developments in international trade;
changes in demand, changes in the capacity of the global dry bulk and tanker fleet and the sources and supply of dry bulk and wet cargo transported by sea. To the extent that the newbuilding deliveries exceed the scrapping rates of older vessels, the capacity of the global fleet of dry bulk and tanker vessels may exceed the economic growth and the resulting demand for vessel capacity. As such, adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
changes in the production of energy products, commodities, semi-finished and finished consumer and industrial products;
epidemics and pandemics, such as the COVID-19 pandemic;
environmental and other regulatory developments;
natural catastrophes;
currency exchange rates; and
the weather.
For a discussion of factors affecting the supply of the dry bulk and containership vessel capacity, see “—An oversupply of vessel capacity in the segments in which we operate 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 trade patternsnature, timing and degree of refined oil products may have a significant negative or positive impact on the ton-mile and therefore the demand for our product tankers. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
charter rates. Any of these circumstances or eventsfactors could increase our costs or lower our revenues. The involvement of our vessels in an oil spill or other environmental disaster may harm our reputation as a safe and reliable dry bulk and tanker operator, which could have a material adverse effect on our results of operations and financial condition.
The Chinese economy differs from the economiesCompany is exposed to fluctuating demand and supply for maritime transportation services, as well as fluctuating prices of western countries in such respectscommodities (such as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, bank regulation, currencyiron ore, coal, grain, soybeans and monetary policy, rate of inflationaggregates) and balance of payments position. Prior to 1978, the Chinese economy was a "planned economy". Since 1978, increasing emphasis has been placed on the utilization of market forces in the development of the Chinese economy. Annualconsumer and five-year State Plans are adopted by the Chinese government in connection with the development of the economy. Although state-owned enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese government is reducing the level of direct control that it exercises over the economy through State Plans and other measures. There is an increasing level of freedom and autonomy in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a "market economy" and enterprise reform. Limited price reforms were undertaken with the result that prices for certain commodities are principally determined by market forces. In addition, economic reforms may include reforms to the banking and credit sector and may produce a shift away from the export-driven growth model that has characterized the Chinese economy over the past few decades. Many of the reforms are unprecedented or experimentalproducts, and may be subject to revision, change affected by a decrease in the demand for such commodities and/or abolition based uponproducts and the outcome ofvolatility in their prices.
Our growth significantly depends on continued growth in worldwide and regional demand for the products we transport, such experiments. The level of imports toas dry bulk commodities (such as iron ore, coal, soybeans, etc.) and exports from Chinaconsumer and industrial products, which could be adverselynegatively affected by several factors, including declines in prices for such commodities and/or products, or general political, regulatory and economic conditions.
In past years, China and India have had two of the failureworld’s fastest growing economies in terms of gross domestic product and have been the main driving forces behind increases in shipping trade and the demand for marine transportation. While China in particular has enjoyed rates of economic growth significantly above the world average, slowing economic growth rates may reduce the country’s contribution to continue market reforms or changes to existing pro-exportworld trade growth. If economic policies.growth declines in China, India and other countries in the Asia Pacific region, we may face decreases in shipping trade and demand. The level of imports to and exports from China may also be adversely affected by changes in political, economic and social conditions (including a slowing of economic growth) or other relevant policies of the Chinese government, such as changes in laws, regulations or export and import restrictions, internal political instability, changes in currency policies, changes in trade policies and territorial or trade disputes. A decreaseFurthermore, a slowdown in the economies of the United States or the European Union, or certain other Asian countries may also have adverse impacts on economic growth in the Asia Pacific region. Therefore, a negative change in the economic conditions (including any negative changes resulting from any pandemic) of any of these countries or elsewhere may reduce demand for dry bulk and/or containership vessels and their associated charter rates, which could have a material adverse effect on our business, financial condition and operating results, as well as our prospects.
More generally, various economies around the globe were impacted by inflationary pressures and/or supply chain disruptions in 2022, in part stemming from the conflict in Ukraine and related sanctions against Russia and Belarus, the withdrawal of the U.K. from the European Union (“Brexit”) and the COVID-19 pandemic and related containment efforts throughout the world. For example, demand for and the price of coal, a product which we transport from time to time, rose more than 250% in March 2022 as compared to the same period in the previous year. This was due to, among other factors, disruptions in natural gas supplies to the European Union as a result of tensions with Russia and the loosening of COVID-19 restrictions in various jurisdictions, which was accompanied by a surge in energy demand and, in some jurisdictions, a temporary shortage in available electrical capacity. The price of coal has since declined amid recessionary concerns regarding the global economy. The global economy currently remains and is expected to continue to remain subject to substantial uncertainty, which may impact demand for the products which we transport. 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 segments, our business, results of operations and available cash.
An oversupply of vessel capacity in the segments in which we operate may prolong or further depress low charter rates when they occur, which may limit our ability to operate our vessels profitably.
Factors that influence the supply of vessel capacity in the segments in which we operate include:
the number of newbuilding orders and deliveries;
the number of shipyards and ability of shipyards to deliver vessels;
port and canal congestion;
scrapping of older vessels;
the speed of vessels being operated;
vessel casualties; and
the number of vessels that are out of service or laid up.
In addition to the prevailing and anticipated charter rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, the availability of financing for new vessels and shipping activity, drydock and special survey expenditures, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance costs, insurance coverage costs, the efficiency and age profile of the existing fleet in the market, and government and industry regulations of maritime transportation practices, particularly environmental protection laws and regulations.
The global fleet of dry bulk vessels has increased as a result of the delivery of numerous newbuilding orders over the past few years. During 2022, the global dry bulk fleet has grown by 2.8%, and as of February 1, 2023, newbuilding orders had been placed for an aggregate of about 7.2% of the existing global dry bulk fleet, with deliveries expected predominantly during the next two years.
There has been increased activity in the container newbuilding market during 2022 and as a result new contracting has reached high levels vis-à-vis the active fleet. As of February 1, 2023, the total orderbook of container vessels amounted to 28.8% of the current active fleet, with deliveries equally spread over the next three years. During 2022, the total container fleet grew by 4%.
Vessel supply will continue to be affected by the delivery of new vessels and potential orders of more vessels than vessels removed from the global fleet, either through scrapping or accidental losses. An oversupply of vessel capacity could exacerbate decreases in charter rates or prolong the period during which low charter rates prevail which may have a material adverse effect on the profitability of our segments, our business, cash flows, financial condition, and operating results.
Global economic and financial conditions may negatively impact the sectors of the shipping industry in which we operate, 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 the shipping sectors in which we operate, including, among other things:
low charter rates, particularly for vessels employed on short-term time charters;
decreases in the market value of vessels and limited second-hand market for the sale of vessels;
limited financing for vessels;
widespread loan covenant defaults; and
declaration of bankruptcy by certain vessel operators, vessel managers, vessel owners, shipyards and charterers.
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.
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 off-hire and/or idling and is an important factor in negotiating charter rates. Bunker prices have increased significantly during 2021 and have continued rising during 2022. Prices for VLSFO in Singapore started at around $415 per metric ton in January 2021 and reached $620 per metric ton by the end of December 2021, an increase of about 50%. During 2022, our bunker costs rose as a result of the eruption of the armed conflict in Ukraine. The price of VLSFO has increased significantly as a result of the conflict in Ukraine and, indicatively, the price for VLSFO in Singapore reached approximately $1,100 per metric ton in July 2022, but has since decreased. As of February 9, 2023, the price of VLSFO in Singapore was approximately $656 per metric ton but uncertainty regarding its future direction remains. As a result, our bunker costs for our vessels when off-hire and/or idling have, from an overall perspective, increased since 2021 and may continue to increase, which could have an adverse impact on 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:
a marine disaster;
terrorism;
environmental and other accidents;
cargo and property losses and damage; and
business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action in various countries, labor strikes, or adverse weather conditions.
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, such as of bunker oil of 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 operator, which could have a material adverse effect on our business, cash flows, financial condition, and operating results.
We are new entrants to certain of the segments in which we operate and may face difficulties in establishing our business .
Our vessel owning subsidiaries which comprise our containership segment entered the containership shipping business in late 2022. As new entrants in such industry, we may struggle to establish market share and broaden our customer base for our operations due to our lesser-known reputation for containershipping, while incurring high operating costs associated with the operation and upkeep of our vessels. Competitors with greater resources could enter and operate larger and more modern containership fleets through consolidations or acquisitions, and many larger fleets that compete with us in each of these sectors may be able to offer more competitive prices and fleets while also achieving scale economies in their fleet operating costs. 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, such as Castor Ships S.A. (“Castor Ships”), a company controlled by Petros Panagiotidis, which manages our containerships and co-manages our dry bulk vessels with Pavimar S.A. (“Pavimar”), also a related party controlled by the sister of Petros Panagiotidis, Ismini Panagiotidis. Failure to partner with these management companiesto effectively deliver our services could tarnish our reputation as efficient and reliable operators and impact the growth of our segments’ 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 current or future credit facilities and/or result in impairment charges or losses on sale.
The fair market values of our vessels have generally experienced high volatility. The fair market values of our vessels depend on a number of factors, including:
prevailing level of importscharter rates;
general economic and market conditions affecting the shipping industry;
the types, sizes and ages of the vessels, including as compared to other vessels in the market;
supply of and exports from Chinademand for vessels;
the availability and cost of other modes of transportation;
distressed asset sales, including newbuilding contract sales below acquisition costs due to lack of financing;
cost of newbuildings;
governmental or other regulations, including those that may limit the useful life of vessels; and
the need to upgrade vessels as a result of environmental, safety, regulatory or charterer requirements, technological advances in vessel design or equipment or otherwise.
In addition, the average age of our containerships is older than the industry average for such vessels and may therefore be viewed as providing insufficient or only short-term collateral in connection with future financing. This could restrict our access to or terms of any financing. Further, if the fair market values of our vessels decline, we might not be in compliance with various covenants in our credit facilities or credit facilities we enter into in the future, 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 and financial condition.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 in particular, the Gulf of Guinea region off Nigeria, which experienced increased incidents of piracy in recent years. Sea piracy incidents continue to occur, increasingly in the Sulu Sea and the Gulf of Guinea, with dry bulk vessels and tanker vesselscontainerships particularly vulnerable to such attacks. In the past, politicalPolitical conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping. TheAn 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 impacteffect on our business, financial condition and results of operations.operating results.
Further, if these piracy attacks occur in regions in which our vessels are deployed that insurers characterize as "war risk"“war risk” zones or by the Joint War Committee as "war“war and strikes"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, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, results of operations, cash flows and financial condition, and thisincidents. 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.charters, which could have a material adverse impact on our business, cash flows, financial condition and operating results.
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 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 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 Brexit, the continuing threat of terrorist attacks around the world, and slowing growth in China.
In particular, the 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 the prices of certain products and shifts in trading patterns for such products that may continue into the future. These changes are due in part to the imposition of sanctions against Russia and Belarus during 2022, which have contributed to increased volatility in the price of energy and other products. See ‘‘—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’’ and ‘‘Worldwide inflationary pressures could negatively impact our results of operations and cash flows.’’ The shipping industry may be negatively affected by resulting rising costs and changing patterns of supply and demand caused by any of the foregoing factors.
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 European Union. 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 recent years, including the seizure of two Greek-flagged vessels in 2022). 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 United States 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 the goods which our vessels transport. 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 in 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 COVID-19 pandemic, governmental actions have occasionally urged organizations across industries to have their employees 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.
