissions from related parties
|
|
|
(11,003,925
|
)
|
|
TCE revenues
|
|
$
|
15,555,488
|
|
|
Available Days
|
|
|
1,446
|
|
|
Daily TCE Rate
|
|
$
|
10,758
|
|
Reconciliation of Daily TCE Rate to vessel revenues, net — Handysize Tanker Segment
|
(In U.S. dollars, except for Available Days)
|
|
2021
|
|
|
Vessel revenues, net
|
|
$
|
2,704,855
|
|
|
Voyage expenses -including commissions from related parties
|
|
|
(55,593
|
)
|
|
TCE revenues
|
|
$
|
2,649,262
|
|
|
Available Days
|
|
|
368
|
|
|
Daily TCE Rate
|
|
$
|
7,199
|
|
Operational Metrics— Consolidated
| |
|
|
|
| |
|
|
|
|
2021
|
|
|
Daily vessel operating expenses
|
|
$
|
5,301
|
|
|
$
|
5,759
|
|
|
Ownership Days
|
|
|
1,405
|
|
|
|
6,807
|
|
|
Available Days
|
|
|
1,267
|
|
|
|
6,657
|
|
|
Operating Days
|
|
|
1,259
|
|
|
|
6,562
|
|
|
Fleet Utilization
|
|
|
99
|
%
|
|
|
99
|
%
|
|
Daily TCE Rate
|
|
$
|
9,395
|
|
|
$
|
17,891
|
|
|
EBITDA
|
|
$
|
2,327,671
|
|
|
$
|
69,910,529
|
|
Operational Metrics — Dry Bulk Segment
| |
|
|
|
| |
|
|
|
|
2021
|
|
|
Daily vessel operating expenses
|
|
$
|
5,301
|
|
|
$
|
5,418
|
|
|
Ownership Days
|
|
|
1,405
|
|
|
|
4,954
|
|
|
Available Days
|
|
|
1,267
|
|
|
|
4,843
|
|
|
Operating Days
|
|
|
1,259
|
|
|
|
4,766
|
|
|
Fleet Utilization
|
|
|
99
|
%
|
|
|
98
|
%
|
|
Daily TCE Rate
|
|
$
|
9,395
|
|
|
$
|
20,833
|
|
Operational Metrics — Aframax/LR2 Tanker Segment
| |
|
|
|
| |
|
|
|
|
Daily vessel operating expenses
|
|
$
|
6,761
|
|
|
Ownership Days
|
|
|
1,446
|
|
|
Available Days
|
|
|
1,446
|
|
|
Operating Days
|
|
|
1,428
|
|
|
Fleet Utilization
|
|
|
99
|
%
|
|
Daily TCE Rate
|
|
$
|
10,758
|
|
Operational Metrics — Handysize Tanker Segment
| |
|
|
|
| |
|
|
|
|
Daily vessel operating expenses
|
|
$
|
6,352
|
|
|
Ownership Days
|
|
|
407
|
|
|
Available Days
|
|
|
368
|
|
|
Operating Days
|
|
|
368
|
|
|
Fleet Utilization
|
|
|
100
|
%
|
|
Daily TCE Rate
|
|
$
|
7,199
|
|
Reconciliation of consolidated EBITDA to net income/(loss) — Consolidated
| |
|
Year Ended December 31,
|
|
|
(In U.S. dollars)
|
|
2020
|
|
|
2021
|
|
|
Net Income/(Loss)
|
|
$
|
(1,753,533
|
)
|
|
$
|
52,270,487
|
|
|
Depreciation and amortization
|
|
|
1,904,963
|
|
|
|
14,362,828
|
|
|
Interest and finance costs, net (including related party interest costs) (1)
|
|
|
2,154,601
|
|
|
|
2,779,875
|
|
|
US source income taxes
|
|
|
21,640
|
|
|
|
497,339
|
|
|
EBITDA
|
|
$
|
2,327,671
|
|
|
$
|
69,910,529
|
|
|
(1)
|
Includes interest and finance costs and interest income, if any.
|
Consolidated Results of Operations
|
(In U.S. Dollars, except for share data)
|
|
Year ended
|
|
|
Year ended
|
|
|
Change-
amount
|
|
|
Change %
|
|
|
Vessel revenues (net of charterers’ commissions)
|
|
|
12,487,692
|
|
|
|
132,049,710
|
|
|
|
119,562,018
|
|
|
|
957.4
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses (including commissions to related party)
|
|
|
(584,705
|
)
|
|
|
(12,950,783
|
)
|
|
|
12,366,078
|
|
|
|
2,114.9
|
%
|
|
Vessel operating expenses
|
|
|
(7,447,439
|
)
|
|
|
(39,203,471
|
)
|
|
|
31,756,032
|
|
|
|
426.4
|
%
|
|
Management fees to related parties
|
|
|
(930,500
|
)
|
|
|
(6,744,750
|
)
|
|
|
5,814,250
|
|
|
|
624.9
|
%
|
|
Depreciation and amortization
|
|
|
(1,904,963
|
)
|
|
|
(14,362,828
|
)
|
|
|
12,457,865
|
|
|
|
654.0
|
%
|
|
Provision for doubtful accounts
|
|
|
(37,103
|
)
|
|
|
(2,483
|
)
|
|
|
(34,620
|
)
|
|
|
(93.3
|
%)
|
|
General and administrative expenses (including related party)
|
|
|
(1,130,953
|
)
|
|
|
(3,266,310
|
)
|
|
|
2,135,357
|
|
|
|
188.8
|
%
|
|
Operating income
|
|
|
452,029
|
|
|
|
55,519,085
|
|
|
|
55,067,056
|
|
|
|
12,182.2
|
%
|
|
Interest and finance costs, net (including interest costs from related party)
|
|
|
(2,154,601
|
)
|
|
|
(2,779,875
|
)
|
|
|
625,274
|
|
|
|
29.0
|
%
|
|
Total other expenses, net
|
|
|
(2,183,922
|
)
|
|
|
(2,751,259
|
)
|
|
|
567,337
|
|
|
|
26.0
|
%
|
|
US source income taxes
|
|
|
(21,640
|
)
|
|
|
(497,339
|
)
|
|
|
475,699
|
|
|
|
2,198.2
|
%
|
|
Net (loss)/income and comprehensive (loss)/income
|
|
|
(1,753,533
|
)
|
|
|
52,270,487
|
|
|
|
54,024,020
|
|
|
|
3,080.9
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/ Earnings per common share, basic
|
|
|
(0.26
|
)
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
(Loss)/ Earnings per common share, diluted
|
|
|
(0.26
|
)
|
|
|
0.47
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares, basic
|
|
|
6,773,519
|
|
|
|
83,923,435
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares, diluted
|
|
|
6,773,519
|
|
|
|
85,332,728
|
|
|
|
|
|
|
|
|
|
Vessel revenues, net – Vessel revenues, net of charterers’ commissions, increased from $12.5 million in the year ended
December 31, 2020, to $132.0 million in the same
period of 2021. This increase was largely driven by the acquisition and delivery to our fleet of 22 vessels since
January 1, 2021. The increase in vessel revenues during the year ended
December 31, 2021, as compared with the same period of 2020
was further underpinned by the stronger dry bulk shipping market in 2021, further discussed below in the dry bulk segment section, resulting in higher daily net revenues earned on average for our fleet as compared with these earned during the
same period of 2020.
Voyage Expenses – Voyage expenses increased by $12.4 million, from $0.6 million in the year ended
December 31, 2020, to $13.0 million in the corresponding period of 2021.
This increase in voyage expenses is mainly associated with the increase (i) in port expenses and bunkers consumption for the vessels that form the tanker segments of our
fleet as a result of certain of those being engaged during the year ended
December 31, 2021 in the voyage charter market, and (ii) in brokerage commissions, commensurate with the increase in vessel revenues in the
period. This increase was partly offset by bunker gains of $2.7 million during the year ended
December 31, 2021, as compared with bunker gains of $0.1 million in the same period of 2020.
Vessel Operating Expenses – The increase in operating expenses by $31.8 million, from $7.4 million in the year ended
December 31, 2020, to $39.2 million in the same period
of 2021 mainly reflects the increase in the number of vessels in our
fleet.
Management Fees – Management fees in the year ended
December 31, 2020, amounted to $0.9 million, whereas, in the same period of 2021, management fees totaled $6.7 million.
This increase in management fees is primarily due to the sizeable increase of our fleet, resulting in a substantial increase in the total number of Ownership Days for which our managers charge us with a daily management fee. Effective
September
1, 2020, the daily management fees for the technical management of our fleet by Pavimar, was increased from $500 to $600 per vessel and the daily management fees for the commercial and administrative management of our fleet by Castor Ships was
set to $250 per vessel. For more information, refer to
“Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions.”
General and Administrative Expenses –
General and administrative expenses in the year ended
December 31, 2020, amounted to $1.1
million, whereas, in the same period of 2021, general and administrative expenses totaled $3.3 million. This increase stemmed from incurred legal and other corporate fees primarily related to the growth of
our company and our shareholder base,
and the $0.3 million quarterly flat fee we pay Castor Ships, effective
September 1, 2020.
Depreciation and Amortization – Depreciation and amortization expenses are comprised of vessels’ depreciation and the amortization of vessels’ capitalized dry-dock costs.
Depreciation expenses increased from $1.7 million in the year ended
December 31, 2020, to $13.2 million in the same period of 2021 as a result of the increase in the size of our fleet. Dry-dock and special survey amortization charges amounted to
$0.2 million for the year ended
December 31, 2020, versus a relevant charge of $1.2 million in the respective period of 2021. This increase in dry-dock amortization charges primarily resulted from the ownership of a larger fleet, on average,
during 2021, which led to an increase in dry-dock amortization days from 293 in the year ended
December 31, 2020, to 1,524 in the year ended
December 31, 2021.
Interest and finance costs, net – The increase by $0.6 million in net interest and finance costs in the year ended
December 31, 2021, as compared with the previous year is
mainly d
ue to the increase in the level of our weighted average indebtedness from $20.2 million in 2020 to $60.5 million in 2021.
Segment Results of Operations
|
(In U.S. Dollars, except for share data)
|
|
Year ended
|
|
|
Year ended
|
|
|
Change-amount
|
|
|
Change %
|
|
|
Vessel revenues (net of charterers’ commissions)
|
|
|
12,487,692
|
|
|
|
102,785,442
|
|
|
|
90,297,750
|
|
|
|
723.1
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses (including commissions to related party)
|
|
|
(584,705
|
)
|
|
|
(1,891,265
|
)
|
|
|
1,306,560
|
|
|
|
223.5
|
%
|
|
Vessel operating expenses
|
|
|
(7,447,439
|
)
|
|
|
(26,841,600
|
)
|
|
|
19,394,161
|
|
|
|
260.4
|
%
|
|
Management fees to related parties
|
|
|
(930,500
|
)
|
|
|
(4,890,900
|
)
|
|
|
3,960,400
|
|
|
|
425.6
|
%
|
|
Depreciation and amortization
|
|
|
(1,904,963
|
)
|
|
|
(10,528,711
|
)
|
|
|
8,623,748
|
|
|
|
452.7
|
%
|
|
Provision for doubtful accounts
|
|
|
(37,103
|
)
|
|
|
(2,483
|
)
|
|
|
(34,620
|
)
|
|
|
(93.3
|
%
)
|
|
Operating income (1)
|
|
|
1,582,982
|
|
|
|
58,630,483
|
|
|
|
57,047,501
|
|
|
|
3,603.8
|
%
|
|
(1)
|
Does not include corporate general and administrative expenses. See the discussion under “Consolidated Results of Operations” above.
|
Vessel revenues, net
Vessel revenues, net of charterers’ commissions for our dry bulk segment, increased from $12.5 million in the year ended
December 31, 2020, to $102.8 million in the same period of 2021. This increase was largely
driven by the acquisition and delivery to our fleet of 13 dry bulk vessels since
January 1, 2021. The increase in vessel revenues during the year ended
December 31, 2021, as compared with the same period of 2020 was further underpinned by the
stronger dry bulk shipping market in 2021, resulting in higher daily net revenues earned on average for our fleet as compared with these earned during the same period of 2020.
Voyage Expenses
Voyage expenses increased by $1.3 million, from $0.6 million in the year ended
December 31, 2020, to $1.9 million in the corresponding period of 2021. This increase in voyage expenses is mainly associated with (i)
the increase in brokerage commissions, commensurate with the increase in vessel revenues in the period, (ii) the increase in bunkers consumption for certain vessels of our
fleet primarily as a result of
bunkers ballast consumption for which relevant ballast compensation is received by the charterers, partly offset by bunker gains of $2.7 million during the year ended
December 31, 2021, as compared with bunker gains of $0.1 million in the same
period of 2020.
Vessel Operating Expenses
The increase in operating expenses for our dry bulk segment by $19.4 million, from $7.4 million in the year ended
December 31, 2020, to $26.8 million in the same period of 2021 mainly reflects the increase in the
number of dry bulk vessels in our
fleet.
Management Fees
Management fees for our dry bulk segment in the year ended
December 31, 2020, amounted to $0.9 million, whereas, in the same period of 2021, management fees totaled $4.9 million. This increase in management fees is
primarily due to the sizeable increase of our dry bulk fleet, resulting in a substantial increase in the total number of Ownership Days for which our managers charge us with a daily management fee.
Depreciation and Amortization
Depreciation expenses for our dry bulk segment increased from $1.7 million in the year ended
December 31, 2020, to $9.5 million in the same period of 2021 as a result of the increase in the size of our dry bulk
fleet. Dry-dock and special survey amortization charges amounted to $0.2 million for the year ended
December 31, 2020, compared to a charge of $1.0 million in the respective period of 2021. This increase in dry-dock amortization charges primarily
resulted from the ownership of a larger dry bulk fleet, on average, during 2021 which led to an increase in dry-dock amortization days from 293 in the year ended
December 31, 2020, to 1,349 in the year ended
December 31, 2021.
We entered the Aframax/LR2 tanker business in the first quarter of 2021 and, accordingly, no comparative financial information exists for the year ended
December 31, 2020.
|
(In U.S. Dollars, except for share data)
|
|
Year ended
|
|
|
Year ended
|
|
|
Change -amount
|
|
|
Change %
|
|
|
Vessel revenues (net of charterers’ commissions)
|
|
|
—
|
|
|
|
26,559,413
|
|
|
|
26,559,413
|
|
|
|
100.0
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses (including commissions to related party)
|
|
|
—
|
|
|
|
(11,003,925
|
)
|
|
|
(11,003,925
|
)
|
|
|
100.0
|
%
|
|
Vessel operating expenses
|
|
|
—
|
|
|
|
(9,776,724
|
)
|
|
|
(9,776,724
|
)
|
|
|
100.0
|
%
|
|
Management fees to related parties
|
|
|
—
|
|
|
|
(1,433,950
|
)
|
|
|
(1,433,950
|
)
|
|
|
100.0
|
%
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
(3,087,764
|
)
|
|
|
(3,087,764
|
)
|
|
|
100.0
|
%
|
|
Operating income
|
|
|
—
|
|
|
|
1,257,050
|
|
|
|
1,257,050
|
|
|
|
100.0
|
%
|
|
(1)
|
Does not include corporate general and administrative expenses. See the discussion under “Consolidated Results of Operations” above.
|
Vessel revenues, net
Vessel revenues, net of charterers’ commissions for our Aframax/LR2 tanker segment amounted to $26.6 million in the year ended
December 31, 2021.
During the year ended
December 31, 2021, we owned on average 4.0 Aframax/LR2 tanker vessels that earned on average a daily TCE rate of $10,758. During the period in which we owned them, three of our Aframax/LR2 vessels were engaged in the
voyage charter market, three in the time charter market and one, the
M/T Wonder Vega, operated in a pool.
Voyage Expenses
Voyage expenses for our Aframax/LR2 tanker segment amounted to $11.0 million in the year ended
December 31, 2021. As noted under
Vessel revenues, net, during the year ended
December 31, 2021, three of our Aframax/LR2 vessels operated in the voyage charter market. When our vessels trade in this market, voyage expenses are borne by us. Voyage expenses for our Aframax/LR2 segment during the year ended
December 31,
2021, consisted primarily of bunker consumption expenses, port expenses and brokerage commissions.
Vessel Operating Expenses
Operating expenses for our Aframax/LR2 tanker segment amounted to $9.8 million in the year ended
December 31, 2021.
Management Fees
Management fees for our Aframax/LR2 tanker segment amounted to $1.4 million in the year ended
December 31, 2021.
Depreciation and Amortization
Depreciation and amortization expenses for our Aframax/LR2 tanker segment amounted to $3.1 million in the year ended
December 31, 2021.
We entered the Handysize tanker business in the second quarter of 2021 and accordingly no comparative financial information exists for the year ended
December 31, 2020.
|
(In U.S. Dollars, except for share data)
|
|
Year ended
|
|
|
Year ended
|
|
|
Change -amount
|
|
|
Change %
|
|
|
Vessel revenues (net of charterers’ commissions)
|
|
|
—
|
|
|
|
2,704,855
|
|
|
|
2,704,855
|
|
|
|
100.0
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses (including commissions to related party)
|
|
|
—
|
|
|
|
(55,593
|
)
|
|
|
(55,593
|
)
|
|
|
100.0
|
%
|
|
Vessel operating expenses
|
|
|
—
|
|
|
|
(2,585,147
|
)
|
|
|
(2,585,147
|
)
|
|
|
100.0
|
%
|
|
Management fees to related parties
|
|
|
—
|
|
|
|
(419,900
|
)
|
|
|
(419,900
|
)
|
|
|
100.0
|
%
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
(746,353
|
)
|
|
|
(746,353
|
)
|
|
|
100.0
|
%
|
|
Operating loss
|
|
|
—
|
|
|
|
(1,102,138
|
)
|
|
|
(1,102,138
|
)
|
|
|
100.0
|
%
|
|
(1)
|
Does not include corporate general and administrative expenses. See the discussion under “Consolidated Results of Operations” above.
|
Vessel revenues, net
Vessel revenues, net of charterers’ commissions, for our Handysize tanker segment amounted to $2.7 million in the year ended
December 31, 2021. During the year ended
December 31, 2021, we owned on average 1.1
Handysize tanker vessels that earned a daily TCE rate of $7,199. During the period in which we owned them, both our Handysize tanker vessels were engaged in a pool.
Voyage Expenses
Voyage expenses for our Handysize tanker segment amounted to $0.1 million in the year ended
December 31, 2021.
Bunker expenses, port and canal dues are borne by our pool
operators when our vessels operate in pools.
Vessel Operating Expenses
Operating expenses for our Handysize tanker segment amounted to $2.6 million in the year ended
December 31, 2021.
Management Fees
Management fees for our Handysize tanker segment amounted to $0.4 million in the year ended
December 31, 2021.
Depreciation and Amortization
Depreciation and amortization expenses amounted to $0.7 million in the year ended
December 31, 2021. During the year ended
December 31, 2021, one Handysize tanker vessel in
the Company’s tanker fleet, the
Wonder Mimosa, underwent its scheduled dry-dock and special survey resulting in period dry-dock amortization charges amounting to $0.2 million.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act. An emerging growth company may take advantage of specified reduced public company reporting
requirements that are otherwise applicable generally to public companies. These provisions include:
|
• |
an exemption from the auditor attestation requirement of management’s assessment of the effectiveness of the emerging growth company’s internal controls over financial reporting pursuant to Section 404(b) of Sarbanes-Oxley; and
|
|
• |
an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would
be required to provide additional information about the audit and financial statements.
|
We may choose to take advantage of some or all of these reduced reporting requirements. We may take advantage of these provisions until the last day of the fiscal year following the fifth
anniversary of the date we first sell our common equity securities pursuant to an effective registration statement under the Securities Act or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging
growth company if we have more than $1.07 billion in “total annual gross revenues” during our most recently completed fiscal year, if we become a “large accelerated filer” with a public float of more than $700 million, as of the last business day
of our most recently completed second fiscal quarter or as of any date on which we have issued more than $1 billion in non-convertible debt over the three-year period prior to such date. For as long as we take advantage of the reduced reporting
obligations, the information that we provide shareholders may be different from information provided by other public companies.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. In
other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. See “Item 3. Key Information—D. Risk Factors—Risks
Relating to Our Common Shares—We are an ‘emerging growth company’ and we cannot be certain if the reduced requirements applicable to emerging growth companies will make our securities less attractive to investors.” We have irrevocably
elected to opt out of such extended transition period.
| B. |
Liquidity and Capital Resources
|
We operate in a capital-intensive industry, and we expect to finance the purchase of additional vessels and other capital expenditures through a combination of proceeds from equity offerings,
borrowings from debt transactions and cash generated from operations. Our liquidity requirements relate to servicing the principal and interest on our debt, funding capital expenditures and working capital (which includes maintaining the quality
of our vessels and complying with international shipping standards and environmental laws and regulations) and maintaining cash reserves for the purpose of satisfying certain minimum liquidity restrictions contained in our credit facilities. In
accordance with our business strategy, other liquidity needs may relate to funding potential investments in new vessels and maintaining cash reserves against fluctuations in operating cash flows. Our funding and treasury activities are intended
to maximize investment returns while maintaining appropriate liquidity.
For the year ended
December 31, 2021, our principal sources of funds were cash from operations, and the net proceeds from (i) the issuance of common shares pursuant to the 2021 January First
Equity Offering, the 2021 January Second Equity Offering, the 2021 April Equity Offering, the Second ATM Program (each as defined below in
“—Equity Transactions”), and the exercise of warrants under our
then effective warrant schemes, and (ii) the incurrence of secured debt as discussed below under “
—Our Borrowing Activities.” As of
December 31, 2021 and
December 31, 2020, we had cash and cash equivalents
of $37.2 million and $8.9 million (which excludes $6.2 million and $0.5 million of cash restricted in each period, under our debt agreements), respectively. Cash and cash equivalents are primarily held in U.S. dollars.
Working capital is equal to current assets minus current liabilities. As of
December 31, 2021, we had a working capital surplus of $21.0 million as compared to a working capital surplus of $2.7
million as of
December 31, 2020.
We believe that our current sources of funds and those that we anticipate to internally generate for a period of at least the next twelve months from the date of this annual report, will be
sufficient to fund the operations of our fleet, meet our normal working capital requirements and service the principal and interest on our debt for that period.
For a discussion of our management agreements with our related-party managers and relevant fees charged, see “Item 7. Major Shareholders and Related Party
Transactions—B. Related Party Transactions.”
Capital Expenditures
We make capital expenditures from time to time in connection with vessel acquisitions and vessels upgrades and improvements (either for the purpose of meeting regulatory or legal requirements or
for the purpose of complying with requirements imposed by classification societies), which we finance with cash from operations, debt and equity issuances. As of
December 31, 2021, our commitments for capital expenditures related to vessel
acquisitions amounted to approximately $21.2 million in connection with the acquisition of the
Magic Callisto that was delivered to us on
January 4, 2022. The acquisition was financed in its entirety with
cash on hand.
We have entered into
contracts to purchase and install BWMS on five of our dry bulk carriers, our two Handysize tanker vessels and three of our Aframax/LR2 tanker vessels
. As of
December 31, 2021, we had completed and put into use the BWMS installation on one of these five dry bulk carriers, the
Magic Sun, and one of our two Handysize
tanker vessels, the
Wonder Mimosa, whereas the contracted BWMS system installations on the remaining eight vessels, comprising of four dry bulk vessels, one handysize tanker vessel and three Aframax/LR2
tanker vessels are expected to be concluded during 2022. It is estimated that the contractual obligations related to these purchases, as well as purchases for two other vessels in our fleet that have completed their BWMS installation, excluding
installation costs, will be on aggregate approximately
€3.0 million (or $3.4 million on the basis of a Euro/US Dollar exchange rate of €1.0000/$1.1324 as of December 31, 2021),
of which €2.4 million (or $2.7 million) are due in 2022 and €0.6 million (or $0.7 million) are due in 2023.