In 2017, the International Maritime Organization IMO adopted Resolution MSC.428(98) on Maritime Cyber Risk Management, which encourages administrations to ensure that cyber risks are appropriately addressed in SMS no later than the first annual verification of the Company’s Document of Compliance DOC after January 1, 2021. While we are currently in compliance with the requirements of Resolution MSC.428(98), the cybersecurity measures we maintain may not be sufficient to prevent the occurrence of a cybersecurity attack and/or incident. Any inability to prevent security breaches (including the inability of our third-party vendors, suppliers or counterparties to prevent security breaches) could also cause existing clients to lose confidence in our IT systems and could adversely affect our reputation, cause losses to us or our customers and/or damage our brand. This might require us to create additional procedures for our managing the risk of cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is difficult to predict at this time.
Additionally, recent sanctions and decisions by third parties to divest from or curtail doing business with Russian interests have created a heightened risk for cyber-attacks. 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” for further information on these sanctions. Russia has taken and may continue to take retaliatory actions and enact countermeasures, including cyber-attacks and espionage against other countries and companies in the world, which may negatively impact such countries in which we operate and/or companies to whom we provide services or receive services from. Any such attacks, whether widespread or targeted, could create significant disruptions in our business and adversely impact our financial condition, cash flows and operating results.
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.
Certain countries (including certain regions of Ukraine, Russia, Belarus, Cuba, Iran, North Korea and Syria), entities and persons are targeted by economic sanctions and embargoes imposed by the United States, the European Union and other jurisdictions, and a number of those countries have been identified as state sponsors of terrorism by the U.S. Department of State. In particular, sanctions recently imposed in relation to the Russian invasion of Ukraine have created significant disruptions in the global economy and in the shipping industry.
While it is difficult to estimate the impact of the war and current or future sanctions on the Company’s business and financial position, these events and related sanctions could adversely impact the Company’s operations. During 2022, economic sanctions were imposed by the United States, the European Union, the United Kingdom and a number of other countries on Russian financial institutions, businesses and individuals, as well as certain regions within the Donbas region of Ukraine. Certain of these sanctions have targeted Russia’s usage of and participation in maritime shipping. For example, the United Kingdom and European Union have also introduced export restrictions, which capture the provision of maritime vessels and supplies to or for use in Russia. They have also imposed additional restrictions on providing financing, financial assistance, technical assistance and brokering or other services that would further the provision of vessels to or for use in Russia, including the provision of maritime navigation goods. Import bans of Russian energy products, such as coal, crude oil and refined petroleum products, and commodities, such as coal, iron, steel, plastics, cement and agricultural products including potash and fertilizer, have also been introduced by a number of jurisdictions. In addition, certain jurisdictions, such as Greece and the United States, have temporarily detained vessels suspected of violating sanctions. Countries, such as Canada, the United Kingdom and the EU, have also broadly prohibited Russian-affiliated vessels from entering their waters and/or ports. In light of the current regulatory and economic environment in the region, certain vessel operators have temporarily suspended shipping routes to and from Russia or have declined to engage in business with Russian-affiliated entities.
These bans and related trade sanctions have started to change trade patterns across the shipping industry and existing or future restrictions may affect our current or future charters. In the near term, we have seen, and expect to continue to see, increased volatility in the region due to these geopolitical events. The Black Sea region is a major export market for grains with Ukraine and Russia exporting a combined 15% of the global seaborne grain trade. In addition, the volatility of market prices for fuel and energy products have increased as a result of related supply disruptions from the conflict in Ukraine. While uncertainty remains with respect to the ultimate impact of the conflict, we have seen, and anticipate continuing to see, significant changes in trade flows. A reduction or stoppage of grain out of the Black Sea or cargoes from Russia has, and will continue to, negatively impact the markets in those areas. In addition, increased volatility in the price of fuel or energy commodities may increase or decrease the price of fuel used by our vessels and/or demand for certain of the commodities we transport, each of which could affect the Company’s operations and liquidity. While we have seen an increase in ton miles as end users find alternative sources for cargo and other capacity, it is uncertain what the ultimate result will be on our segments’ financial positions. However, due to their effect on the global market for certain of the goods that we transport, current or additional sanctions could have a material adverse impact on our segments’ cash flows, financial condition and operating results.
Economic sanctions and embargo laws and regulations vary in their application with regards to countries, entities or persons and the scope of activities they subject to sanctions. These sanctions and embargo laws and regulations may be strengthened, relaxed or otherwise modified over time. Any violation of sanctions or embargoes could result in the Company incurring monetary fines, penalties or other sanctions. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contacts with countries or entities or persons within these countries that are identified by the U.S. government as state sponsors of terrorism. We are required to comply with such policies in order to maintain access to charterers and capital.
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 United States, the European Union, 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. 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.
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 past, the pandemic has caused delays and uncertainties relating to the operation of our vessels and has affected our ability to timely rotate the crews of our vessels. It has also caused delays and uncertainties in the shipping industry generally relating to newbuilding projects and operators’ ability to timely dry-dock their 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 magnitude of COVID-19’s long-term impact on our financial and operating results, which has not been material to date but could be material in the future, 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 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:
deterioration of economic conditions and activity and of demand for shipping;
operational disruptions to us or our customers due to worker health risks and the effects of new regulations, directives or practices implemented in response to the pandemic (such as travel restrictions for individuals, delays in replacing crews and vessels, and quarantining and physical distancing);
delays in the loading and discharging of cargo on or from our vessels, vessel inspections and related certifications by class societies, customers or government agencies and maintenance, modifications or repairs to, or dry-docking of, our existing vessels due to worker health or other business disruptions;
reduced cash flow as a result of the above and worsened financial condition, including potential liquidity constraints;
potential non-performance by counterparties relying on force majeure clauses and potential deterioration in the financial condition and prospects of our customers or other business partners;
credit tightening or declines in global financial markets, including to the prices of our publicly traded securities and the securities of our peers, could make it more difficult for us to access capital; and
potential disruptions, delays or cancellations in the construction of new vessels, which could reduce our future growth opportunities.
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 resulted in increased operational costs mainly associated with crew embarkation, rotation and related logistical complications, which have not been material to date but could be material in the future. 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. Any of the foregoing factors could impact our ability to maintain a full crew synthesis on-board all our vessels at any given time.
In 2021 and during the first quarter of 2022, most of the countries around the globe maintained their strict COVID-19 health protocols, including the periodic imposition of strict lockdowns. In certain jurisdictions, shipowners experienced significant disruptions to their normal vessel operations, in part due to additional time expended to deviate from shipping routes to positioning vessels in countries in which crew changes could be undertaken in compliance with applicable measures against COVID-19. Since the beginning of the second quarter of 2022, many countries began to downgrade their health quarantine measures for fully vaccinated seafarers and also started to re-establish air carrier connections between international destinations. As a result, crew change operations have become less expensive than before and the need to deviate from vessels’ normal trajectories to dock in ‘‘open’’ countries has been reduced.
Although public health and quarantine conditions appear to have improved in the majority of countries globally, uncertainty remains regarding the emergence of additional strains of COVID-19 and whether governments and health authorities around the globe will be forced to implement the same or similar quarantine measures as utilized previously. The reimplementation of quarantine, lockdowns, or other measures in response to COVID-19 could significantly increase the expenses we incur for precautionary protective measures (such as hotel isolation, PCR tests, etc.), as well as the costs we incur due to operational disruptions. For example, we may experience renewed difficulty in rotating our crews and may incur increased fuel costs based on an increase in vessel deviations, repositioning and/or delays. Any of the foregoing factors could have an adverse effect on our business, financial condition and operating results.
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 recognized by the administrative body responsible for regulating vessels in the jurisdiction in which the vessel is registered (or “flagged”). 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.”
As of the date of this annual report, in connection with IMO 2020 regulations and requirements relating fuel sulfur levels, our vessels have transitioned to burning IMO compliant fuels. As a result, such vessels currently utilize VLSFO containing up to 0.5% sulfur content. Notably, low sulfur fuel is more expensive than standard high fuel oil and may become more expensive or difficult to obtain as a result of increased demand. The price of VLSFO has increased as a result of the ongoing conflict between Russia and Ukraine, and, indicatively, the price for VLSFO in Singapore reached approximately $1,100 per metric ton in July 2022. Thereafter, a downward trend prevailed and, at the end of December 2022, the price of VLSFO closed at approximately $620 per metric ton. As of February 9, 2023, the price of VLSFO in Singapore was around $656 per metric ton, but uncertainty regarding its future direction and the availability of VLSFO remains. For further information, see “—Increases in bunker prices could affect our operating results and cash flows.”
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. All 22 vessels in our fleet are currently in compliance with this regulation.
Due to concern over climate change, a number of countries and the IMO and European Union 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 addition, in March 2022 the SEC announced proposed rules with respect to climate-related disclosures, including with respect to greenhouse gas emissions and certain climate- related financial statement metrics, which would apply to foreign private issuers listed on US national securities exchanges such as us. Compliance with such reporting requirements (if they are adopted) or any similar requirements may impose substantial obligations and costs on the Company. If the Company is unable to accurately measure and disclose required climate-related data in a timely manner, it could be subject to penalties or civil actions in certain jurisdictions.
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 CO2 and GHG emissions. These new requirements combine technical and operational approaches to improve the energy efficiency of ships, also providing important building blocks for future GHG reduction measures. Beginning January 1, 2023, each vessel is required to comply with the new Energy Efficiency Existing Ship Index (“EEXI”). Furthermore, from 2023 to 2026, each vessel must initiate the collection of data for the reporting of its annual operational Carbon Intensity Indicator (“CII”) and CII rating. The IMO is required to review the effectiveness of the implementation of the CII and EEXI requirements by January 1, 2026, at the latest.
The EEXI and CII regulations require reductions in the CO2 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 us 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 March 7, 2023, 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 the 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.
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.
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“Safety Management System"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. The failureFailure 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.ports, and have a material adverse effect on our business, financial condition and operating results.
Furthermore, sanctions imposed by the European Union and environmental requirements relatingU.K. against Russia and certain disputed regions of Ukraine may invalidate our insurance coverage for certain voyages to or from such regions. This is due to the recyclinginclusion of vessels may resulta standard exclusion for liability for liabilities, costs or expenses in escalatedour protection and unexpected costs.
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"“arresting” or "attaching"“attaching” a vessel through foreclosurejudicial proceedings. The arrest or attachment of our vessels could result in ahave significant loss of earningsramifications for the relatedCompany, including off-hire period.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"“sister ship” theory of liability applies, such as South Africa, a claimant may arrest the vessel that is subject to the claimant'sclaimant’s maritime lien and any "associated"“associated” vessel, which is any vessel owned or controlled by the same owner. In countries with "sister ship"“sister ship” liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we will then own.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'svessel’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, results of operations, cash flows, financial condition and financial condition.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 results of operations.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, badadverse 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 for 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 employed under time charters 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 risks andinsurance coverage, crew insurance, and, in certain circumstances, 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.
Despite the loss of use of a vessel. Weabove policies, we may not be adequately insured againstin amounts sufficient to address all risks. Werisks and we or an intermediary may not be able to obtain adequate insurance coverage for our Fleetvessels in the future and weor 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 coverages. Theagainst 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.
We have grown our fleet exponentially and we may 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 ethicsdifficulty managing our growth properly which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined 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, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.profitability.
We are a recentlycompany formed companyfor the purpose of acquiring, owning, chartering, and operating oceangoing cargo vessels. Since our inception, we have grown our fleet from one vessel to 22 vessels as of March 7, 2023 following the contribution of our eight former tanker vessels to Toro.
Growing any business presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with a limited historycustomers and suppliers and integrating newly acquired operations into existing infrastructures. The significant expansion of operations.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 ability to implementmanagers’ current operating and achieve our business strategy. We cannot assure you that we willfinancial systems may not be successful in implementing our business strategy. Up to September 4, 2019, we had had only one vessel in our Fleet with a relatively short operating history, andadequate as such, we may face certain operational challenges not faced by companies with a longer operating history and more vessels. 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,fleet, we will need to recruit suitable additional seafarers and shore-side administrative and management personnel. We cannot assure youguarantee that we will be able to successfully integratehire 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 additional vessels thatamount 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 both the years ended December 31, 2022 and 2021, we have agreedderived 43% of our consolidated operating revenues from three charterers. In particular, for the years ended December 31, 2022 and 2021, we derived 75% and 55%, respectively, of our dry bulk segment operating revenues from three charterers. Further, for the year ended December 31, 2022, we derived 100% of our containership segment operating revenues from one charterer. Our charters may be terminated early due to purchase when they are deliveredcertain events, such as a client’s failure to make 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 depends 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 the commodities and products which we transport and the overall financial condition of the counterparty. Should a counterparty fail to honor its obligations under an agreement with us, we may purchase inbe unable to realize revenue under that charter and could sustain losses. In addition, if we lose an existing client, it may be difficult for us to promptly replace the future.
We may not be able to re-charterexecute our growth strategy and we may not realize the benefits we expect from past acquisitions or obtain newfuture acquisitions or other strategic transactions.
As our business grows, we intend to acquire additional vessels, including to replace existing vessels and, favorable charterswhere appropriate, renew the vessels of our fleet, and to expand our activities subject to the resolution of our Board to focus on certain areas of the shipping industry. See “¾We have limited the fields in which we focus our operations and this may have an adverse effect on our business, financial condition and operating results.” The renewal of our fleet, including to, where applicable, reduce the average age of our fleet, has implications for various operating costs, the perceived desirability of our vessels to charterers and the ability to attract financing for our business on favorable terms or at all. 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:
identify suitable vessels, including newbuilding slots at reputable shipyards and/or shipping companies for acquisitions at attractive prices;
realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements from past acquisitions;
obtain required financing for our existing and new operations;
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;
ensure, either directly or through our manager and sub-managers, that an adequate supply of qualified personnel and crew are available to manage and operate our growing business and fleet;
improve our operating, financial and accounting systems and controls; and
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.
Our failure to effectively identify, acquire, develop and integrate any vessels could adversely affect our revenuesbusiness, financial condition, investor sentiment and profitability.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 finance and 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 13.7 years. The average age of our dry bulk vessels is 13.3 years, compared to an industry average of 13.0 years and the average age of our containerships is 17.5 years, compared to an industry average of 13.6 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:
as our vessels age, typically, they become less fuel-efficient and more costly to maintain than more recently constructed vessels due to improvements in design, engineering, technology and due to increased maintenance requirements;
cargo insurance rates increase with the age of a vessel, making our vessels more expensive to operate;
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.
Charterers also have age restrictions on the vessels they charter and in the past, have actively discriminated against chartering older vessels, which may result in 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.
Due to the age of our fleet, we may not be able to obtain external financing at all or at reasonable terms as our vessels may be seen as less valuable collateral. For further information on the factors which could affect our ability to obtain financing, including the age of our fleet, see ‘‘The age of our fleet may impact our ability to obtain financing and 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 current or future credit facilities and/or result in impairment charges or losses on sale’’.
We face competition from companies with more modern vessels with more fuel-efficient designs than our vessels (‘‘eco-vessels’’). If new vessels are currently employed solelybuilt 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 or that we will be able to finance the acquisition of new vessels at the time that we retire or sell our aging vessels. This could have a material adverse effect on time chartersour business, financial condition and operating results.
We have limited the fields in which we focus our operations and this may have an adverse effect on our business, financial condition and operating results.
In connection with the Spin-Off, the independent, disinterested directors of our Board, on the recommendation of a special committee comprised of our independent, disinterested directors, resolved, among other things, to focus our efforts on dry bulk shipping services, that we have no interest or expectancy to participate or pursue any opportunity in areas of business outside of the dry bulk shipping business nor that Petros Panagiotidis, our director, Chairman, Chief Executive Officer and controlling shareholder and his affiliates, such as Castor Ships, offer or inform us of any such opportunity. This does not, however, preclude us from time to timepursuing opportunities outside of the dry bulk shipping business if in the future be employed under voyage charters. Our abilityour Board determines to renew charters or obtain new charters will dependdo so, including in the tanker shipping business. For example, we entered the containership shipping industry in the fourth quarter of 2022 with the purchase of two containership vessels. Nonetheless, focusing our efforts on the prevailing market conditions atdry bulk shipping business may reduce the time.scope of opportunities we may exploit and have an adverse effect on our business, financial condition and operating results.
Similarly, Toro’s board has resolved, among other things, to focus its efforts on its current business of tanker shipping services, that Toro has no interest or expectancy to participate or pursue any opportunity in areas of business outside of the tanker shipping business nor that Petros Panagiotidis, its director, Chairman, Chief Executive Officer and controlling shareholder and his affiliates will offer or inform it of any such opportunity. This does not ablepreclude Toro, however, from pursuing opportunities outside of the tanker shipping business if in the future Toro’s board determines to do so, including in the dry bulk and container shipping business. Our failure to obtain new charters, either on time charter oran opportunity that our Board deems in the spot market, in direct continuation withinterest of our existing charters or if new charters are entered into at rates substantially below the existing rates or on terms otherwise less favorable compared to the existing charter terms, our revenues and profitability could be adversely affected and weshareholders may have difficulty meetingan adverse effect on our working capitalbusiness, financial condition and debt obligations or paying dividends inoperating results. For further information on the future.foregoing resolutions, see also“Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—The Spin-Off Resolutions.”
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 declinesa decline in world trade a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of 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. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. This may have a significant impact on our revenues due to our concentrated customer base. For further details, see ‘‘We may be dependent on a small number of charterers for the majority of our business’’. We may also face these counterparty risks due to assignments. 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, resultsand operating results.
We are dependent upon Castor Ships and Pavimar, which are related party managers of operationsour dry bulk fleet 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 our head manager Castor Ships, which is a company controlled by our Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis. Castor Ships has entered into arrangements with Pavimar relating to the technical co-management our dry bulk vessels. As of March 6, 2023, Castor Ships had subcontracted, with our consent, the technical management of all our containership vessels to a third-party ship management company. See “Item 7. Major Shareholders and Related Party Transactions¾B. Related Party Transactions¾Management, Commercial and Administrative Services” for further information on our management arrangements. We are reliant on Castor Ship’s continued and satisfactory provision of its services and its subcontracting arrangements 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.
Our ability to enter into new charters and expand our customer relationships depends largely on our ability to leverage our relationship with our head manager, Castor Ships, Pavimar, and subcontractors of such entities, as well as these parties’ reputations and relationships in the shipping industry. If any of these counterparties 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 head manager 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 business.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 expectperiodically 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 charter market. 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 head manager 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 under short-term, medium or long-term charter agreements as well as inby taking advantage of the spot voyage market. Themarket 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 willingness of eachdebt 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 counterparties to perform their obligations under a time charter, spot charter or other agreement with us, will depend on a number of factors thatcharterers are beyond our control and may include, among other things, general economic conditions, the condition of the dry bulk and tanker industries and the overall financial condition of the counterparties. In addition, in depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charters. Our customers may failobligated to pay us under our existing charters, the charterers may have incentive to default under that charter hire or attempt to renegotiate charter rates. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates.charter. If our charterers fail to meetpay their obligations, we might have to us or attempt to renegotiatere-charter our vessels at lower charter agreements, we could sustain significant lossesrates, which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well asaffect our ability to pay dividends, if any, in the future.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 may enter into will contain, restrictive covenants that limit,we may not be able to comply with due to economic, financial or operational reasons and may limit the future, our business and financing activities.
The operating and financial restrictions and covenants in our current credit agreements, with Alpha Bank S.A., Chailease International Financial Services Co. Ltd. and Hamburg Commercial AG, 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 credit facilities require the consent of our lenders to:for Castor Maritime Inc., as guarantor, or our subsidiaries that act as borrowers in our facilities to, among other things:
incur or guarantee additional indebtedness outside of our ordinary course of business;
charge, pledge or encumber our vessels;
change the flag, class, management or ownership of our vessels;
change the commercial and technical management of our vessels;
declare or pay any dividends or other distributions at a time when the Company has an Eventevent of Defaultdefault or the payment of such distribution would cause an Eventevent of Default;default;
form or acquire any subsidiaries;
make any investments in any person, asset, firm, corporation, joint venture or other entity;
merge or consolidate with any other person; and
sell or change the beneficial ownership or control of our vessels.
enter into time charter contracts above a certain duration or (iii) there is a change in management of our vessels without the prior written consent of the respective lender.bareboat charters.
Our facilities also require us to comply with certain financial covenants, relatedin each case subject to (i) maintaining a certain minimum levelexceptions, including:
| (i) | maintaining a certain minimum level of cash on pledged deposit accounts with the borrowers; |
| (ii) | 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; |
| (iii) | maintaining a dry dock reserve at the borrowers’ level; |
| (iv) | not having a ratio of net debt to assets adjusted for the market value of the vessels above a certain level; |
| (v) | maintaining a certain level of minimum free cash at Castor Maritime; and |
| (vi) | maintaining a trailing 12 months EBITDA to net interest expense ratio at and above a certain level. |
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 andand/or 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 expenditures for vessel acquisitions will have to be at levels that do not impairbreach the required ratios set out above. The global economic downturn that occurred within the past several years had an adverse effect on vessel values, which may occur again if an economic slowdown arises in the future.covenants of our loan facilities. If the estimated asset values of the vessels in our Fleetfleet 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. In addition, 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.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, results of operations and financial condition and operating results.
All of our abilityoutstanding debt is exposed to pay dividends.Interbank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (‘‘SOFR’’) Risk. 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 volatilitythe risk of interest rate variations, principally in relation to the U.S. dollar LIBOR and SOFR. Our outstanding indebtedness is exposed to LIBOR and SOFR risk at annual rates ranging from 3.10% to 4.50% over LIBOR or SOFR. We have also entered into two credit facilities which are based on SOFR or adjusted SOFR, an adjusted new index that measures the cost of borrowing cash overnight, backed by U.S. Treasury securities and may enter our convert our existing LIBOR based loans into additional SOFR-based loans in the London Interbank Offered Rate orfuture.
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 and we may enter into derivative contracts, which can result in higher than market interest rates and charges against our income. If volatility in LIBOR occurs, it could affect our profitability, earnings and cash flow.