A failure to fulfill our capital expenditure commitments generally results in a forfeiture of advances paid with respect to the contracted acquisitions and a write-off of capitalized expenses. In
addition, we may also be liable for other damages for breach of
contract(s). Such events could have a material adverse effect on our business, financial condition, and operating results.
Equity Transactions
On
June 28, 2019, we entered into an equity distribution agreement, or the First Equity Distribution Agreement, with Maxim Group LLC (
“Maxim”) acting as a sales agent over a minimum period of
12-months, under which we could, from time to time, offer and sell our common shares through an at-the-market offering (the
“First ATM Program”), having an aggregate offering price of up to $10.0 million.
No
warrants, derivatives, or other share classes were associated with this transaction. On
June 21, 2021, we terminated the First ATM Program. Under the First ATM Program we raised gross and net proceeds (after deducting sales commissions
and other fees and expenses) of $2.6 million and $2.3 million, respectively, by issuing and selling 61,811 common shares. The net proceeds received from the First ATM Program were used to partly finance the acquisition of the
Magic Moon.
On
October 10, 2019, we reached an agreement with all of the holders of our Series A Preferred Shares to waive all due and overdue dividends and to adopt and to amend and restate the Statement
of Designations of our Series A Preferred Shares. Pursuant to this amendment and restatement, on
October 17, 2019, we issued 30,000 common shares to the holders of the Series A Preferred Shares in exchange for the waiver of approximately $4.3
million worth of dividends accumulated on the Series A Preferred Shares, for the period since their original issuance to
June 30, 2019.
On December 8, 2021, we redeemed all our Series A Preferred Shares at a
cash liquidation preference of $30.00 per share, for a total amount of $14.4 million. For further information on the Series A Preferred Shares and their redemption, see Note 8 (“(b) Preferred Shares¾Series A Preferred Shares amendment and accumulated dividends settlement”) of our consolidated financial statements included elsewhere in this annual report.
On
January 27, 2020, we entered into a securities purchase agreement with YAII PN, LTD, pursuant to which we agreed to sell and it agreed to purchase up to three convertible debentures for a
maximum aggregate price of $5.0 million, further discussed below under
“—Our Borrowing Activities.” During the period from January 2020 up until June 2020, the Investor had converted the full $5.0 million
principal amount and $0.1 million of interest under the $5.0 Million Convertible Debentures for 804,208 common shares.
On
June 23, 2020, we entered into an agreement with Maxim, acting as underwriter, pursuant to which we offered and sold 5,911,000 units, each unit consisting of (i) one common share or a
pre-funded warrant to purchase one common share at an exercise price equal to $0.10 per common share (a
“Pre-Funded Warrant”), and (ii) one Class A Warrant to purchase one common share (a
“Class A Warrant”), for $3.50 per unit (or $3.40 per unit
including a Pre-Funded Warrant), (the
“2020 June Equity Offering”). The 2020 June Equity Offering closed on
June 26, 2020 and resulted in the issuance of 5,908,269 common shares and 5,911,000 Class A Warrants, which also included 771,000
over-allotment units pursuant to an over-allotment option that was exercised by Maxim on
June 24, 2020. We raised gross and net cash proceeds from this transaction of $20.7 million and $18.6 million, respectively. Further, as of
December 31,
2021, an aggregate of 5,848,656 Class A Warrants have been exercised at an exercise price of $3.50 per warrant, for which we have received total gross proceeds of $20.5 million.
On
July 12, 2020, we entered into agreements with certain unaffiliated institutional investors pursuant to which we offered 5,775,000 common shares in a registered offering (the
“2020 July Equity
Offering”). In a concurrent private placement, we also issued warrants to purchase up to 5,775,000 common shares (the
“Private Placement Warrants”). The aggregate purchase price for each common share and Private Placement Warrant was $3.00. In
connection with the 2020 July Equity Offering, which closed on
July 15, 2020, we received gross and net cash proceeds of $17.3 million and $15.7 million, respectively. Further, as of
December 31, 2021, an aggregate of 5,707,136 Private Placement
Warrants have been exercised at an exercise price of $3.50 per warrant, for which we have received total gross proceeds of $20.0 million.
On
December 30, 2020, we entered into agreements with certain unaffiliated institutional investors pursuant to which we offered 9,475,000 common shares and warrants to purchase 9,475,000 common
shares (the
“January 5 Warrants”) in a registered direct offering which closed on
January 5, 2021 (the
“2021 January First Equity Offering”). The aggregate purchase price for each common share and January 5 Warrant was $1.90. In connection with
this offering, we received gross proceeds of approximately $18.0 million and net proceeds of $16.5 million, net of fees and expenses of $1.5 million. All of the January 5 Warrants have been exercised at an exercise price of $1.90 per warrant, for
which we have received total gross proceeds of $18.0 million.
On
January 8, 2021, we entered into agreements with certain unaffiliated institutional investors pursuant to which we offered 13,700,000 common shares and warrants to purchase 13,700,000 common
shares (the
“January 12 Warrants”) in a registered direct offering which closed on
January 12, 2021 (the
“2021 January Second Equity Offering”). The aggregate purchase price for each common share and January 12 Warrant was $1.90. In connection
with this offering, we received gross proceeds of approximately $26.0 million and net proceeds of approximately $24.1 million, net of fees and expenses of $1.9 million. All of the January 12 Warrants have been exercised at an exercise price of
$1.90 per warrant, for which we have received total gross proceeds of $26.0 million.
On April 5, 2021, we entered into agreements with certain unaffiliated institutional investors pursuant to which we offered and sold 19,230,770 common shares
and warrants to purchase up to 19,230,770 common shares (the “April 7 Warrants”) in a registered direct offering which closed on April 7, 2021 (the
“2021 April Equity Offering”)
. In connection with the
2021 April Equity Offering, we received gross and net cash proceeds of $125.0 million and $116.3 million, respectively. As of December 31, 2021, all April 7 Warrants having an exercise price of $6.50 remained unexercised and potentially
issuable into common shares.
On May 28, 2021, we effected a 1-for-10 reverse stock split of our common shares without any change in the number of our authorized
common shares. As a result of the reverse stock split, the number of outstanding shares as of May 28, 2021, was decreased to 89,955,848 while the par value of the Company’s common shares remained unchanged at $0.001 per share.
All share and per share amounts, as well as warrant shares eligible for purchase under the Company’s effective warrant schemes have been retroactively adjusted to reflect the reverse stock split.
On
June 14, 2021, we entered into an equity distribution agreement, or the Second Equity Distribution Agreement, with Maxim
acting as a sales agent over a minimum period of 12-months, under which we may, from time to time, offer and sell our common shares through an at-the-market offering (the
“Second ATM Program”), having an aggregate offering price of up to $300.0
million.
No warrants, derivatives, or other share classes were associated with this transaction. From the Second ATM Program effective date
and as of
December 31, 2021, we had raised gross and net proceeds (after deducting sales commissions and other fees and expenses) of $12.9 million and $12.4 million, respectively, by issuing and selling
4,654,240 common shares. On March
31, 2022, we entered into an amended and restated equity distribution agreement with Maxim, which, among other changes, reduced the aggregate offering price under the Second ATM Program to $150.0 million.
For further details, we encourage you to refer to the terms of the amended and restated equity distribution agreement, attached as an exhibit to this annual report.
Our Borrowing Activities
As of
December 31, 2021, we had $103.8 million of gross indebtedness outstanding under our debt agreements, comprising of $87.5 million of indebtedness related to our dry bulk segment and $16.3
million of indebtedness related to our Aframax/LR2 segment. Of this total figure, $16.7 million mature in the twelve-month period ending
December 31, 2022. Our borrowing commitments, as of
December 31, 2021, relating to debt and interest
repayments under our credit facilities amounted to $114.4 million, of which approximately $20.1 million mature in less than one year. The calculation of interest payments has been made assuming interest rates based on the LIBOR specific to our
variable rate credit facilities as of
December 31, 2021, and our applicable margin rate.
As of
December 31, 2021, we also were in compliance with all the financial and liquidity covenants contained in our debt agreements.
Castor Maritime Inc. Credit Facilities
$5.0 Million Term Loan Facility
On
August 30, 2019, we entered into a $5.0 million unsecured term loan with Thalassa, an entity affiliated with
Petros Panagiotidis. The proceeds from this facility were used to partly finance
the acquisition of the
Magic Sun. The entire loan amount was drawn down on
September 3, 2019. This facility bore a fixed interest rate at 6.00% per annum and had an original bullet repayment on
March 3,
2021, a date which was eighteen (18) months after the drawdown date. On
March 2, 2021, the maturity of this facility was extended for an additional six-month term on similar terms with those of the original loan agreement. At its extended
maturity, on
September 3, 2021, we repaid the principal and interest due and owing from us to Thalassa and, as a result, with effect from that date, we were discharged from all liabilities and obligations under this facility.
$5.0 Million Convertible Debentures
On
January 27, 2020, we entered into a securities purchase agreement with YAII PN, LTD,
pursuant to which, on
January 27, 2020,
February 10, 2020, and
February 19, 2020, we issued and sold to that investor three unsecured convertible debentures in original principal amounts of $2.0 million, $1.5 million and $1.5 million each, respectively. These debentures originally matured 12 months from
their issuance dates and bore fixed interest at 6% per annum. As of
June 8, 2020, the investor converted in full the aggregate $5.0 million of principal and $0.1 million of interest due under the debentures for 804,208 common shares.
Dry Bulk Segment Credit Facilities
$11.0 Million Term Loan Facility
On
November 22, 2019, two of our wholly owned dry bulk vessel ship-owning
subsidiaries, Spetses Shipping Co. and Pikachu Shipping Co., entered into our first senior secured term loan facility in
the amount of $11.0 million with Alpha Bank S.A. The facility was drawn down in two tranches on
December 2, 2019. This facility has a term of five years from the drawdown date, bears interest at a 3.50% margin over LIBOR per annum and is
repayable in twenty (20) equal quarterly instalments of $400,000 each, plus a balloon instalment of $3.0 million payable at maturity, on
December 2, 2024.
The above facility is secured by, including but not limited to, a first preferred mortgage and first priority general assignment covering earnings, insurances and requisition compensation over
the vessels owned by the borrowers (the
Magic Moon and the
Magic P), an earnings account pledge, shares security deed relating to the shares of the vessels’
owning
subsidiaries, manager’s undertakings and is guaranteed by
the Company. The facility also contains certain customary minimum liquidity restrictions and financial covenants that require the borrowers to (i) maintain a certain amount of
minimum liquidity per collateralized vessel; and (ii) meet a specified minimum security requirement ratio, which is the ratio of the aggregate market value of the mortgaged vessels plus the value of any additional security and the value of the
minimum liquidity deposits referred to above to the aggregate principal amounts due under the facility.
$4.5 Million Term Loan Facility
On
January 23, 2020, pursuant to the terms of a credit agreement, our wholly owned dry bulk vessel ship-owning subsidiary, Bistro Maritime Co., entered into a $4.5 million senior secured term
loan facility with Chailease International Financial Services Co., Ltd. The facility was drawn down on
January 31, 2020, is repayable in twenty (20) equal quarterly installments of $150,000 each, plus a balloon installment of $1.5 million payable
at maturity and bears interest at a 4.50% margin over LIBOR per annum.
The above facility contains a standard security package including a first preferred mortgage on the vessel owned by the borrower (the
Magic Sun), pledge
of bank account, charter assignment, shares pledge and a general assignment over the vessel’s earnings, insurances and any requisition compensation in relation to the vessel owned by the borrower, and is guaranteed by
the Company and Pavimar S.A.
Pursuant to the terms of this facility,
the Company is also subject to a certain minimum liquidity restriction requiring the borrower to maintain a certain cash collateral deposit in an account held by the lender as well as certain negative
covenants customary for this type of facility. The credit agreement governing this facility also requires maintenance of a minimum value to loan ratio being the aggregate principal amount of (i) fair market value of the collateral vessel and (ii)
the value of any additional security (including the cash collateral deposit referred to above), to the aggregate principal amount of the loan.
$15.29 Million Term Loan Facility
On
January 22, 2021, pursuant to the terms of a credit agreement, two of our wholly owned dry bulk vessel ship-owning
subsidiaries, Pocahontas Shipping Co. and Jumaru Shipping Co., entered
into a $15.29 million senior secured term loan facility with Hamburg Commercial Bank AG. The facility was drawn down in two tranches on
January 27, 2021, is repayable in sixteen (16) equal quarterly installments of $471,000 each, plus a balloon
installment of $7.8 million payable at maturity and bears interest at a 3.30% margin over LIBOR per annum.
The above facility contains a standard security package including first preferred mortgages on the vessels owned by the borrowers (the
Magic Horizon
and the
Magic Nova), pledge of bank accounts, charter assignments, and a general assignment over the vessels’ earnings, insurances and any requisition compensation in relation to the vessels owned by
the borrowers, and is guaranteed by
the Company. Pursuant to the terms of this facility,
the Company is also subject to a certain minimum liquidity restriction requiring the borrowers to maintain a certain cash collateral deposit balance with
the lender (secured by an account pledge), to maintain and gradually fund certain dry-dock reserve accounts in order to ensure the payment of any costs incurred in relation to the next dry-docking of each mortgaged vessel, as well as to certain
negative covenants customary for this type of facility. The credit agreement governing this facility also requires maintenance of a minimum security cover ratio being the aggregate amount of (i) the fair market value of the collateral vessels,
(ii) the value of the cash collateral deposit balance referred to above, (iii) the value of the dry-dock reserve accounts referred to above, and (iv) any additional security provided, over the aggregate principal amount outstanding of the loan.
$40.75 Million Term Loan Facility
On
July 23, 2021, pursuant to the terms of a credit agreement, four of our wholly owned dry bulk vessel ship-owning
subsidiaries, Liono Shipping Co., Snoopy Shipping Co., Cinderella Shipping
Co., and Luffy Shipping Co., entered into a $40.75 million senior secured term loan facility with Hamburg Commercial Bank AG. The loan was drawn down in four tranches on
July 27, 2021,
is repayable in twenty
(20) equal quarterly installments of $1,154,000 each, plus a balloon installment in the amount of $17.7 million payable at maturity simultaneously with the last instalment and bears interest at a 3.10% margin over LIBOR per annum.
The above facility contains a standard security package including first preferred mortgages on the vessels owned by the borrowers (the
Magic Thunder, Magic
Nebula, Magic Eclipse and the
Magic Twilight), pledge of bank accounts, charter assignments, and a general assignment over the vessels’ earnings, insurances and any requisition compensation in
relation to the vessels owned by the borrowers and is guaranteed by
the Company.
The Company is also subject to a certain minimum liquidity restriction requiring the borrowers to maintain a certain liquidity deposit cash balance pledged to
lender under an account pledge
, a specified portion of which shall be released to the borrowers following the repayment of the fourth installment with respect to all four tranches, to maintain and
gradually fund certain dry-dock reserve accounts in order to ensure the payment of any costs incurred in relation to the next dry-docking of each mortgaged vessel, as well as to certain negative covenants customary for this type of facility. The
credit agreement governing this facility requires maintenance of a minimum security cover ratio
being the aggregate amount of (i) the aggregate market value of the collateral vessels, (ii) the value of the
dry-dock reserve accounts referred to above, and, (iii) any additional security provided over the aggregate principal amount outstanding of the loan.
$23.15 Million Term Loan Facility
On
November 22, 2021, pursuant to the terms of a credit agreement, two of our wholly owned dry bulk vessel ship-owning
subsidiaries, Bagheera Shipping Co. and Garfield Shipping Co., entered into
a $23.15 million senior secured term loan facility with
Chailease International Financial Services (Singapore) Pte. Ltd. The loan was drawn down in two tranches on
November 24, 2021, b
oth of which mature five years after the drawdown date and are repayable
in sixty (60) monthly installments (1 to 18 in the amount of $411,500 and 19 to 59 in the amount of $183,700)
and (b) a balloon installment in the amount of $8.2 million payable at maturity simultaneously with the last instalment and bears interest at a 4.00% margin LIBOR over annum.
The above facility contains a standard security package including a first preferred mortgage on the vessels owned by the borrowers (the
Magic Rainbow and
the
Magic Phoenix), pledge of bank accounts, charter assignments, shares pledge and a general assignment over the vessel’s earnings, insurances, and any requisition compensation in relation to the vessel
owned by the borrowers and is guaranteed by
the Company. Pursuant to the terms of this facility,
the Company is also subject to certain negative covenants customary for this type of facility and a certain minimum liquidity restriction requiring
the borrowers to maintain a certain cash collateral deposit in an account held by the lender.
$55.0 Million Term Loan Facility
On
January 12, 2022, pursuant to the terms of a credit agreement, five of our wholly owned dry bulk vessel ship-owning
subsidiaries, Mulan Shipping Co., Johnny Bravo Shipping Co., Songoku
Shipping Co., Asterix Shipping Co. and Stewie Shipping Co., entered into a $55.00 million secured term loan facility with Deutsche Bank AG. The loan was drawn down in five tranches on
January 13, 2022, is repayable
in twenty (20) quarterly installments (1 to 6 in the amount of $3,535,000, 7 to 12 in the amount of $1,750,000 and 13 to 20 in the amount of $1,340,000) and (b) a balloon installment in the amount of $12.6 million payable at maturity
simultaneously with the last instalment and bears interest at a 3.15% margin over adjusted SOFR per annum.
The above facility contains a standard security package including a first preferred mortgage on the vessels, owned by the borrowers (the
Magic Starlight,
Magic Mars, Magic Pluto, Magic Perseus, and the
Magic Vela), pledge of bank accounts, charter assignments, shares pledge and a general assignment over the vessel’s earnings, insurances, and any
requisition compensation in relation to the vessel owned by the borrower and is guaranteed by
the Company. Pursuant to the terms of this facility, the borrowers are subject (i)
a specified minimum security
cover requirement, which is the maximum ratio of the aggregate principal amounts due under the facility to the aggregate market value of the mortgaged vessels plus the value of the dry-dock reserve accounts referred to below and any additional
security, and (ii) to certain minimum liquidity restrictions requiring us to maintain certain blocked and free liquidity cash balances with the lender, to maintain and gradually fund certain dry-dock reserve accounts in order to ensure
the payment of any costs incurred in relation to the next dry-docking of each mortgaged vessel, as well as to certain customary, for this type of facilities, negative covenants. Moreover, the facility contains certain financial covenants
requiring
the Company as guarantor to maintain (i) a ratio of net debt to assets adjusted for the market value of our fleet of vessels
, to net interest expense ratio above a certain level,
(ii) an amount of unencumbered cash above a certain level and, (iii) our trailing 12 months EBITDA to net interest expense ratio not to fall below a certain level.
Aframax/LR2 Tanker Segment Credit Facilities
$18.0 Million Term Loan Facility
On
April 27, 2021, two of our wholly owned tanker vessel ship-owning
subsidiaries, Rocket Shipping Co. and Gamora Shipping Co., entered into a $18.0 million senior secured term loan facility with
Alpha Bank S.A. The facility was drawn down in two tranches on
May 7, 2021. This facility has a term of four years from the drawdown date, bears interest at a 3.20% margin over LIBOR per annum and is repayable
in
(a) sixteen (16) quarterly instalments (1 to 4 in the amount of $850,000 and 5 to 16 in the amount of $675,000) and (b) a balloon installment in the amount of $6.5 million payable at maturity.
The above facility is secured by first preferred mortgage and first priority general assignment covering earnings, insurances and requisition compensation over
the vessels owned by the borrowers (the Wonder Sirius and the Wonder
Polaris), an earnings account pledge, shares security deed relating to the shares of the vessels’ owning subsidiaries, manager’s undertakings and is guaranteed by Castor. The facility also
contains certain customary minimum liquidity restrictions and financial covenants that require the borrowers to (i) maintain a certain amount of a minimum liquidity deposit per collateralized vessel (pledged in favor of the lender during the
security period), and, (ii) meet a specified minimum security requirement ratio, which is the ratio of the aggregate market value of the mortgaged
vessels plus the value of any additional security and the value
of the minimum liquidity deposits referred to above to the aggregate principal amounts due under the facility.
Cash Flows
The following table summarizes our net cash flows from operating, investing and financing activities for the years ended
December 31, 2021, and
2020:
|
(in U.S Dollars)
|
|
For the year ended
|
|
| |
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
|
(2,343,809
|
)
|
|
|
60,775,327
|
|
|
Net cash used in investing activities
|
|
|
(35,472,173
|
)
|
|
|
(348,640,707
|
)
|
|
Net cash provided by financing activities
|
|
|
42,183,946
|
|
|
|
321,824,945
|
|
Operating Activities: Net cash provided by operating activities amounted to $60.8 million for the year ended
December 31, 2021, consisting of net income after non-cash items
of $65.1 million and a working capital cash decrease of $4.3 million. For the year ended
December 31, 2020, net cash used in operating activities amounted to $2.3 million, consisting of net income after non-cash items of $1.1 million less a
decrease in working capital of $3.4 million. The $63.1 million increase, hence, in net cash from operating activities in the year ended
December 31, 2021, as compared with the same period of 2020 reflects mainly the increase in net income after
non-cash items which was largely driven by the expansion of our business and the improvement of the charter rates earned by the dry bulk vessels of our fleet.
Investing Activities: Net cash used in investing activities amounting to $348.6 million for the year ended
December 31, 2021, mainly reflects the cash outflows associated
with (i) the vessel acquisitions we made during the period, as discussed in more detail under Note 6 of our audited consolidated financial statements included elsewhere in this annual report and (ii) the BWMS installations performed during 2021
on the
Magic Vela and the
Wonder Mimosa. Net cash used in
investing activities in
the
fiscal year ended
December 31, 2020 reflects the cash outflows associated with (i) the acquisitions of the
Magic Rainbow, the
Magic Horizon and the
Magic Nova in the third and fourth quarters of 2020 and (ii) the BWMS installations on the
Magic P and the
Magic Sun.
Financing Activities: Net cash provided by financing activities during the year ended
December 31, 2021 amounting to $321.8 million, relates to (i) the net proceeds raised
under our registered direct equity offerings amounting to $156.9 million, (ii) the proceeds from the issuance of stock under our warrant schemes amounting to $83.4 million, (iii) the net proceeds from the issuance of stock pursuant to our Second
ATM Program amounting to $12.5 million, (iv) the $95.3 million net proceeds related to the $15.29 million term loan facility, the $18.0 million term loan facility, the $40.75 million term loan facility, and the $23.15 million term loan facility
(as further discussed above and further under Note 7 of our consolidated financial statements included elsewhere in this report), as offset by (v) the $14.4 million cash redemption of the Series A Preferred Shares, (vi) $6.9 million of period
scheduled principal repayments under our existing secured credit facilities and (vii) the repayment, at its extended maturity, of the $5.0 million term loan facility.
Net cash from financing activities of $42.2 million for the year ended
December 31, 2020 consisted of (i) the net cash proceeds received pursuant to the 2020 June Equity Offering and the 2020
July Equity Offering (as described in “
— Liquidity and Capital Resources (“Equity Transactions”)”) amounting to $35.3 million, (ii) proceeds of $9.5 million in the period from the $5.0 million convertible
debentures and the $4.5 million term loan facility (see “
—Our Borrowing Activities” for full terms), (iii) principal scheduled repayments under our credit facilities amounting to $2.0 million and (iv)
payment of deferred finance costs in connection with the closing of our debt agreements in an aggregate amount of $0.6 million.
| C. |
Research and Development, Patents and Licenses, Etc.
|
Not applicable.
Our results of operations depend primarily on the charter rates that we are able to realize. Charter hire rates paid for dry bulk and tanker vessels are primarily a function of the underlying
balance between vessel supply and demand. For a discussion regarding the market performance, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Cyclical Nature of the Industry.”
There can be no assurance as to how long charter rates will remain at their current levels or whether they will improve or deteriorate and, if so, when and to what degree. That may have a
material adverse effect on our future growth potential and our profitability. Also,
the Company’s business could be materially and adversely affected by the risks, or the public perception of the risks and travel restrictions related to the
COVID-19 pandemic.