Given that SOFR is a secured rate backed by government securities (and therefore does not take into account bank credit risk), it may be lower than other reference rates, including LIBOR. However, SOFR may rise following interest rate increases effected by the United States Federal Reserve (the “U.S. Federal Reserve”) and the U.S. Federal Reserve has recently raised U.S. interest rates in response to rising inflation. Further, as a secured rate backed by government securities, SOFR may be less likely to correlate with the past.funding costs of financial institutions. As a result, parties may seek to adjust spreads relative to SOFR in underlying contractual arrangements. Therefore, the use of SOFR-based rates may result in interest rates and/or payments that are higher or lower than the rates and payments that we experienced under our credit facilities when interest was based on LIBOR. Alternative reference rates may behave in a similar manner or have other disadvantages or advantages in relation to our indebtedness. The consequences of these developments with respect to LIBOR cannot be entirely predicted but could include an increasemay result in financial market disruptions and may impact the costlevel of interest payments on the portion of our indebtedness that bears interest at variable rate indebtedness and obligations. rates. This may increase the amount of our interest payments under such debt.
The amount outstanding undermajority of our senior secured credit facilities has been, and amounts under additional credit facilities that we have entered into after December 31, 2020 including the $15.3 Million Term Loan Facility (as described in "Item“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Borrowing Activities") orActivities” provide that interest may enter in the future will generally be unless a replacement rate is introduced, advanced at a floating rate based on LIBOR whichand 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, SOFR or any other replacement rate may be volatile. LIBOR has been volatilehistorically exhibited volatility. For example, the spread between LIBOR and the prime lending rate widened significantly at times due to disruptions in prior yearsthe international credit markets. SOFR or any other replacement reference rate may behave similarly. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in LIBOR and canSOFR, 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 in turn, couldSOFR have an adverse effect on our earnings and cash flow. In addition, in recent years, LIBOR has been at relativelyincreased from their low levels and may rise further 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. Moreover, we currently do not have any derivative instruments but even if we enter into interest rate swaps or other derivative instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective and we may incur substantial losses.
Any of the foregoing factors, including any combination of them, could have an adverse effect on our business, financial condition, cash flow and results of operations.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, but cannot guarantee availability of such funding in the future.
As a result of concerns about the stability of financial markets generally and the solvency of counterparties, specifically,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. The age of our fleet may also impact our ability to obtain new financing on favorable terms or at all and may hinder our plans to reduce the average age of our fleet through vessel acquisitions and/or replacements. See ‘‘The age of our fleet may impact our ability to obtain financing and 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 current or future credit facilities and/or result in impairment charges or losses on sale’’. 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.
Our Chairman and Chief Executive Officer, Petros Panagiotidis, through related partymay provide loans which may notto us. However, we cannot guarantee that such loans will be available to the Company in the future.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order 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 in the futureor acquire will own any other vessels we may acquire in the future. All payments under our charters will beare 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 loan agreements, any financing agreement we may enter into in the future,arrangements, or by Marshall Islandsthe applicable law which regulatesregulating the payment of dividends byin the jurisdictions in which our companies.subsidiaries are organized.
In particular, the applicable loan agreements entered into by certain of our subsidiaries, prohibitsprohibit such subsidiaries from paying any dividends to us if we or such subsidiary breach a covenant in oura loan agreementsagreement 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 in the future.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 fundmeet our liquidity needs or pay dividends in the future unless we obtain funds from other sources, which we may not be able to do.
We cannot assure youmay be unable to achieve some or all of the benefits that we expect to achieve from our spin-off of our tanker business.
On November 15, 2022 and December 30, 2022, the disinterested and independent members of the board of directors of the Company approved the spin-off of our tanker segments, which occurred on March 7, 2023. Although we believe that the Spin-Off will enable our tanker business, on the one hand, and our dry bulk and containerships businesses, on the other, to each increase its focus on its distinct line of business, which is expected to enhance operational efficiencies, attract new investors and facilitate efficient strategic expansion, we may not be able to achieve some or all of the anticipated benefits from the separation of our businesses and the Spin-Off may adversely affect our business. Separating such businesses will create two independent, publicly traded companies, each of which will initially be smaller, less diversified and more narrowly focused than before the Spin-Off, which could make such businesses more vulnerable to changing market and economic conditions. Operating as a relatively smaller independent entity may reduce or eliminate some of the benefits and synergies which previously existed across our business platforms before the Spin-Off, including our operating diversity, borrowing leverage, available capital for investments, partnerships and relationships and opportunities to pursue integrated strategies with the businesses within our former combined company and the ability to attract, retain and motivate key employees. In addition, as a smaller company, our ability to absorb costs may be negatively impacted, including the significant cost of the spin-off transaction, and we may be unable to obtain financing or refinance our existing indebtedness. Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows, business prospects and the trading price of our common stock. As a result of having spun off our tanker business, we also may be more susceptible to market fluctuations and other adverse events than we would be if we did not spin off such business. If we fail to achieve some or all of the benefits that we expect to achieve as a result of the Spin-Off, or do not achieve them in the time we expect, our results of operations and financial condition could be materially adversely affected.
Our Board willmay never declare dividends.
The declaration and payment of dividends, if any, will always be subject to the discretion of our Board, restrictions contained in our current or future debt agreements or debt agreements that we may enter into in the future and the requirements of Marshall Islands law. TheIf 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 highlyshipping industry is generally 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 can givecurrently pay no assurance thatcash dividends will be paid at all.and we may never pay dividends.
It has been recently observed that worldwide economies have experienced inflationary pressures, with price increases seen across many sectors globally. For example, the U.S. consumer price index, an inflation gauge that measures costs across dozens of items, rose 6.5% in December 2022 compared to the prior year, driven in large part by increases in energy costs. It remains to be seen whether inflationary pressures will continue, and to what degree, as central banks begin to respond to price increases. In addition, our ability to enter into new chartersthe event that inflation becomes a significant factor in the global economy generally and expand our customer relationships depends largely on our ability to leverage our relationship with Castor Ships and Pavimar and their reputations and relationships in the shipping industry. If Castor Ships or Pavimar suffer material damageindustry more specifically, inflationary pressures would result in increased operating, voyage and administrative costs. Furthermore, the effects of inflation on the supply and demand of the products we transport could alter demand for our services. Interventions in the economy by central banks in response to their reputations or relationships, itinflationary pressures may harm our ability to renew existing charters upon their expiration, obtain new charters or maintain satisfactory relationships with suppliersslow down economic activity, including by altering consumer purchasing habits and other third parties.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance ("ESG"(“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. InvestorThis is in part due to a developing regulatory environment relating to climate change and sustainability. For further details on environmental laws and regulations affecting the shipping industry and our operations, see “¾Compliance 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.” Further, 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'scompany’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 and transport of dry bulk crude oil and petroleumcontainerized 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 would have a material adverse effect on our financial condition and results of operations andcould impair our ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report, and comply with and implement wide ranging ESG requirements. The occurrence of anyAny 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.
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 to utilize or mandating certain corporate governance actions. Corporate governance of listed companies has increasingly become an area of focus among policymakers and investors. Listed companies are generally encouraged to follow best practices and 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, sustainability and prevention of and controls relating to corruption and fraud. 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 U.S. capital markets, with could be an area of concern to our investors and expose us to greater operational risks. In addition, as a foreign private issuer, we are also entitled to rely on exceptions from certain corporate governance requirements of the Nasdaq Capital Market. Refer to “Item 16.G¾Corporate Governance” for further details on such exceptions.
We are a foreign private issuer and, as a result, are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial condition.and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial year, while U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers or controlled companies.
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, be, 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. Although we intend to defend these matters vigorously, weWe 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 themit may have a material adverse effect on us.our business. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent, which maycould 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, andsubstantially. An increase in our taxes could have a material adverse effect on our earnings and cash flows from these operationsoperations. Moreover, in February 2023, the Marshall Islands was added to a list of non-cooperative jurisdictions for tax purposes, commonly referred to as the “EU blacklist”. The effect of the EU blacklist, including whether and when the European Union will remove the Marshall Islands from the EU blacklist, any legislation that the Marshall Islands may enact with a view toward being removed from the EU blacklist, how the European Union may react to such legislation, and how counterparties will react to the EU blacklist, is unclear and could be materially adversely affected.potentially have a material adverse effect on our business, financial condition and operating results.
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 shareholders.us.
We are dependent on our management and their ability to hire and retain key personnel inand their ability to devote sufficient time attention to their respective roles. In particular, we are dependent on the retention and performance of our Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis.
Our success will dependdepends upon our and our management'smanagement’s ability to hire and retain key members of our management team includingand the ability of our management team to devote sufficient time and attention to their respective roles in light of outside business interests. In particular, we are dependent upon the performance of our Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis. ThePanagiotidis, who has outside business interests in Castor Ships and other ventures. Mr. Panagiotidis will devote such portion of his business time and attention to our business as is appropriate and will also devote substantial time to Toro’s business and other business and/or investment activities that Mr. Panagiotidis maintains now or in the future. Mr. Panagiotidis’ intention to provide adequate time and attention to other ventures will preclude him from devoting substantially all his time to our business. Further, the loss of Mr. Panagiotidis, either to outside business interests or for unrelated reasons, or resignation of Mr. Panagiotidis from any of his current managerial roles could adversely affect our business prospects and financial condition.
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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. In addition, the ongoing COVID-19 pandemic has caused broad stock market and industry fluctuations. Further, we believe that we have a large number of retail investors holding our common shares, which could increase volatility in the price of our common shares. As a result of this volatility, investors may experience rapid and substantial losses on their investment in our common shares. 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. Further, during 2022, the market price of our common shares on the Nasdaq Capital Market has fluctuated from an intra-day low of $1.08 per share on January 27, 2022 to an intra-day high of $2.4 per share on April 19, 2022. On December 30, 2022, the closing price of our common shares was $1.12 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:
the market price forof our common shares may experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals;
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;
if the market price of our common shares declines, you may be influencedunable 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.
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 factors, includingof which are beyond our control, that could negatively affect the following: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:
investor reaction to our business strategy;
the sentiment of the significant number of retail investors (including aswhom 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), the direct access by retail investors to broadly available trading platforms, forums;
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;
our continued compliance with the listing standards of the Nasdaq Capital Market;
regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our industry;
variations in our financial results or those of companies that are perceived to be similar to us;
our ability or inability to raise additional capital and the terms on which we raise it;
our dividend strategy;
our continued compliance with our debt covenants;
variations in the value of our fleet;
declines in the market prices of stocks generally;
trading volume of our common shares;
sales of our common shares by us or our shareholders;
speculation in the press or investment community about our Company or industry;
general economic, industry and market conditions; and
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, such asincluding 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.
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'smanagement’s attention and resources, which could materially and adversely affect our business, financial condition, operating results of operations 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.
The combined post-Distribution value of our and Toro’s common shares may not equal or exceed the pre-Distribution value of our common shares.
Our common shares are listed and traded on the Nasdaq Capital Market and Toro common shares have also been approved for listing on the Nasdaq Capital Market. We cannot assure you that the combined trading prices of our common shares and Toro common shares after the Distribution, as adjusted for any changes in the combined capitalization of these companies, will be equal to or greater than the trading price of our common shares prior to the Distribution. Until the market has fully evaluated the business of Toro, the price at which shares of Toro common shares trade may fluctuate significantly. Similarly, until the market has fully evaluated our business without the business of Toro, the price at which our common shares trades may fluctuate significantly and we could experience significant fluctuations in the trading price of our common shares. See also “¾Our 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.”