The Company is unable to reasonably predict the estimated length or severity of the COVID-19 pandemic on future operating results.
| E. |
Critical Accounting Estimates
|
We prepare our financial statements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. On a regular basis, management reviews the accounting policies,
assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results
could differ from our assumptions and estimates, and such differences could be material. For a description of our material accounting policies, please read “Item 18. Financial Statements” and more
precisely “Note 2. Summary of Significant Accounting Policies” of our consolidated financial statements included elsewhere in this annual report.
Vessel Impairment
The Company reviews for impairment its long-lived assets held and used whenever events or changes in circumstances (such as market conditions, obsolesce or damage to the asset, potential sales
and other business plans) indicate that the carrying amount of the assets may not be recoverable. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying
amount, we are required to evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset.
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 newbuilds. Historically, both charter rates and vessel values tend to be cyclical.
Our estimates of basic market value assume that the 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 a third-party independent shipbroker 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.
As of
December 31, 2021, the charter-free market value of all our vessels exceeded their carrying value, thus, no undiscounted cash flow tests were deemed necessary to be performed for any of
our vessels. As of
December 31, 2020, the aggregate carrying value of certain of our vessels exceeded their aggregate basic charter-free market value by approximately $0.8 million. We believe that the carrying values of our vessels whose carrying
value exceeded its fair value as of
December 31, 2020 were recoverable as the undiscounted projected net operating cash flows of these vessels exceeded their carrying value by a significant amount.
We perform undiscounted cash flow tests when necessary, as an impairment analysis, in which we made estimates and assumptions relating to determining the projected undiscounted net operating cash flows by
considering the following:
|
• |
the charter revenues from existing time charters for the fixed fleet days;
|
|
• |
estimated vessel operating expenses and voyage expenses;
|
|
• |
estimated dry-docking expenditures;
|
|
• |
an estimated gross daily charter rate for the unfixed days (based on the ten-year average of the historical six-months and one-year time charter rates available for each type of vessel) over the remaining economic life of each vessel,
excluding days of scheduled off-hires and net of commissions;
|
|
• |
residual value of vessels;
|
|
• |
commercial and technical management fees;
|
|
• |
an estimated utilization rate; and
|
|
• |
the remaining estimated life of our vessels.
|
The net operating undiscounted cash flows are then compared with the vessels’ net book value plus unamortized dry-docking costs. The difference, if any, between the carrying amount of the vessel plus unamortized
dry-docking costs and their fair value is recognized in
the Company’s accounts as impairment loss.
Although we believe that the assumptions used to evaluate potential impairment, which are largely based on the historical performance of our fleet, are reasonable and appropriate, such assumptions are highly
subjective. There can be no assurance as to how charter rates and vessel values will fluctuate in the future. Charter rates may, from time to time throughout our vessels’ lives, remain for a considerable period of time at depressed levels which
could adversely affect our revenue and profitability, and future assessments of vessel impairment.
Our assumptions, based on historical trends, and our accounting policies are as follows:
|
• |
in accordance with the prevailing industry standard, depreciation is calculated using an estimated useful life of 25 years for our vessels, commencing at the date the vessel was originally delivered from the shipyard;
|
|
• |
estimated useful life of vessels takes into account commercial considerations and regulatory restrictions;
|
|
• |
estimated charter rates are based on rates under existing vessel contracts and thereafter at market rates at which we expect we can re-charter our vessels based on market trends. We believe that the ten-year average historical time
charter rate is appropriate (or less than ten years if appropriate data is not available) for the following reasons: |
• it reflects more accurately the earnings capacity of the type, specification, deadweight capacity and average age of our vessels;
• it reflects the type of business conducted by us (period as opposed to spot);
• it is an appropriate period to capture the volatility of the market and includes numerous market highs and lows so as to be considered a fair estimate based on past
experience; and
• respective data series are adequately populated.
|
• |
estimates of vessel utilization, including estimated off-hire time are based on the historical experience of our fleet;
|
|
• |
estimates of operating expenses and dry-docking expenditures are based on historical operating and dry-docking costs based on the historical experience of our fleet and our expectations of future operating requirements;
|
|
• |
vessel residual values are a product of a vessel’s lightweight tonnage and an estimated scrap rate; and
|
|
• |
the remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in our depreciation calculations.
|
The impairment test that we conduct, when required, is most sensitive to variances in future time charter rates.
| ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
| A. |
Directors and Senior Management
|
Set forth below are the names, ages and positions of our directors and executive officer. Our Board currently consists of three directors and is elected annually on a staggered basis, and each
director elected holds office for a three-year term. The business address of each of our directors and executive officer listed below is Castor Maritime Inc., 223 Christodoulou Chatzipavlou Street, Hawaii Royal Gardens, 3036 Limassol, Cyprus.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
32
|
|
Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer and Class C Director
|
|
Dionysios Makris
|
|
|
41
|
|
Secretary and Class B Director
|
|
Georgios Daskalakis
|
|
|
32
|
|
Class A Director
|
Certain biographical information with respect to each director and senior management of
the Company listed above is set forth below.
Petros Panagiotidis, Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer and Class C Director
Petros Panagiotidis, is the founder of Castor Maritime Inc. He has been serving as
the Company’s Chairman of the Board, Chief Executive Officer and Chief Financial Officer since our inception in
2017. During his years with Castor Maritime he has been actively engaged in the successful company’s listing on the NASDAQ Capital Market in February 2019. He is responsible for the implementation of our business strategy and the overall
management of our affairs. Prior to founding Castor Maritime, he gained extensive experience working in shipping and investment banking positions focused on operations, corporate finance and business management. He holds a bachelor’s degree in
International Studies and Mathematics from Fordham University and a Master’s Degree in Management and Systems from the New York University.
Dionysios Makris, Secretary and Class B Director
Dionysios Makris has been a non-executive member and Secretary of our Board since
the Company’s establishment in September 2017 and currently serves as a member of
the Company’s Audit Committee.
He is a lawyer and has been a member of the Athens Bar Association since September 2005. He is currently based in Piraeus, Greece and is licensed to practice law before the Supreme Court of Greece. He practices mainly shipping and commercial law
and is involved in both litigation and transactional practice. He holds a Bachelor of Laws degree from the Law School of the University of Athens, Greece and a Master of Arts degree in International Relations from the University of Warwick,
United Kingdom.
Georgios Daskalakis, Class A Director
Georgios Daskalakis has been a non-executive member of our Board since our establishment in September 2017 and he is currently the chairman of our Audit Committee. Mr. Daskalakis has been
employed since 2017 by M/Maritime Corp., a dry cargo management company, holding a number of senior positions. As of today, he is the Chief Commercial Officer and Chairman of the Board of Directors at M/Maritime. Prior to that he was employed in
various roles in the shipping industry with Minerva Marine Inc, a major Greece based diversified shipping entity and Trafigura Maritime Logistics PTE Ltd. He holds a Bachelor’s degree from Babson College with a concentration on Economics and
Finance followed by a Master of Science degree in Shipping, Trade and Finance from the Costas Grammenos Centre for Shipping, Trade and Finance, Cass Business School, City University of London.
The services rendered by our Chairman, Chief Executive Officer and Chief Financial Officer for the year ended
December 31, 2021, are included in our master agreement with Castor Ships described
under
“Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” below. For the year ended
December 31, 2021, we paid our non-executive directors fees in the aggregate
amount of $48,000 per annum, or $24,000 per director per annum, plus reimbursement for their out-of-pocket expenses. Our Chief Executive Officer and Chief Financial Officer who also serves as our director does not receive additional compensation
for his service as director.
Our Board currently consists of three directors and is elected annually on a staggered basis. Each director elected holds office for a three-year term or until his successor is duly elected and
qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office. At our annual meeting of shareholders held on
November 30, 2021, our shareholders re-elected our Class A director to serve until
the annual meeting of shareholders to be held in 2024. The term of office of our Class B director expires at the annual meeting of shareholders to be held in 2022, and the term of office our Class C director expires at the annual meeting of
shareholders to be held in 2023. Officers are appointed from time to time by our Board and hold office until a successor is appointed. Our directors do not have service
contracts and do not receive any benefits upon termination of their
directorships.
Our audit committee is comprised of our independent directors, Mr. Dionysios Makris and Mr. Georgios Daskalakis. Our Board has determined that the members of the audit committee meet the
applicable independence requirements of the Commission and the Nasdaq Stock Market Rules. Our Board has determined that Mr. Georgios Daskalakis is an “Audit Committee Financial Expert” under the Commission’s rules and the corporate governance
rules of the Nasdaq Stock Market. The audit committee is responsible for our external financial reporting function as well as for selecting and meeting with our independent registered public accountants regarding, among other matters, audits and
the adequacy of our accounting and control systems. Our audit committee is also responsible for reviewing all related party transactions for potential conflicts of interest and all related party transactions are subject to the approval of the
audit committee.
As of the date of this annual report, Mr.
Petros Panagiotidis, holding the positions of Chairman, Chief Executive Officer and Chief Financial Officer, is our only employee.
With respect to the total amount of common shares owned by all of our officers and directors individually and as a group, please see “
Item 7. Major Shareholders
and Related Party Transactions” Please also see “
Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of holders of our Series B Preferred
Shares relative to the rights of holders of our common shares.
|
ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Based on information available to us, including information contained in public filings, as of the date of this annual report, there were no beneficial owners of 5% or more of our common shares.
The following table sets forth certain information regarding the beneficial ownership of common shares and Series B Preferred Shares of all of our directors and officers as of the date of this annual report.
The percentage of beneficial ownership is based on 94,610,088 common shares outstanding as of
March 28, 2022.
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Name of Beneficial Owner
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No. of Common Shares
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Percentage
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All executive officers and directors as a group (1) (2)
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%
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(1) Neither any member of our Board of Directors or executive officer individually, nor all of them taken as a group, hold more than 1% of our outstanding common shares.
(2)
Petros Panagiotidis holds 112,409 common shares and 12,000 Series B Preferred Shares (representing all such Series B Preferred Shares outstanding, each Series B Preferred Share having
the voting power of one hundred thousand (100,000) common shares). Please see “
Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of holders of our
Series B Preferred Shares relative to the rights of holders of our common shares.
All of our common shareholders are entitled to one vote for each common share held. As of
March 25, 2022 there were 91 holders of record of our common shares, 2 of which have a U.S. mailing
address. One of these holders is CEDE & Co., a nominee company for The Depository Trust Company, which held approximately 99.8% of our outstanding common shares as of such date. The beneficial owners of the common shares held by CEDE &
Co. may include persons who reside outside the United States.
| B. |
Related Party Transactions
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From time to time, we have entered into agreements and have consummated transactions with certain related parties. We may enter into related party transactions from time to time in the future.
Management, Commercial and Administrative Services
Our vessels are technically managed by Pavimar, a company controlled by Ismini Panagiotidis, the sister of our Chairman, Chief Executive Officer and Chief Financial Officer, Petros
Panagiotidis. Under the technical management agreements, our ship-owning
subsidiaries pay a $600 daily fee to Pavimar for the provision of a wide range of shipping services such as crew management, technical management, operational employment
management, insurance management, provisioning, bunkering, accounting and audit support services, which it may choose to subcontract to other parties at its discretion. As of
December 31, 2021, Pavimar had subcontracted the technical management
of three of
the Company’s dry bulk vessels and nine of its tanker vessels to third-party ship-management companies. Pavimar pays, at its own expense, these third-party management companies a fee for the services it has subcontracted to them,
without burdening
the Company with any additional cost. The technical management agreements
have a term of five years and such term automatically renews for a successive five-year term on each
anniversary of their effective date, unless the agreements are terminated earlier in accordance with the provisions contained therein. In the event that the Pavimar management agreements are terminated by the ship-owning
subsidiaries other than
by reason of default by Pavimar, a termination fee equal to four times the total amount of the daily management fee calculated on an annual basis shall be payable from the ship-owning
subsidiaries to Pavimar.