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 dated April 14, 2020, indicating that because the closing bid price of the Company'sCompany’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 iswas not in compliance with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2). The Company was also informed by Nasdaq that due to the COVID-19 crisis, temporary relief has been granted related to the minimum bid price requirement and the Company's compliance period will be suspended until June 30, 2020. Pursuant to the Nasdaq Listing Rule 5810(c)(3)(A), the applicable grace period to regain compliance is 180 days, or December 28, 2020, which included the temporary COVID-19 relief period.
During the month of February 2023, our closing bid price ranged between $1.18 and $1.32 per share. If we are unable to regain compliance witha breach of the minimum bid price requirement within the Second Compliance Period,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 may be suspended or delisted at the discretion of Nasdaq.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. There can be no assurance that we will regain compliance withA suspension or delisting may also breach the minimum bid price requirement and, if we regain compliance, thereterms of certain of our material contracts. There can be no assurance that we will maintain compliance with the minimum bid price requirements of Nasdaq in the future.
Over the past few years, we have issued and sold large quantities of our common shares pursuant to public and private offerings of our equity and equity-linked securities. The Company had 707,157,93694,610,088 issued and outstanding common shares as of March 26, 2021.December 31, 2022. Upon the exercise of our outstanding warrants, the Company may issue up to an additional 1,394,94019,360,978 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 common 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. The issuance and sale of any securities in the future may be dilutive to our existing shareholders and may cause the price of our common shares to decline. The issuance of additional shares by the Company that has the effect of reducing the price of the trading price of the common shares may also prevent the Company from being able to regain compliance with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2) prior to June 28, 2021, which may result in our common shares being suspended or delisted from the Nasdaq Capital Market. 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.
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, redemptions of our Series A Preferred Shares, without shareholder approval, in a number of circumstances. Our existing shareholders may experience significant dilution if we issue shares in the future at prices below the price at which previous shareholders invested.
Our issuance of additional common shares or other equity securities of equal or senior rank, or the perception that such issuances may occur, could have the following effects:
our existing shareholders’ proportionate ownership interest in us will decrease;
the earnings per share and the per share amount of cash available for dividends on our common shares (as and if declared) could decrease;
the relative voting strength of each previously outstanding common share could be diminished;
the market price of our common shares could decline; and
our ability to raise capital through the sale of additional securities at a time and price that we deem appropriate, could be impaired.
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 or the BCA.(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 can'tcannot predict whether Marshall Islands courts would reach the same conclusions as U.S. courts. Thus, you may have more difficulty in protecting your interests in the face of actions by theour 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 in our organizational documents and in our stockholder rights planthat 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, whichand 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:
authorizing our Board to issue "blank check"“blank check” preferred shares without shareholder approval;
providing for a classified Board with staggered, three-year terms;
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;
prohibiting cumulative voting in the election of directors;
limiting the persons who may call special meetings of shareholders; and
establishing supermajority voting provisions with respect to amendments to certain provisions of our Articles of Incorporation and Bylaws.
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 Information¾ 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, as of the date of this annual report, 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“emerging growth company"company”, and we cannot be certain if the reduced requirements applicable to emerging growth companies make our securities less attractive to investors.
We are currently an "emerging“emerging growth company"company” as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"“JOBS Act”). We expect that we will cease to be an emerging growth company on December 31, 2023. Additional compliance costs associated with this cessation could be substantial and we cannot assure you that these costs will not be material to our business.
As an emerging growth company, we are not required to comply with, among other things, the auditor attestation requirements of the Sarbanes-Oxley Act. InvestorsAt such time that we cease to be an emerging growth company, we will no longer be permitted to benefit from these exemptions and face increased compliance costs. While an emerging growth company, investors may find our securities less attractive because we rely on this provision.certain exemptions. 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.volatile or decline.
U.S. tax authorities could treat us as a "passive“passive foreign investment company"company”, which could have adverse U.S. federal income tax consequences to U.S. shareholders.
A foreign corporation will be treated as a "passive“passive foreign investment company"company” (a “PFIC”), or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income"“passive income” or (2) at least 50% of the average value of the corporation'scorporation’s assets produce or are held for the production of those types of "passive income"“passive income”. For purposes of these tests, "passive income"“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“passive income,"” whereas rental income would generally constitute "passive income"“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“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 or IRS,(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—“Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Status and Significant Tax Consequences"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'sshareholder’s holding period of our common shares. Please see the section of this annual report entitled "Item“Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Status and Significant Tax Consequences"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.
34
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 or the Code,(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 expectintend to take the position that we will notand each of our subsidiaries qualify for this statutory tax exemption for our 2021, 2022 and future taxable years. However, as discussed below under “Taxation—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of Our Company”, we do not qualify for this exemption in view of our share structure based on the 2020 taxable yearcurrent wording of the applicable 883 regulation. We believe our share structure satisfies the intent and as suchpurpose of the 883 regulation and have filed a petition with the US Treasury to have the regulations amended to clearly encompass our share structure. However, there can be no assurance that our petition will be successful and that the exemption from tax under Section 883 of the Code will be available to us.
If we willor 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. The imposition ofIf this tax were imposed for our 2021 and 2022 taxable year, we anticipate that U.S. source income taxes of approximately $497,339 and $1,348,850 would be recognized for the 2020 taxable year isyears ended December 31, 2021, and 2022, respectively, 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 expected to have a material negative effect on our business and cash flows, however, we cannot guarantee that it will not do sobe materially higher or lower in any future taxable years.
In connection with the spin-off of our common shares.
shares held at the close of business on February 22, 2023.We maydo not have sufficient cash from our operations to enable us to pay dividends on our Series A Preferred Shares followingexpect that such distribution of shares or the payment of expenses andSpin-Off will qualify for tax-free treatment for U.S. federal income tax purposes. Therefore, we expect that the establishment of any reserves.
Although we can pay on our Series A Preferred Shares depends upondo not expect that the amountdistribution of cash we generate from and useToro common shares in our operations,connection with the Spin-Off will qualify for tax-free treatment for U.S. federal income tax purposes, Castor, which may fluctuate.
| ITEM 4. | INFORMATION ON THE COMPANY |
| A. |
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 cargoand containership cargoes, as well as, until the completion of the Spin-Off, crude oil and refined petroleum products. During 2021 and up to March 7, 2023, we grew our dry bulk fleet from six to 20 dry bulk vessels, and we established our tanker operations by acquiring seven Aframax/LR2 tanker vessels (one of which was sold to an unaffiliated third party in May 2022 and delivered to that party on July 15, 2022) and two Handysize tanker vessels. During the fourth quarter of 2022, we also established our containership operations by acquiring two 2005 German-built 2,700 TEU containership vessels from two separate entities beneficially owned by family members of our Chairman, Chief Executive Officer and Chief Financial Officer. As a result, as of March 26, 2021,December 31, 2022, our Fleetfleet consisted of 920 dry bulk carriers with an aggregate cargo carrying capacity of 1.7 million dwt and 2an average age of 13.1 years, six Aframax/LR2 tankers with an aggregate cargo carrying capacity of 1.00.7 million dwt and an average age of 14.3 years. Upon the successful consummation of our recent vessel acquisitions, as further discussed under B. Business Overview—Fleet Development, our Fleet will consist of 14 vessels,17.9 years, two Handysize tankers with an aggregate cargo carrying capacity of 1.30.1 million dwt consisting of 1 Capesize, 5 Kamsarmax and 6 Panamax dry bulk vessels and 2 Aframax LR2 tankers and an average age of 13.516.9 years, and two containership vessels with an aggregate cargo capacity of 0.1 million dwt and an average age of 17.3 years. On March 7, 2023, our tanker vessels were contributed to Toro as part of the Spin-Off. As a result, the average age of our entire fleet comprised of dry bulk vessels and containerships as of March 7, 2023 was 14.7 years.
On November 15, 2022 and December 30, 2022, the independent disinterested directors of Castor approved, based on deploying our Fleet under a mixthe recommendation of period time chartersthe Special Committee, and trip time charters accordingauthorized, subject to the fulfillment of certain conditions, the proposed spin-off of the Company’s Aframax/LR2 tanker segment and Handysize tanker segment to our assessmentnewly formed wholly owned subsidiary, Toro Corp., in order for each of Castor Maritime Inc., holding the dry bulk and containership segments, and Toro, holding the tanker segments, to operate and pursue opportunities as a separate “pure play” company in the relevant shipping sector, to be evaluated as such by the market conditions, adjustingand to enhance our and Toro’s financing and growth opportunities. Separating the mixdry bulk and tanker businesses is intended to enable each of these chartersus and Toro to take advantageincrease its focus on its distinct line of business, which is expected to enhance operational efficiencies, attract new investors and facilitate efficient strategic expansion. In connection with and as part of the relatively stable cash flowsSpin-Off, our independent disinterested directors approved, based on the recommendation of the aforementioned special committee, among other things:
| • | the contribution to Toro of our eight tanker-owning subsidiaries (each owning one tanker vessel) and an additional subsidiary formerly owning the M/T Wonder Arcturus (which was sold pursuant to a memorandum of agreement entered into on May 9, 2022 and delivered to its new owner on July 15, 2022); |
in exchange for:
| ○ | all issued and outstanding shares of Toro common stock, par value $0.001 per share; |
| ○ | 140,000 shares of Toro’s 1.00% Series A Fixed Rate Cumulative Perpetual Convertible Preferred Shares of Toro, with a cumulative preferred distribution accruing initially at a rate of 1.00% per annum on the stated amount of $1,000 per share, all of which would be retained by us after the Spin-Off; and |
| ○ | the issuance of 40,000 Series B Preferred Shares of Toro, each carrying 100,000 votes on all matters on which our shareholders are entitled to vote but no economic rights, to Pelagos, a company controlled by our and Toro’s Chairman and Chief Executive Officer, against payment of their nominal value of $0.001 per Series B Preferred Share. |
On March 7, 2023, we distributed on a pro rata basis all of the common shares of Toro received in connection with the Spin-Off to our holders of common stock of record at the close of business on February 22, 2023. Our common shareholders received one common share of Toro for every ten of our common shares held at the close of business on February 22, 2023. Further information regarding the details of the Spin-Off may be found on Registration Statement No. 001-41561 on Form 20-F of Toro Corp., declared effective by the U.S. Securities Exchange Commission (“SEC”) on February 9, 2023. The common shares of Toro have been approved for listing on the Nasdaq Capital Market. The terms of the Spin-Off were negotiated and high utilization rates associated with period time charters or to profit from attractive trip charter rates during periodsapproved by a special committee of strong charter market conditions.independent disinterested directors.
Our principal executive office is at 223 Christodoulou Chatzipavlou Street, Hawaii Royal Gardens, 3036 Limassol, Cyprus. Our telephone number at that address is + 357+357 25 357 767.768. Our website is www.castormaritime.com. This web address is provided as an inactive textual reference only. 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'sSEC’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 Fleetfleet and information regarding the development of our Fleet,fleet, including vessel acquisitions, please see "B.“Item 4. Business Overview—B. Our Fleet"fleet.”
Equity Transactions
For a description of our recent equity transactions, please see “Item 5. Operating and Financial Review and Prospects— B. 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 a high of 30 vessels prior to the Spin-Off through the acquisition of 25 new vessels, one of which was sold in July 2022 and eight of which were contributed to Toro in connection with the Spin-Off. As of March 7, 2023, two containerships acquired in the fourth quarter of 2022 comprised our newly established containership segment and our dry bulk segment was comprised of 20 vessels, 14 of which were acquired between 2020 and the date of this annual report. 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. Following completion of the Spin-Off, our fleet is comprised of 22 vessels consisting of our dry bulk and containership vessels.