Our vessels are commercially managed by Castor Ships, a company controlled by our Chairman, Chief Executive Officer and Chief Financial Officer. Castor Ships manages our business overall and
provides us with commercial, chartering and administrative services, including, but not limited to, securing employment for our fleet, arranging and supervising the vessels’ commercial operations, handling all of
the Company’s vessel sale and
purchase transactions, undertaking related shipping project and management advisory and support services, as well as other associated services requested from time to time by us and our ship-owning
subsidiaries. In exchange for these services, we
and our
subsidiaries pay Castor Ships (i) a flat quarterly management fee in the amount of $0.3 million for the management and administration of our business, (ii) a daily fee of $250 per vessel for the provision of commercial services, (iii) a
commission of 1.25% on all charter agreements and (iv) a commission of 1% on each sale and purchase transaction. The Castor Ships management agreements have a term of five years and such term automatically renews for a successive five-year term
on each anniversary of the effective date, unless the agreements are terminated earlier in accordance with the provisions contained therein. In the event that the Castor Ships management agreements are terminated by
the Company, or are terminated
by Castor Ships due to a material breach of the master management agreement by
the Company or a change of control in
the Company (including the disposal of all or substantially all of our assets, changes in key personnel such as our current
directors or Chief Executive Officer or a determination by our board of directors that a change of control has occurred), Castor Ships shall be entitled to a termination fee equal to four times the total amount of the flat management fee and the
per vessel management fees calculated on an annual basis. The agreements also provide that the management fees may be subject to annual review on their anniversary.
For further information, please refer to Note 3 of our audited consolidated financial statements included elsewhere in this annual report.
Vessel Acquisitions
On
December 17, 2021, we entered into, through a separate wholly owned subsidiary, an agreement to purchase a 2012 Japanese built Panamax dry bulk carrier, the
Magic
Callisto, for a purchase price of $23.55 million from a third party in which a family member of our Chairman, Chief Executive Officer and Chief Financial Officer had an interest. The
Magic Callisto
was delivered to us on
January 4, 2022.
The terms of the transaction were negotiated and approved by a special committee of disinterested and independent directors of the Company.
Loans
$5.0 Million Term Loan Facility
On
August 30, 2019, we entered into a $5.0 million term loan facility with Thalassa, an entity affiliated with
Petros Panagiotidis, which was repaid in full on
September 3, 2021. Please see
“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Borrowing Activities” for more information.
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Interests of Experts and Counsel
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Not applicable.
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ITEM 8. |
FINANCIAL INFORMATION
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| A. |
Consolidated Statements and other Financial Information
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Please see “Item 18. Financial Statements.”
Legal Proceedings
To our knowledge, we are not currently a party to any legal proceedings that, if adversely determined, would have a material adverse effect on our financial condition results of operations or
liquidity. As such, we do not believe that pending legal proceedings, taken as a whole, should have any significant impact on our financial statements. We are, and from time to time in the future, we may be subject to legal proceedings and claims
in the ordinary course of business, principally personal injury and property casualty claims. While we expect that these claims would be covered by our existing insurance policies, those claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources.
Dividend Policy
We are a recently formed company and have a limited performance record and operating history. Accordingly, we cannot assure you that we will be able to pay dividends at all, and our ability to
pay dividends will be subject to the limitations set forth below and under “Item 3. Risk Factors—Risks Relating to our Common Shares¾Our Board may never declare dividends.”
Under our
Bylaws, our Board may declare and pay dividends in cash, stock or other property of
the Company. Any dividends declared will be in the sole discretion of the Board and will depend upon
factors such as earnings, increased cash needs and expenses, restrictions in any of our agreements (including our current and future credit facilities), overall market conditions, current capital expenditure programs and investment opportunities,
and the provisions of Marshall Islands law affecting the payment of distributions to shareholders (as described below). The foregoing is not an exhaustive list of factors which may impact the payment of dividends.
Marshall Islands law provides that we may pay dividends on and redeem any shares of capital stock only to the extent that assets are legally available for such purposes. Legally available assets
generally are limited to our surplus, which essentially represents our retained earnings and the excess of consideration received by us for the sale of shares above the par value of the shares. In addition, under Marshall Islands law, we may not
pay dividends on or redeem any shares of capital stock if we are insolvent or would be rendered insolvent by the payment of such a dividend or the making of such redemption.
Any dividends paid by us may be treated as ordinary income to a U.S. shareholder. Please see the section entitled “Item 10. Additional Information—E.
Taxation—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—Distributions” for additional information relating to the U.S. federal income tax treatment of our dividend payments, if any are declared in the
future.
We have not paid any dividends to our shareholders as of the date of this annual report.
Not applicable.
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ITEM 9. |
THE OFFER AND LISTING
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| A. |
Offer and Listing Details
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Our common shares currently trade on the Nasdaq Capital Market under the symbol “CTRM” and on the Norwegian OTC, or the NOTC, under the symbol “CASTOR”.
Not applicable.
Please see “—A. The Offer and Listing—Offer and Listing Details.”
Not applicable.
Not applicable.
Not applicable.
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ITEM 10. |
ADDITIONAL INFORMATION
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Not applicable.
Articles of Association
and Bylaws
The following is a description of material terms of our
articles of incorporation and
bylaws. Because the following is a summary, it does not contain all information that
you may find useful. For more complete information, you should read our
articles of incorporation and our
bylaws, as amended, copies of which are filed as exhibits to the this annual report.
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 amended and
restated
Articles of Incorporation and
Bylaws do not impose any limitations on the ownership rights of our shareholders.
Authorized Capitalization
Under our
Articles of Incorporation, our authorized capital stock consists of 1,950,000,000 common shares, par value $0.001 per
share, of which 94,610,088 common shares were issued and outstanding as of
March 28, 2022, and 50,000,000 preferred shares, par value $0.001 per share, of which 12,000 Series B Preferred Shares are currently issued and outstanding.
Description of Common Shares
For a description of our common shares, see
Exhibit 2.2 (Description of Securities).
Share History
Please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Equity Transactions” for a description of the
Company’s equity transactions.
Preferred Shares
Our
Articles of Incorporation authorize our Board 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:
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the designation of the series;
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the number of shares of the series;
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the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and
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the voting rights, if any, of the holders of the series.
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Description of Series A Preferred Shares
On
December 8, 2021, pursuant to a decision approved by our Board of Directors on
November 8, 2021, we redeemed all of the issued and outstanding Series A preferred shares.
Based on the amended and restated statement of designations of Castor dated
October 10, 2019, the holders of the Series A preferred shares received a cash redemption of $30.00 per Series A Preferred Share. For further information on the Series A
Preferred Shares and their redemption, see Note 8 (
“(b) Preferred Shares¾Series A Preferred Shares
amendment and accumulated dividends settlement”) of our consolidated financial statements included elsewhere in this annual report.
Description of Series B Preferred Shares
On
September 22, 2017, pursuant to an Exchange Agreement dated
September 22, 2017, between
the Company, Spetses Shipping Co., and the shareholders of Spetses Shipping Co., we made certain
issuances of our capital stock, including the issuance of 12,000 Series B Preferred Shares to Thalassa, a company controlled by
Petros Panagiotidis,
the Company’s Chairman, Chief Executive Officer and Chief Financial Officer. Each Series B
Preferred Share has the voting power of one hundred thousand (100,000) common shares.
The Series B Preferred Shares have the following characteristics:
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Conversion. The Series B Preferred Shares are not convertible into common shares.
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Voting. Each Series B Preferred Share has the voting power of 100,000 common shares and count for 100,000 votes for purposes of determining quorum at a meeting of
shareholders. The Series B Preferred Share vote together with common shares as a class, except that the Series B Preferred Shares vote separately as a class on amendments to the Articles of Incorporation that would materially alter or
change the powers, preference or special rights of the Series B Preferred Shares.
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Distributions. The Series B Preferred Shares have no dividend or distribution rights.
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Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, the Series B Preferred Shares shall have the same liquidation rights as
the common shares.
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Stockholders Rights Agreement
On
November 21, 2017, our Board declared a dividend of one preferred share purchase right (a
“Right” or the
“Rights”), for each outstanding common share and adopted a shareholder rights plan, as
set forth in the Stockholders
Rights Agreement dated as of
November 20, 2017 (the
“Rights Agreement”), by and between
the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The Rights entitle the holder to purchase
from
the Company one one-thousandth of a share of Series C Participating Preferred Shares (as defined in the Stockholders
Rights Agreement) and become exercisable 10 days after a public announcement that a person or group has obtained beneficial
ownership of 15% or more of our outstanding shares. See
Exhibit 2.2 (Description of Securities) for a full description of the Stockholders
Rights Agreement. As of
December 31, 2021, 94,610,088 Rights were
issued and outstanding in connection with our common shares.
Description of the Class A Warrants
The following summary of certain terms and provisions of our Class A Warrants is not complete and is subject to and qualified in its entirety by the provisions of the form of Class A Warrant,
which is filed as an exhibit to our registration statement on Form F-1/A (Registration No.
333-238990), filed with the Commission on
June 23, 2020. Prospective investors should carefully review the terms and provisions set forth in the form of
Class A Warrant.
Exercise Price. The exercise price per whole common share purchasable upon exercise of the Class A Warrants is $3.50 per share. The exercise price and
number of common shares issuable upon exercise will adjust in the event of certain stock dividends and distributions, stock splits (including the reverse stock split we effected on
May 28, 2021), stock combinations, reclassifications or similar
events affecting our common shares. The Class A Warrants may be exercised at any time until they are exercised in full. 5,848,656 of the Class A Warrants were exercised in full prior to the date of this annual report, resulting in the issuance of
an aggregate of 5,848,656 common shares for an aggregate exercise price of approximately $20.5 million
. As of the date of this annual report, 62,344 Class A Warrants remain outstanding.
Exercisability. The Class A Warrants are exercisable at any time after their original issuance up to the date that is five years after their original
issuance. Each of the Class A Warrants is 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 A 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 A 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 Class A 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 Class A Warrant. No fractional common shares will be issued in connection with the exercise of a Class 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. The Class A Warrants contain certain damages provisions pursuant to which we have agreed to pay the holder certain damages if we do not issue the shares in
a timely fashion.
A holder will not have the right to exercise any portion of the Class A Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, upon election of the
holder, 9.99%) of the number of our common shares outstanding immediately after giving effect to the exercise, as such percentage of beneficial ownership is determined in accordance with the terms of the Class A Warrants. However, any holder may
increase or decrease such percentage, but not in excess of 9.99%, provided that any increase will not be effective until the 61st day after such election.
Transferability. Subject to applicable laws, the Class A Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We do not intend to apply for the listing of the Class A Warrants on any stock exchange. Without an active trading market, the liquidity
of the Class A Warrants will be limited.
Rights as a Shareholder. Except as otherwise provided in the Class A Warrants, the holder of a Class A Warrant does not have the rights or privileges of a
holder of our common shares, including any voting rights, until the holder exercises the Class A Warrant.
Pro Rata Distributions. If, while the Class A Warrants are outstanding, we make certain dividend or distribution of our assets to holders of Common Stock,
including any distribution of cash, stock, property or options by way of dividend, or spin off, all holders of the Class A Warrants are entitled to participate in the distribution to the same extent as if the holder had held the number of common
shares acquirable upon exercise of the warrant on the date of the distribution.
Fundamental Transactions. If a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for us, and may exercise
every right and power that we may exercise and will assume all of our obligations under the Class A Warrants with the same effect as if such successor entity had been named in the Class A Warrant itself. If holders of our common shares are given
a choice as to the securities, cash or property to be received in a fundamental transaction, then the holder shall be given the same choice as to the consideration it receives upon any exercise of the Class A Warrants following such fundamental
transaction. In addition, we or the successor entity, at the request of Class A Warrant holders, will be obligated to purchase any unexercised portion of the Class A Warrants in accordance with the terms of such Class A Warrants.
Governing Law. The Class A Warrants and warrant agreement are governed by New York law.