During the years ended December 31, 2020, 2021 and 2022, we made capital expenditures of approximately $0.1 million, $1.8 million and $3.0 million, respectively, primarily relating to the installation of ballast water treatment system (“BWTS”) on our vessels.
Financing Transactions
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 (the “$55.0 Million Term Loan Facility”). 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.
On November 22, 2022, we entered into a $22.5 million senior term loan facility with Chailease International Financial Services (Singapore) Pte. Ltd., through and secured by our two containership-owning subsidiaries, those owning the Ariana A and the Gabriela A, and guaranteed by the Company (the “$22.5 Million Term Loan Facility”). The $22.5 Million Term Loan Facility has a tenor of five years and bears interest at SOFR plus a margin of 3.875% per annum. The net proceeds from the $22.5 Million Term Loan Facility were used, along with cash on hand, to fund the acquisition of our containership vessels, the Ariana A and the Gabriela A, as well as 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” and Note 7 to the consolidated financial statements included elsewhere in this annual report.
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). We were also informed by the Nasdaq that dueDue to the COVID-19 crisis, we were granted temporary relief has been granted related to minimum listing bid price requirements and our compliance period would bewas suspended until June 30, 2020. Pursuant to the Nasdaq Listing Rule 5810(c)(3)(A), the applicable initial grace period to regain compliance was 180 days, or December 28, 2020, which included the temporary COVID-19 relief period.
| B. | BUSINESS OVERVIEW |
For a description offurther information, see Note 2 to our recent equity transactions, please see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Equity Issuances".
Our Fleet are equipped with ballast water management system ("BWMS"), 1 vessel is partly equipped and 2 are non-equipped. We expect to retrofit the 3 non-fully equipped and non-equipped vessels with BWMS within 2022, obtaining operational flexibility worldwide. As of December 31, 2020, we had made capital expenditures of approximately $1.0 million regarding the installation of BWMS on our vessels. It is estimated that the contractual obligations related to these purchases as well as purchases on our remaining fleet vessels (in cases where not already installed), excluding installation costs, will be approximately $0.8 million, with scheduled payments of $0.5 million in 2021 and $0.3 million in 2022.
Dry Bulk Segment
| Vessel Name | Capacity (dwt) | Year Built | Country of Construction | Type of Employment | Gross Charter Rate ($/day | Estimated Redelivery Date | |
| Earliest | Latest | ||||||
| M/V Magic Orion | 180,200 | 2006 | Japan | TC (1) period | 101% of BCI5TC (2) | Jan-24 | Apr-24 |
| M/V Magic Venus | 83,416 | 2010 | Japan | TC period | $25,000 (3) | Apr-24 | Jul-24 |
| M/V Magic Thunder | 83,375 | 2011 | Japan | TC period | $14,000 (4) | Sep-23 | Dec-23 |
| M/V Magic Argo | 82,338 | 2009 | Japan | TC period | 103% of BPI5TC | Apr-24 | Jul-24 |
| M/V Magic Perseus | 82,158 | 2013 | Japan | TC period | 100% of BPI5TC | Sep-23 | Dec-23 |
| M/V Magic Starlight | 81,048 | 2015 | China | TC period | 98% of BPI5TC | Nov-23 | Feb-24 |
| M/V Magic Twilight | 80,283 | 2010 | Korea | TC trip | $4,300 + $100,000 ballast bonus | Mar-23 | Mar-23 |
| M/V Magic Nebula | 80,281 | 2010 | Korea | TC period | 93% of BPI5TC | May-23 | Aug -23 |
| M/V Magic Nova | 78,833 | 2010 | Japan | TC period | 101% of BPI4TC (5) | Sep-23 | Dec-23 |
| M/V Magic Mars | 76,822 | 2014 | Korea | TC period | 102% of BPI74 | Oct-23 | Jan-24 |
| M/V Magic Phoenix | 76,636 | 2008 | Japan | TC period | 102% BPI4TC | Aug-23 | Nov-23 |
| M/V Magic Horizon | 76,619 | 2010 | Japan | TC period | $14,000 (6) | Jun-23 | Sep-23 |
| M/V Magic Moon | 76,602 | 2005 | Japan | TC period | 95% of BPI4TC | Apr-23 | Jul-23 |
| M/V Magic P | 76,453 | 2004 | Japan | TC period | $13,100 (7) | Oct-23 | Jan-24 |
| M/V Magic Sun | 75,311 | 2001 | Korea | TC trip | $9,000 | Apr-23 | Apr-23 |
| M/V Magic Vela | 75,003 | 2011 | China | TC period | 87.5% of BPI5TC (8) | Apr-23 | Jul-23 |
| M/V Magic Eclipse | 74,940 | 2011 | Japan | TC period | $22,000 (9) | Apr-24 | Jun-24 |
| M/V Magic Pluto | 74,940 | 2013 | Japan | TC period | 100% of BPI4TC | Dec-23 | Mar-24 |
| M/V Magic Callisto | 74,930 | 2012 | Japan | TC period | $14,000 (10) | Jul-23 | Oct-23 |
| M/V Magic Rainbow | 73,593 | 2007 | China | Unfixed | N/A | N/A | N/A |
| (1) | TC stands for time charter. |
| (2) | The benchmark vessel used in the calculation of the average of the Baltic Capesize Index (“BCI”) 5TC routes (“BCI5TC”) is a non-scrubber fitted 180,000mt dwt vessel (Capesize) with specific age, speed – consumption, and design characteristics. |
| (3) | The vessel’s daily gross charter rate is equal to 100% of the Baltic Panamax Index 5TC routes (“BPI5TC”). In accordance with the prevailing charter party, on April 28, 2022 the owners converted the index-linked rate to fixed from May 1, 2022 until March 31, 2023, at a rate of $25,000 per day. Upon completion of this period, the rate will be converted back to index‑linked. The benchmark vessel used in the calculation of the average of the BPI5TC routes is a non-scrubber fitted 82,000mt dwt vessel (Kamsarmax) with specific age, speed – consumption, and design characteristics. |
| (4) | The vessel’s daily gross charter rate is equal to 97% of BPI5TC. In accordance with the prevailing charter party, on January 1, 2023 the owners converted the index-linked rate to fixed from February 1, 2023 until June 30, 2023, at a rate of $14,000 per day. Upon completion of this period, the rate will be converted back to index‑linked. |
| (5) | The benchmark vessel used in the calculation of the average of the BPI4TC routes is a non-scrubber fitted 74,000mt dwt vessel (Panamax) with specific age, speed – consumption, and design characteristics. |
(6) | The vessel’s daily gross charter rate is equal to 103% of BPI4TC. In accordance with the prevailing charter party, on October 18, 2022 the owners converted the index-linked rate to fixed from November 1, 2022 until March 31, 2023, at a rate of $14,000 per day and, further, on February 27, 2023, converted the index-linked rate to fixed from April 1, 2023 to June 30, 2023 at a rate of $15,300 per day. Upon completion of this period, the rate will be converted back to index‑linked. |
(7) | The vessel’s daily gross charter rate is equal to 96% of BPI4TC. In accordance with the prevailing charter party, on January 16, 2023 the owners converted the index-linked rate to fixed from February 1, 2023 until September 30, 2023, at a rate of $13,100 per day. Upon completion of this period, the rate will be converted back to index‑linked. |
(8) | After redelivery from the current charter, estimated to take place between April and July 2023 in accordance with the prevailing charterparty terms, the vessel has been fixed for a period of minimum 12 to maximum 15 months, at a daily gross charter rate equal to 95% of BPI4TC. |
(9) | The vessel’s daily gross charter rate is equal to 99% of BPI4TC. In accordance with the prevailing charter party, on June 15, 2022 the owners converted the index-linked rate to fixed from July 1, 2022 until March 31, 2023, at a rate of $22,000 per day. Upon completion of this period, the rate will be converted back to index‑linked. |
(10) | The vessel’s daily gross charter rate is equal to 101% of BPI4TC. In accordance with the prevailing charter party, on October 18, 2022 the owners converted the index-linked rate to fixed from November 1, 2022 until March 31, 2023, at a rate of $14,000 per day and, further, on February 27, 2023, converted the index-linked rate to fixed from April 1, 2023 to June 30, 2023 at a rate of $15,000 per day. Upon completion of this period, the rate will be converted back to index‑linked. |
Containerships Segment
| Vessel Name | Capacity (dwt) | Year Built | Country of Construction | Type of employment | Gross Charter Rate ($/day) | Estimated Earliest Charter Expiration | Estimated Latest Charter Expiration | ||||||||||
| Containership Segment | |||||||||||||||||
| M/V Ariana A | 38,117 | 2005 | Germany | TC period | $ | 23,250 | Apr-23 | Jul-23 | |||||||||
| M/V Gabriela A | 38,121 | 2005 | Germany | TC period | $ | 26,350 | Feb-24 | May-24 | |||||||||
Aframax/LR2 Tanker Segment*
| Vessel Name | Capacity (dwt) | Year Built | Country of Construction | Type of employment | Gross Charter Rate ($/day) | Estimated Earliest Charter Expiration | Estimated Latest Charter Expiration | ||||||||||||||||
Aframax/LR2 Segment(1) | |||||||||||||||||||||||
| M/T Wonder Polaris | 115,351 | 2005 | S. Korea | Tanker Pool(2) | N/A | N/A | N/A | ||||||||||||||||
| M/T Wonder Sirius | 115,341 | 2005 | S. Korea | TC Period(3) | $ | 40,000 | November 2023 | June 2024 | |||||||||||||||
| M/T Wonder Bellatrix | 115,341 | 2006 | S. Korea | Tanker Pool(2) | N/A | N/A | N/A | ||||||||||||||||
| M/T Wonder Musica | 106,290 | 2004 | S. Korea | Tanker Pool(2) | N/A | N/A | N/A | ||||||||||||||||
| M/T Wonder Avior | 106,162 | 2004 | S. Korea | Tanker Pool(2) | N/A | N/A | N/A | ||||||||||||||||
| M/T Wonder Vega | 106,062 | 2005 | S. Korea | Tanker Pool(2) | N/A | N/A | N/A | ||||||||||||||||
(1) | On May 9, 2022, we |
(2) | The vessel is currently participating in the V8 Plus Pool, a pool operating Aframax tankers aged fifteen (15) years or more that is managed by V8 Plus Management Pte Ltd., a company in which Petros Panagiotidis has a minority equity interest. |
| (3) | In February 2023, the agreement relating to the M/T Wonder Sirius’s participation in the V8 Plus Pool was terminated and the vessel commenced a period time charter.” |
*On March 7, 2023, our Aframax/LR2 tanker segment was contributed to Toro Corp. in connection with the expansionSpin-Off.
Handysize Tanker Segment*
| Vessel Name | Capacity (dwt) | Year Built | Country of Construction | Type of employment | Gross Charter Rate ($/day) | Estimated Earliest Charter Expiration | Estimated Latest Charter Expiration |
| Handysize Segment | |||||||
| M/T Wonder Mimosa | 36,718 | 2006 | S. Korea | Tanker Pool(1) | N/A | N/A | N/A |
| M/T Wonder Formosa | 36,660 | 2006 | S. Korea | Tanker Pool(1) | 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 |
*On March 7, 2023, our Handysize tanker segment was contributed to Toro Corp. in connection with the Spin-Off.