Description of the Private Placement Warrants
Each Private Placement Warrant is exercisable at any time after its issuance for $3.50 per common share and has a term of 5 years. The Private Placement Warrants have substantially the same terms
as the Class A Warrants described above, except that they are subject to certain restrictions on transfer and contain different adjustment provisions for pro rata distributions. In the event of a pro rata distribution, the number of common shares
issuable upon the exercise of each Private Placement Warrant will adjust proportionally against the new number of outstanding common shares such that the exercise price of the warrant remains unchanged, unless our Board decides to exercise its
discretion to instead decrease the exercise price of the Private Placement Warrants by the amount distributed to each common share. The value of the exercise price adjustment will be determined by the Board in good faith. 5,707,136 of the Private
Placement Warrants were exercised in full prior to the date of this annual report, resulting in the issuance of an aggregate of 5,707,136 common shares for an aggregate exercise price of approximately $20.0 million. As of the date of this annual report, 67,864 Private Placement Warrants remain outstanding.
Description of the January 5 and January 12 Warrants
Each January 5 Warrant and January 12 Warrant was exercisable for $1.90 per common share over an initial term of 5 years, on substantially the same terms as the Class A Warrants described above.
All of the January 5 and January 12 Warrants were exercised in full prior to the date of this annual report, resulting in the issuance of an aggregate of 23,175,000 common shares for an aggregate exercise price of approximately $44.0 million.
Description of the April 7 Warrants
Each April 7 Warrant is exercisable for $6.50 per common share and for a term of 5 years, on substantially the same terms as the Private Placement Warrants described above. As of the date of this
annual report, all 19,230,770 April 7 Warrants remain outstanding.
For further details on the foregoing warrants, see Note 8 to our consolidated financial statements included elsewhere in this annual report.
Listing and Markets
On
December 21, 2018, our common shares, par value $0.001, were registered for trading on the NOTC with ticker symbol
“CASTOR”. On
February 11, 2019, our common shares began trading on the NASDAQ
Capital Market under the ticker symbol
“CTRM”. On
March 21, 2019, Nasdaq approved for listing and registration on Nasdaq the Preferred Stock Purchase Rights under the Stockholders
Rights Agreement. The Preferred Stock Purchase Rights trade with
and are inseparable from our common shares.
Transfer Agent
The registrar and transfer agent for our common shares is American Stock Transfer & Trust Company, LLC.
We refer you to
“Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects —B.
Liquidity and Capital Resources” and
“Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for a discussion of certain
material contracts to which we are a
party entered into during the two-year period immediately preceding the date of this annual report, which are also attached as exhibits to this annual report.
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 common shares. This discussion does not purport to deal with the tax consequences of owning common shares to all categories of investors, such as dealers in securities or commodities, traders in securities that elect to use a mark-to-market
method of accounting for securities holdings, financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates, persons liable for the Medicare contribution tax on net investment income, persons liable for the alternative
minimum tax, persons who hold common shares as part of a straddle, hedge, conversion transaction or integrated investment, U.S. Holders whose functional currency is not the United States dollar, and investors that own, actually or under
applicable constructive ownership rules, 10% or more of our common shares. This discussion deals only with holders who hold our 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 foreign law of the ownership of common shares. The discussion below is based, in part, on the description of our business in this annual report above and
assumes that we conduct our business as described in that section. Except as otherwise noted, this discussion is based on the assumption that we will not maintain an office or other fixed place of business within the United States. References in
the following discussion to
“we” and
“us” are to Castor Maritime Inc. and its
subsidiaries on a consolidated basis.
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.
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, cost sharing arrangements 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 collectively 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 begin and end, in the United States constitutes income from sources within
the United States, which we refer to as “U.S. source gross shipping income” or USSGTI.
Shipping income attributable to transportation that begins and ends in the United States is U.S. source income. We are not permitted by law to engage in such transportation and thus will not earn
income that is from sources within the United States.
Shipping income attributable to transportation between non-U.S. ports is considered to be derived from sources outside the United States. Such income is not subject to U.S. tax.
If not exempt from tax under Section 883 of the Code, our USSGTI would be subject to a tax of 4% without allowance for any deductions (“the 4% tax”) 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 the 4% tax on our USSGTI if:
(1) we are organized in a foreign country that grants an “equivalent exemption” to corporations organized in the United States; and
(2) either
(a) more than 50% of the value of our stock is owned, directly or indirectly, by individuals who are “residents” of a foreign country that grants an “equivalent exemption” to corporations
organized in the United States (each such individual is a “qualified shareholder” and 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 in which we and our ship-owning
subsidiaries are incorporated, grants an
“equivalent exemption” to U.S. corporations. Therefore, we will be exempt from the
4% on our USSGTI if we meet either the 50% Ownership Test or the Publicly-Traded Test.
Due to the widely dispersed nature of the ownership of our common shares, it is highly unlikely that we could satisfy the requirements of the 50% Ownership Test. Therefore, we expect to be exempt
from the 4% tax on our USSGTI only if we are able to satisfy the Publicly-Traded Test.
Treasury Regulations provide, in pertinent part, that stock of a foreign corporation must be “primarily and regularly traded on an established securities market in the US or in a qualified
foreign country”. To be “primarily traded” on an established securities market, the number of shares of each class of our stock that are traded during any taxable year on all established securities markets in the country where they are listed
must exceed the number of shares in each such class that are traded during that year on established securities markets in any other country. Our common shares, which are traded on the Nasdaq Capital Market, meet the test of being “primarily
traded”.
To be “regularly traded” one or more classes of our stock representing more than 50% of the total combined voting power of all classes of stock entitled to vote and of the total value of the
stock that is listed must be listed on an established securities market (“the vote and value” test) and meet certain other requirements. Our common shares are listed on the Nasdaq Capital Market, but do not represent more than 50% of the voting
power of all classes of stock entitled to vote. Our Series B Preferred Shares, which have super voting rights and have voting control but are not entitled to dividends, are not listed. Thus, based on a strict reading of the vote and value test
described above, our stock is not “regularly traded”.
Treasury Regulations provide, in pertinent part, that a class of stock will not be considered to be “regularly traded” on an established securities market for any taxable year in which 50% or
more of such class of the outstanding shares of the stock is owned, actually or constructively under specified stock attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the value of such
class of the outstanding stock, which we refer to as the “5 Percent Override Rule”. When more than 50% of the shares are owned by 5% shareholders, then we will be subject to the 5% Override Rule unless we can establish that among the shares
included in the closely-held block of stock are a sufficient number of shares in that block to “prevent nonqualified shareholders in the closely held block from owning 50 percent or more of the stock”.
We believe our ownership structure meets the intent and purpose of the Publicly-Traded Test and the tax policy behind it even if it does not literally meet the vote and value requirements. In our
case, there is no closely held block because less than 5% shareholders in aggregate own more than 50% of the value of our stock. However, we expect that we would have satisfied the Publicly-Traded Test if, instead of our current share structure,
our common shares represented more than 50% of the voting power of our stock. In addition, we can establish that nonqualified shareholders cannot exercise voting control over the corporation because a qualified shareholder controls the non-traded
voting stock. Moreover, we believe that the 5% Override Rule suggests that the Publicly-Traded Test should be interpreted by reference to its overall purpose, which we consider to be that Section 883 should generally be available to a publicly
traded company unless it is more than 50% owned, by vote or value, by nonqualified 5% shareholders. We therefore believe our particular stock structure, when considered by the US Treasury in light of the Publicly-Traded Test enunciated in the
regulations should be accepted as satisfying the exemption. Accordingly, for our 2021 and future taxable years, we intend to take the position that we qualify for the benefits of Section 883. However, there can be no assurance that our particular
stock structure will be treated as satisfying the Publicly-Traded Test. Accordingly, there can be no assurance that we or our
subsidiaries will qualify for the benefits of Section 883 for any taxable year.
Taxation in the Absence of Exemption under Section 883 of the Code
For the 2020 and prior taxable years, we took the position that USSGTI, to the extent not considered to be “effectively connected” with the conduct of a U.S. trade or business, as described
below, was 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,” for the 2020 taxable year. The same rules would apply to us for our 2021
and future taxable years if contrary to our position described above the IRS determines that we do not qualify for the benefits of Section 883 of the Code.
To the extent the benefits of the exemption under Section 883 of the Code are unavailable and USSGTI 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 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, and on certain interest paid or deemed paid attributable to the conduct of such U.S. trade or
business.
USSGTI would be considered “effectively connected” with the conduct of a U.S. trade or business only if:
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We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and
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substantially all our USSGTI 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.
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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 USSGTI 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 do not expect to 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.
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 if (i) 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) it has in place an election to be treated as a United States person 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. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles.
Accordingly, you should expect to generally treat distributions we make as dividends. Because we are not a U.S. corporation, U.S. Holders that are corporations will generally 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 will generally be treated as ordinary income. However, if you are a U.S. Holder that is an individual,
estate or trust, dividends that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the shares for more than 60 days during the 121-day period
beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends paid with respect to the shares generally will be qualified dividend income provided that, in the year that you receive the dividend, the shares
are readily tradable on an established securities market in the United States. Our common stock is listed on the Nasdaq Capital Market and we therefore expect that dividends will be qualified dividend income.
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 (or fair market
value in certain circumstances) 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.
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
subsidiaries’
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”.
Based on our current assets and activities, we do not believe that we will be a PFIC for the current or 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, 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.
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
the Company were to be treated as a PFIC, a U.S. Holder would be required to file IRS Form 8621 to report certain information regarding
the Company. If you are a U.S. Holder who held our
common shares during any period in which we are a PFIC, you are strongly encouraged to consult your tax advisor.
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 his
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
If we are a PFIC in a taxable year and our shares are treated as “marketable stock” in such year, you may make a mark-to-market election with respect to your shares. As long as our common shares
are traded on the Nasdaq Capital Market, as they currently are and as they may continue to be, our common shares should be considered “marketable stock” for purposes of making the Mark-to-Market Election. U.S. Holders are urged to consult their
own tax advisors in this regard.
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, and in certain cases backup withholding requirements, 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.
Other Tax Considerations
In addition to the income tax consequences discussed above,
the Company may be subject to tax, including tonnage taxes, in one or more other jurisdictions where
the Company conducts activities.
All our vessel-owning
subsidiaries are subject to tonnage taxes. Generally, under a tonnage tax, a company is taxed based on the net tonnage of qualifying vessels such company operates, independent of actual earnings. The amount of any tonnage
tax imposed upon our operations may be material.
| F. |
Dividends and Paying Agents
|
Not applicable.
Not applicable.
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the SEC. The
SEC maintains a
website (www.sec.gov) that contains reports, proxy and information statements and other information that we and other registrants have filed electronically with the SEC. Our filings are also available on our
website at
www.castormaritime.com. This web address is provided as an inactive textual reference only. Information contained on, or that can be accessed through, these
websites, does not constitute part of, and is not incorporated into, this annual report.
Shareholders may also request a copy of our filings at no cost, by writing or telephoning us at the following address:
Castor Maritime Inc.
223 Christodoulou Chatzipavlou Street
Hawaii Royal Gardens
3036 Limassol, Cyprus
Tel: + 357 25 357 767
| I. |
Subsidiary Information
|
Not applicable.
|
ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to various market risks, including foreign currency fluctuations, changes in interest rates and credit risk. Our activities expose us primarily to the financial risks of changes in
interest rates and foreign currency exchange rates as described below.
Interest Rate Risk
The international shipping industry is capital intensive, requiring significant amounts of investment provided in the form of long-term debt. A significant portion or our debt contains floating
interest rates that fluctuate with changes in the financial markets and in particular changes in LIBOR, which is the relevant reference under the majority of our credit facilities. Increasing interest rates could increase our interest expense and
adversely impact our future results of operations. As of
December 31, 2021, our net effective exposure to floating interest rate fluctuations on our outstanding debt was $103.8 million. Our interest expense is affected by changes in the general
level of interest rates, particularly LIBOR. As an indication of the extent of our sensitivity to interest rate changes, an increase in LIBOR of 1% would have decreased our net income in the year ended
December 31, 2021 by approximately $0.6
million based upon our floating interest-bearing average debt level during 2021. We expect our sensitivity to interest rate changes to increase in the future as we enter into additional debt agreements in connection with vessel acquisitions,
including those using alternative reference rates such as SOFR. At this time, we have one credit facility that uses adjusted SOFR as the relevant reference rate and therefore do not currently view changes to SOFR as having a material effect on
our business. For further information on the risks associated with interest rates, please see
“Item 3. Key Information—D. Risk Factors— A considerable amount of our outstanding debt is exposed to Interbank
Offered Rate (“LIBOR”) Risk. We may be adversely affected by the transition from LIBOR as a reference rate and are exposed to volatility in LIBOR and the Secured Overnight Financing Rate, or SOFR. If volatility in LIBOR and/or SOFR occurs, the
interest on our indebtedness could be higher than prevailing market interest rates and our profitability, earnings and cash flows may be adversely affected” for a discussion on the risks associated with LIBOR and SOFR, among others.