Fleet Development
During the years ended December 31, 2020, 2021 and 2022, we implemented our Fleetstrategic 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 | |||||||||
| 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 | ||||||||
| Containerships | |||||||||||||||
| 2022 Acquisitions | |||||||||||||||
| Ariana A | 2,700 TEU capacity Containership | 38,117 | 2005 | Germany | $ | 25.00 | 11/23/22 | ||||||||
| Gabriela A | 2,700 TEU capacity Containership | 38,121 | 2005 | Germany | $ | 25.75 | 11/30/22 | ||||||||
| 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(1) | 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 | ||||||||
| (1) | The Wonder Arcturus was sold on May 9, 2022, and delivered to an unaffiliated third-party on July 15, 2022. |
| 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 | ||||||||
* On March 7, 2023, our Aframax/LR2 and for other general corporate purposes, please see "ItemHandysize tanker segments were contributed to Toro Corp. in connection with the Spin-Off.
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—Our Borrowing Activities".Resources.”
| Vessel Name | Year Built | Type of Charter | Capacity (dwt) | Delivered to Castor | Gross Charter Rate ($/day) | Estimated Earliest Charter Expiration | Estimated Latest Charter Expiration |
| Dry bulk vessels | |||||||
| Panamax | |||||||
| Magic P | 2004 | Period Time Charter | 76,453 | February 2017 | $12,750 | August 2021 | November 2021 |
| Magic Sun | 2001 | Period Time Charter | 75,311 | September 2019 | $10,200 | August 2021 | October 2021 |
| Magic Moon | 2005 | Period Time Charter | 76,602 | October 2019 | $10,500 | July 2021 | September 2021 |
| Magic Rainbow | 2007 | Trip Time Charter | 73,593 | August 2020 | $18,500 | April 2021 | April 2021 |
| Magic Horizon | 2010 | Period Time Charter | 76,619 | October 2020 | $11,000 | August 2021 | December 2021 |
| Magic Nova | 2010 | Period Time Charter | 78,833 | October 2020 | $10,400 | April 2021 | August 2021 |
| Kamsarmax | |||||||
| Magic Venus | 2010 | Period Time Charter | 83,416 | March 2021 | $18,500 | August 2021 | October 2021 |
| Magic Argo | 2009 | Trip Time Charter | 82,338 | March 2021 | $25,100 | June 2021 | June 2021 |
| Capesize | |||||||
| Magic Orion | 2006 | Trip Time Charter | 180,200 | March 2021 | $21,000 | April 2021 | April 2021 |
| Tanker vessels | |||||||
| Aframax/LR2 | |||||||
| Wonder Polaris | 2005 | Period Time Charter | 115,341 | March 2021 | $15,000 + profit sharing | February 2022 | February 2023 |
| Wonder Sirius | 2005 | Period Time Charter | 115,340 | March 2021 | $15,000 + profit sharing | February 2022 | February 2023 |
Chartering of our Fleet
We actively market our vessels, and expect to market the vessels that we have agreed to purchase once they are delivered to us, in the short, medium and long-term charter markets in order to secure optimal employment in the dry bulkshipping markets in which our vessels actively participate and tanker shipping markets. our commercial strategy focuses on deploying our fleet in both the spot and period markets according to our assessment of market conditions. We utilize and expect to continue to utilize various types of employment for our vessels and adjust the mix of charter types to take advantage of the relatively stable cash flows and high utilization rates associated with fixed rate period time charters or to profit from attractive spot trip or index-linked charter rates during periods of strong charter market conditions.
As of March 26, 2021, threeDecember 31, 2022, two of our dry bulk vessels were chartered onin the spot trip time charter market, ten of our dry bulk vessels were fixed on period charter contracts in which the rate of daily hire is linked to the average of the time charter routes comprising the respective indices for dry bulk vessels of the Baltic Exchange, and our two Handysize tankers and our six Aframax/LR2 tankers were participating in pools, totaling 20 vessels employed in the spot market. TripOur remaining ten vessels as of December 31, 2022, were employed under fixed rate period contracts, namely eight dry bulk vessels employed under index-linked period charters converted to a fixed rate and two containerships under fixed rate period charter contracts.
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 tripspot 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, tanker and tankercontainership markets. Downturns in the dry bulk and/or tanker industriesshipping markets in which our vessels participate, would result in a reduction in profit margins and could lead to losses. Our remaining eight vessels were employed under medium term
Voyage charters involve a charterer engaging a vessel for a particular journey. A voyage contract is made for the use of a vessel, for which we are paid freight (a fixed amount per ton of cargo carried) on the basis of transporting cargo from a loading port to a discharge port. Depending on charterparty terms, freight can be fully prepaid, or be paid upon reaching the discharging destination upon delivery of the cargo, at the discharging destination but before discharging, or during a ship’s voyage. Revenues from voyage charters are typically tied to prevailing market rates and may therefore be more volatile than rates from other charters, such as time charters.
Time charters involve a charterer engaging a vessel for a set period of time. Time charter agreements may have extension options ranging from months, to sometimes, years and are therefore viewed as providing more predictable cash flows over the period of the engagement than may otherwise be attainable from other charter arrangements. The time charter party generally provides, among others, typical warranties regarding the speed and the performance of the vessel as well as owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws and war risks, and carry only lawful and non-hazardous cargo. We typically enter into time charters which haveranging from one month to twelve months and in isolated cases on longer terms depending on market conditions. The charterer has the full discretion over the ports visited, shipping routes and vessel speed, subject to the owner’s protective restrictions. Under our time charter contracts, whereby our vessels are utilized by a charterer for a set duration of time, the charterer pays a fixed charteror floating daily hire rate and particularlyother compensation costs related to the contracts. The majority of our dry-bulk vessels are currently fixed on period charter contracts, with regardsthe rate of daily hire linked to our Aframax LR2 tanker which we have purchased withthe average of the time charter attached,routes comprising the respective indices for dry bulk vessels of the Baltic Exchange. Such contracts also carry an option of the owners to convert the index-linked rate to a profit sharing arrangement overfixed rate for a minimum period of three months and above that fixedup to the maximum duration of the charter rate level. Incontract, according to the future, we may opportunistically look to employ moreaverage of the Freight Forward Agreement (FFA) forward curve of the respective Baltic index for the desired period, at the time of conversion. The index-linked contracts with conversions clause of our dry bulk fleet provide flexibility and allow us to either enjoy exposure in the spot market, when the rate is floating, or to secure foreseeable cashflow when the rate has been converted to fixed over a certain period. We also fix, from time to time, a number of our dry bulk vessels under tripon spot time charter trips. Our two containership vessels are currently employed under period time charter contracts.
A pool consists of a group of vessels of similar types and sizes provided by various owners for the purpose of enabling a centralized pool operator to engage those vessels commercially. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is separate from pool operations. Their main objective is to enter into arrangements for the employment and operation of the pool vessels, so as to secure for the pool participants the highest commercially available earnings per vessel on the basis of pooling the net revenues of the pool vessels and dividing it between the pool participants based on the terms of the pool agreement. Pool vessels are marketed as a single group of vessels, primarily in the spot market but also from time to time for time charters, and all revenues earned from the operation of the pool vessels are aggregated together and, after deduction of all costs involved in the operation of the pool, shared between the pool participants based on an agreed key. The size and scope of pools enable them to achieve larger economies of scale and to have better negotiating power with all procurement vendors (e.g., bunker suppliers, port agents, towing companies, etc.) and as a result they are able to reduce their costs for such items. They also achieve geographic diversification by deploying their pool vessels in both Atlantic and Pacific markets while arbitraging from spread opportunities. The diversification in revenue streams due to typically broader shipping capabilities of pool fleet vessels and/or more accessible customer base, alongside payments to pool participants on a set schedule, can stabilize revenues for pool participants, though this may be offset by volatility in spot rates. Furthermore, due to their large fleets, pools can make vessels available for prompt cargoes (which are usually priced at higher than market rates) on short notice and thus they are able to capture the premium of such prompt cargoes. Pools also have higher market visibility which provides them with opportunities not available to smaller tanker market participants. By being able to reduce costs and optimize revenues, pools aim to outperform the industry benchmark indices by utilizing their size and sophistication and improving utilization rates for participating vessels through various methods, including securing backhaul voyages and contracts shouldof affreightment.
For further information on our charters and charter terms, please refer to “Management’s Discussion and Analysis of Financial Condition and Operating Results¾Hire Rates and the marker outlook become more attractive.Cyclical Nature of the Industry.”
Management of our Business
Our vessels are commercially and technically 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 crew management, technical management, operational employment management, insurance management, provisioning, bunkering, commercial, chartering and administrative services, including, but not limited to, securing employment for our Fleet,fleet, arranging and supervising the vessels'vessels’ commercial operations, handling all of the Company'sour vessel sale and purchase transactions, undertaking related shipping project, and management advisory and support services, accounting and audit support services, as well as other associated services requested from time to time by us and our ship-owning subsidiaries. Castor Ships may choose to subcontract these services to other parties at its discretion.
In exchange for thesethe above management services, we and our subsidiaries pay Castor Ships (i) a flat quarterly management fee in the amount of $0.3$0.75 million for the management and administration of our business, (ii) a daily fee of $250$925 percontainership and dry bulk vessel and $975 per tanker vessel for the provision of commercialship management services under separate ship management agreements entered into by our shipowning subsidiaries, (iii) a commission rate of 1.25% on all charter agreementsgross income received from the operation of our vessels and (iv) a commission of 1% on each consummated 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.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 the 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"(“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, EU, and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affecthave a material adverse effect on our profitability.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"“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,"“MARPOL”, the International Convention for the Safety of Life at Sea of 1974 ("(“SOLAS Convention"Convention”), and the International Convention on Load Lines of 1966 (the "LL Convention").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, tankertankers, containers, LPGs 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; andrespectively. Annex VI, lastly,which relates to air emissions. Annex VIemissions, 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"“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“volatile organic compounds"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.requirements.
The Marine Environment Protection Committee or "MEPC,"(“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 ("IAPP") Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships not equipped with exhaust gas cleaning systems 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, our vessels are not equipped with scrubbers and have transitioned to burning IMO compliant fuels.
Sulfur content standards are even stricter within certain "Emission“Emission Control Areas," or ("ECAs"Areas” (“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 will beare 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"(“EPA”) or the statesother 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 sensesrespects stricter) emissions standards in 2010. As a resultall of these designations or similar future designations,our vessels were built prior to 2016, we are not affected by Tier III requirements from an operational perspective. While we are currently in compliance with applicable regulations regarding emissions NOx, we may be requiredacquire additional vessels that are not in compliance with such regulations or become subject to additional trading restrictions applicable to our vessels which are currently in compliance with Tier I or II NOx standards, either of which may cause us to us incur additional operating capital expenses and/or other compliance costs.
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 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"(“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"(“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"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.
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 approved draftplans 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 high future environmental compliance costs.