Foreign Currency Exchange Rate Risk
We generate all of our revenue in U.S. dollars. A minority of our vessels’ operating expenses (approximately 12.1% for the year ended
December 31, 2021 and of our general and administrative
expenses (approximately 11.5%) are in currencies other than the U.S. dollar, primarily the Euro and Japanese Yen. 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 do not consider the risk from exchange rate fluctuations to be material for our results of operations because as of
December 31, 2021, these non-US dollar expenses represented 3.9% of our revenues. However, the
portion of our business conducted in other currencies could increase in the future, which could increase our exposure to losses arising from exchange rate fluctuations.
Inflation Risk
Inflation has not had a material effect on our expenses in the preceding fiscal year. In the event that significant global inflationary pressures appear, these pressures would increase our
operating costs.
|
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
|
ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
Not applicable.
|
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
We have adopted the Stockholders
Rights Agreement, pursuant to which each of our common shares includes one right that entitles the holder to purchase from us a unit consisting of one-thousandth
of a share of our Series C Participating Preferred Shares if any third party seeks to acquire control of a substantial block of our common shares without the approval of our Board. See
“Item 10. Additional
Information—B. Memorandum and Articles of Association—Stockholders Rights Agreement” included in this annual report and
Exhibit 2.2 to 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 Series B
Preferred Shares relative to the rights of holders of our common shares.
|
ITEM 15. |
CONTROLS AND PROCEDURES
|
| A. |
Disclosure Controls and Procedures
|
As of
December 31, 2021, our management conducted an evaluation pursuant to Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as amended, of the effectiveness of the design and
operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
The term disclosure controls and procedures is 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 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. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Our management recognizes 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the partnership have been
detected. 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.
Based upon that evaluation, our management concluded that, as of
December 31, 2021, 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, 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 SEC.
| 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 Rules 13a-15(f) promulgated under the Exchange Act. Our internal
controls were designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of our financial statements for external purposes in accordance with accounting principles generally
accepted in the United States.
Our internal controls over financial reporting 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 the assets of the Company; |
|
• |
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.
|
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the 2013 framework in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a
conclusion on this evaluation. Based on this evaluation, our management believes that our internal control over financial reporting was effective as of
December 31, 2021.
However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 or compliance with the policies or procedures may deteriorate.
| C. |
Attestation Report of the Registered Public Accounting Firm
|
This annual report does not include an attestation report of
the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by
the Company’s registered public accounting firm, since, as an
“emerging growth company”, we are exempt from having our independent auditor assess our internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act.
| D. |
Changes in Internal Control Over Financial Reporting
|
There have been no changes in 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
the Company’s internal control over financial reporting.
| |
ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT
|
The Board has determined that Mr. Georgios Daskalakis, who serves as Chairman of the Audit Committee, qualifies as an “audit committee financial expert” under SEC rules, and that Mr. Daskalakis
is “independent” under applicable Nasdaq rules and SEC standards.
We adopted a code of ethics that applies to any of our employees, including our Chief Executive Officer and Chief Financial Officer. The code of ethics may be downloaded from our
website
(
www.castormaritime.com). Additionally, any person, upon request, may receive a hard copy or an electronic file of the code of ethics at no cost. If we make any substantive amendment to the code of ethics or grant any waivers, including any
implicit waiver, from a provision of our code of ethics, we will disclose the nature of that amendment or waiver on our
website. During the year ended
December 31, 2021, no such amendment was made, or waiver granted.
| |
ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Audit Fees
Aggregate fees billed to
the Company for the years ended
December 31, 2020, and
2021 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 of
the Company and for the
review of the quarterly 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. No other
non-audit, tax or other fees were charged.
| |
|
For the year ended
|
|
|
In U.S. dollars
|
|
|
|
|
|
|
|
Audit Fees
|
|
|
188,750
|
|
|
|
367,000
|
|
Audit-Related Fees
Not applicable.
Tax Fees
Not applicable.
All Other Fees
Not applicable.
Audit Committee’s Pre-Approval Policies and Procedures
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 PERSONS.
|
Not applicable.
| |
ITEM 16F. |
CHANGE IN REGISTRANT`S CERTIFYING ACCOUNTANT.
|
Not applicable.
| |
ITEM 16G. |
CORPORATE GOVERNANCE
|
Pursuant to an exception under the Nasdaq listing standards available to foreign private issuers, we are not required to comply with all of the corporate governance practices followed by U.S.
companies under the Nasdaq listing standards, which are available at
www.nasdaq.com, because in certain cases we follow our home country (Marshall Islands) practice. Pursuant to Section 5600 of the Nasdaq Listed Company Manual, we are required to
list the significant differences between our corporate governance practices that comply with and follow our home country practices and the Nasdaq standards applicable to listed U.S. companies. Set forth below is a list of those differences:
| • |
Independence of Directors. The Nasdaq requires that a U.S. listed company maintain a majority of independent directors. While our Board is
currently comprised of three directors a majority of whom are independent, we cannot assure you that in the future we will have a majority of independent directors.
|
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Executive Sessions. The Nasdaq requires that non-management directors meet regularly in executive sessions without management. The Nasdaq
also requires that all independent directors meet in an executive session at least once a year. As permitted under Marshall Islands law and our bylaws, our non-management directors do not regularly hold executive sessions without
management.
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Nominating/Corporate Governance Committee. The Nasdaq requires that a listed U.S. company have a nominating/corporate governance committee
of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee. As permitted under Marshall Islands law and our bylaws, we do not currently have a nominating or corporate
governance committee.
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Compensation Committee. The Nasdaq requires U.S. listed companies to have a compensation committee composed entirely of independent
directors and a committee charter addressing the purpose, responsibility, rights and performance evaluation of the committee. As permitted under Marshall Islands law, we do not currently have a compensation committee. To the extent we
establish such committee in the future, it may not consist of independent directors, entirely or at all.
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Audit Committee. The Nasdaq requires, among other things, that a listed U.S. company have an audit committee with a minimum of three members, all of whom are independent. As permitted by Nasdaq
Rule 5615(a)(3), we follow home country practice regarding audit committee composition and therefore our audit committee consists of two independent members of our Board, Mr. Georgios Daskalakis and Mr. Dionysios Makris. Although the
members of our audit committee are independent, we are not required to ensure their independence under Nasdaq Rule 5605(c)(2)(A) subject to compliance with Rules 10A-3(b)(1) and 10A-3(c) under the Securities Exchange Act of 1934.
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Shareholder Approval Requirements. The Nasdaq requires that a listed U.S. company obtain prior shareholder approval for certain issuances
of authorized stock or the approval of, and material revisions to, equity compensation plans. As permitted under Marshall Islands law and our bylaws, we do not seek shareholder approval prior to issuances of authorized stock or the
approval of and material revisions to equity compensation plans.
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Corporate Governance Guidelines. The Nasdaq requires U.S. companies to adopt and disclose corporate governance guidelines. The guidelines
must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management
succession and an annual performance evaluation of the Board. We are not required to adopt such guidelines under Marshall Islands law and we have not adopted such guidelines.
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ITEM 16H. |
MINE SAFETY DISCLOSURE
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Not applicable.
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ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
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Not applicable.
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ITEM 17. |
FINANCIAL STATEMENTS
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See Item 18.
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ITEM 18. |
FINANCIAL STATEMENTS
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The financial information required by this Item is set forth on pages F-1 to F-35 filed as part of this annual report.
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Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
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Amended and Restated Statement of Designation of the Rights, Preferences and Privileges of the 9.75% Series A Cumulative Redeemable Perpetual Preferred Shares of the Company, filed with the Registrar of
Corporations of the Republic of the Marshall Islands on October 10, 2019, incorporated by reference to Exhibit 99.2 of the Company’s report on Form 6-K furnished with the SEC on October 11, 2019. |
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Statement of Designation of the Rights, Preferences and Privileges of the Rights, Preferences and Privileges of the Series C Participating Preferred Shares of the Company, filed with the Registrar of
Corporations of the Republic of the Marshall Islands on November 29, 2017, incorporated by reference to Exhibit 3.5 to the Company’s registration statement on Form F-4 filed with the SEC on April 11, 2018. |
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Amended and Restated Statement of Designations of Rights, Preferences and Privileges of Series C Participating Preferred Stock of Castor Maritime
Inc., filed with the Registrar of Corporations of the Republic of the Marshall Islands on March 30, 2022. |
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Waiver and Consent Agreement entered into by the Company and all holders of the issued and outstanding 9.75% Series A Cumulative Redeemable Perpetual Preferred Shares, dated October 10, 2019 incorporated by
reference to Exhibit 99.3 of the Company’s report on Form 6-K furnished with the SEC on October 11, 2019. |
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$4.5 Million Secured Loan Agreement, dated January 23, 2020, by and among Chailease International Financial Services Co., Ltd., as lender, Bistro Maritime Co., as borrower, and the Company and Pavimar S.A.,
as guarantors, incorporated by reference to Exhibit 10.1 of the Company’s report on Form 6-K furnished with the SEC on February 4, 2020. |
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$15.29 Million Term Loan Facility, dated January 22, 2021, by and among Hamburg Commercial Bank AG and the banks and financial institutions listed in Schedule 1 thereto, as lenders, and Pocahontas Shipping
Co. and Jumaru Shipping Co., as borrowers, incorporated by reference to Exhibit 4.15 of the Company’s annual report on Form 20-F filed with the SEC on March 3, 2021. |
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$18.0 Million Term Loan Facility, dated April 27, 2021, between Alpha Bank S.A., as lender, and Gamora Shipping Co. and Rocket Shipping Co., as borrowers. |
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$40.75 Million Term Loan Facility, dated July 23, 2021, by and among Hamburg Commercial Bank AG and the banks and financial institutions listed in Schedule 1 thereto, and Liono Shipping Co., Snoopy Shipping
Co., Cinderella Shipping Co., and Luffy Shipping Co., as borrowers. |
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$23.15 Million Term Loan Facility, dated November 22, 2021, by and among Chailease International Financial Services Co., Ltd., as lender, and Bagheera Shipping Co. and Garfield Shipping Co., as borrowers. |
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$55.0 Million Term Loan Facility, dated January 12, 2022, by and among Deutsche Bank AG, as lender, and Mulan Shipping Co., Johnny Bravo Shipping Co., Songoku Shipping Co., Asterix Shipping Co. and Stewie
Shipping Co., as borrowers. |
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Amended and Restated Equity Distribution Agreement, dated March 31, 2022, by and among the
Company and Maxim Group LLC, incorporated by reference to Exhibit 1.3 of Amendment No. 1 to the Company’s registration statement on Form F-3 filed with
the SEC on March 31, 2022. |
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer and Chief Financial Officer.
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Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Consent of Independent Registered Public Accounting Firm.
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101.INS
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Inline XBRL Instance Document
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101.SCH
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Inline XBRL Taxonomy Extension Schema Document
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101.CAL
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Inline XBRL Taxonomy Extension Schema Calculation Linkbase Document
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101.DEF
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Inline XBRL Taxonomy Extension Schema Definition Linkbase Document
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101.LAB
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Inline XBRL Taxonomy Extension Schema Label Linkbase Document
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101.PRE
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Inline XBRL Taxonomy Extension Schema Presentation Linkbase Document
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104
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Cover Page Interactive Data File (Inline XBRL)
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.
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CASTOR MARITIME INC.
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Title: Chairman, Chief Executive Officer and
Chief Financial Officer
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