In June 2021, IMO’s Marine Environment Protection Committee (“MEPC”) adopted amendments to MARPOL Annex IVI that will require ships to prohibitreduce their greenhouse gas emissions. These amendments combine technical and operational approaches to improve the useenergy 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 carriage for use as fuel of heavy fuel oil ("HFO"Energy Efficiency Existing Ship Index (“EEXI”) requirements, by ships in Arctic waters on and after JulyJanuary 1, 2024. The draft amendments introduced at MEPC 75 may be adopted2026 at the MEPC 76 session,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 held during 2021.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. We are also required to comply with requirements relating to new European Union Emissions Trading Scheme (“EU ETS”) regulations for carbon emissions for voyages of vessels above 5000 GT departing from or arriving to ports in the European Union phased in from the beginning of 2024 with an implementation scheme of 40% of emissions and ending in 2026 with 100% of the emissions produced by these voyages.
We may incur costs to comply with these revised standards. 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, results of operations, cash flows, financial condition, and financial condition.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"“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"“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, as well as a cybersecurity risk 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 mayand/or 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'svessel’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 governson goal-based ship construction andstandards for dry bulk carriers stipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers
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"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"(“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 employauthorize the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.compliance on their behalf.
The IMO'sIMO’s Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (the "Polar Code"“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 recommendatoryrecommended provisions. The Polar Code applies to new ships constructed after January 1, 2017, and afterfrom 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'sIMO’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. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companiesCompanies are required from January 2021 to createdevelop 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 impactprohibition will cover the use and carriage for use as fuel of such regulations is hardoils 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 predict at this time.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'Ships’ Ballast Water and Sediments (the "BWM Convention"“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'sConvention’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.
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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"“existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention ("IOPP"(“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'sConvention’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“D-1 standard,"” requiring the exchange of ballast water only in open seas and away from coastal waters. The "D-2 standard"“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's72’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. Costs of complianceSignificant costs may be incurred to comply with these regulations may be substantial.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 enterentered into force on June 1, 2022. As of December 31, 2022, we had made $5.7 million in capital expenditures relating to the installation of BWTS on our vessels. For further information on these installations, see “A. History and Development of the Company.”
Mandatory mid-ocean exchange ballast water treatment requirements become mandatory 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"“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'sships’ 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 CLC or the Bunker Convention has not been adopted, the Oil Pollution Act of 1990 along with various legislative schemes orand 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 or the "Anti‑(the “Anti‑fouling Convention"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 willare also be required to undergo an initial survey before the vessel is put into service or before an International Anti‑fouling System Certificate is issued for the first time; and subsequent surveys when the anti‑fouling systems are altered or replaced.
In November 2020,June 2021, MEPC 75 approved draft76 adopted amendments to the Anti-fouling Convention to prohibit the use of biocide cybutryne contained in anti-fouling systems, containing cybutryne, 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. These amendments may be formally adopted at MEPC 76 in 2021.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, we confirm our vessels arewere ISM Code certified through Pavimar, that technically operatesthe technical operator of our vessels. The technical managers have obtained the documentdocuments of compliance in order to operate the vesselvessels in accordance with the ISM Code.Code and all other international and regional requirements that are applicable to our vessels. However, there can be no assurance that such certificates will be maintained in the future.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"(“OPA”) established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all "owners“owners and operators"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’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"(“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“owner and operator"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"“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'sparty’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'sUSCG’s financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling, and a pilot inspection program for offshore facilities. However, severalSeveral of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement's ("BSEE"Enforcement’s (“BSEE”) revised Production Safety Systems Rule ("PSSR"(“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 former U.S. Presidentthe 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, current U.S. Presidentthe Biden signedadministration 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 or demand for our vessels 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, including bunker fuel 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. TheseSome of these laws may beare more stringent than U.S. federal law.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'owners’ responsibilities under these laws. The Company intends to be in compliance with all applicable state regulations in the relevant ports where the Company'sCompany’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 resultsoperating results.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) ("CAA"(“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, or "SIPs," some of which regulate emissions resulting from vessel loading and unloading operations which may affect our Vessel.vessels.
The U.S. Clean Water Act ("CWA"(“CWA”) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issuedduly issued permit or exemption and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of "waters of the United States" ("WOTUS"), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of "waters of the United States". The proposed rule was published in the Federal Register on February 14, 2019 and was subject to public comment. On October 22, 2019, the agencies published a final rule repealing the 2015 Rule defining "waters of the United States" and recodified the regulatory text that existed prior to the 2015 Rule. The final rule became effective on December 23, 2019. On January 23, 2020, the EPA published the "Navigable Waters Protection Rule," which replaces the rule published on October 22, 2019, and redefines "waters of the United States". This rule became effective on June 22, 2020, although the effective date has been stayed in at least one U.S. state pursuant to court order. The effect of this rule is currently unknown.
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.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"(“VIDA”), which was signed into law on December 4, 2018 and replaces the 2013 Vessel General Permit ("VGP"(“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, ("NISA"), 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 Clean Water Act (CWA),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'sthe 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"(“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 onethis 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“SOx-Emission Control Area"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'sUnion’s carbon market from 2022.market. This will require shipowners to buy permits to cover these emissions. Contingent on another formal approval vote, specific regulations are forthcoming and are expectedOn July 14, 2021, the EU Commission proposed legislation to amend the EU ETS to include shipping emissions which will be proposed by 2021.phased in beginning in 2023.
International Labour Organization
The International Labour Organization (the "ILO") is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 ("(“MLC 2006"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. We believe that ourOur vessels are in substantial compliance with and 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, former U.S. Presidentthe Trump administration announced that the United States intendsintended 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“levels of ambition"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 achieveachieving 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 fromby 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol'sProtocol’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'sUnion’s carbon market areis 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, former U.S. President Trump signed an executive order to review and possibly eliminate elements of the EPA'sEPA’s plan to cut greenhouse gas emissions and in August 2019, the Administration announced plans to weaken regulations for methane emissions and on August 13, 2020, the EPA releasedemissions. Subsequent rules rollingrolled back standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S. Presidentthe Biden administration recently directed the EPA to publish a proposed rulerules suspending, revising, or rescinding certain of these rules.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 thatwhich 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 may resultresults in sea level changes or certainincreases 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"(“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"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"(“ISSC”) from a recognized security organization approved by the vessel'svessel’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'sship’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'svessel’s hull; a continuous synopsis record kept onboard showing a vessel'svessel’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'sship’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'svessel’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 includingin the Gulf of Aden and Arabian Sea area.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 significantly affecthave a material adverse effect on our business.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"“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 tankersdry bulk carriers and bulk carrierscontainerships 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"“in class” by the applicable IACS Classification Societies (e.g., American Bureau of Shipping, Lloyd'sLloyd’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'svessel’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 results of operations.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 mishaps,events, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates. 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.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“P&I Associations,"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. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs".
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. TheThere are 13 P&I Associations that comprise the International Group“International Group”, a group of P&I Associations that insure approximately 90% of the world'sworld’s commercial tonnage and have entered into a pooling agreement to reinsure each association'sassociation’s liabilities. The International Group'sGroup’s website states that the Poolpool provides a mechanism for sharing all claims in excess of US$ 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 Fleetfleet 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 tanker vesselscontainerships fluctuates in line with the main patterns of trade of the major dry bulk and tankercontainerships cargoes and varies according to their supply and demand.demand for such products. Ownership of dry bulk and tankercontainership 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'svessel’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 vessel capacityour dry bulk vessels and containerships vessels has historically exhibited, and is expected to continue to exhibit, seasonal variations and, as a result, fluctuations in charter rates. This seasonalityThese variations may result in quarter-to-quarter volatility in our operating results for the vessels in our vesselsbusiness segments when trading in the spot markettrip or if onperiod time charter when a new time charter is being entered into. The dry bulk sector is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere. The tanker sector is typically stronger in the fall and winter months in anticipation of increased consumption of oil and petroleum products in the northern hemisphere during the winter months. Seasonality in the sectors in which we operate could materially affect our operating results and cash flows.
| C. |
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.
| D. |
We own no properties other than our vessels. For a description of our Fleet,fleet, please see "Item“Item 4. Information on the Company—B. Business Overview—Our Fleet".Fleet.”
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
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.
For a discussion of our results for the year ended December 31, 20192021, compared to the year ended December 31, 2018,2020, please see "Item 5 – Operating and Financial Review and Prospects – “—A. Operating Results – Year ended December 31, 20192021 as compared to year ended December 31, 2018" 2020” contained in our annual report on Form 20-F for the year ended December 31, 2019,2021, filed with the Securities and Exchange CommissionSEC on March 31, 2020.2022.
On March 7, 2023, we distributed on a pro rata basis all common shares of Toro received in connection with the Spin-Off to our holders of common stock of record at the close of business on February 22, 2023. As a result, as of and from March 7, 2023, our business is comprised of two reportable segments, Dry bulk and Containerships. For more information, please see “Item 3. Key Information”, “Item 4. Information on the Company—A. History and Development of the Company”, “Item 7. Major Shareholders and Related Party Transactions¾B. Related Party Transactions” and Note 18 to our consolidated financial statements included elsewhere in this annual report.
The Company'sCompany’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“Item 18. Financial Statements".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“Item 3. Key Information—D. Risk Factors".Factors.”
| A. |
During the fourth quarter of 2022, we established our containership operations through the acquisition of two containerships. As a result, as of December 31, 2022, we operated in four reportable segments: (i) dry bulk, (ii) Aframax/LR2 tanker, (ii) Handysize tanker and (iv) containership segments. 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) and containerized products (carried by containerships). Further, our dry bulk vessels and containerships trade on different types of charter contracts as compared to our tanker vessels, which are employed predominantly in pools. The transportation of crude oil also has different characteristics to the transportation of oil products in terms of trading routes and cargo handling. In addition, the transportation of containerized goods, the nature of trade, as well as the trading routes, charterers and cargo handling, is different from the other three segments.
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:
- | The levels of demand and supply of seaborne cargoes and vessel tonnage in the |
- | The cyclical nature of the shipping industry in general and its impact on charter rates and vessel |
- |
The |
- | The |
- | Economic, regulatory, political and governmental conditions that affect the shipping industry and our operating segments, including international conflict or war (or threatened war), such as the |
- | The employment and |
- | The ability to successfully employ our vessels at economically attractive rates and our strategic decisions regarding the employment mix of our |
- | Management of the operational, financial, general and administrative elements involved in the conduct of our |
| - | The number of charterers and pool operators who use our services and the performance of their obligations under their agreements, including their ability to make |
- | The ability to |
- | The vetting approvals of our head manager and/or sub-managers for the management of our 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 |
| - | Major outbreaks of diseases (such as COVID-19) and governmental responses thereto. |
These factors are volatile and in certain cases may not be within our control. Accordingly, past performance is not necessarily indicative of future performance, and it is difficult to predict future performance with any degree of certainty.
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, tanker and tankercontainer 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, tanker and tankercontainer 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 goingoceangoing 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. That being said, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.
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, 2020,2022, consisted of hire earned under time charter contracts, where charterers pay a fixed or index-linked daily hire, and other minor compensation costs related to the contracts. In the future, our revenues may also consist of amounts earnedcontracts (such as ballast positioning compensation, holds cleaning compensation, etc.), revenue under voyage charter contracts, where charterers in most cases pay a fixed amount per ton of cargo carried. carried and in fewer cases a lump sum amount, and pool revenue for certain of our 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. For further details on these arrangements, refer to “Item 4. Information on the Company¾A. Business Overview¾Chartering of our Fleet.”
Our future gross revenues may be affected by the proportioncommercial strategy including the decisions regarding the employment mix of voyageour Fleet, including among the spot market and time charters since revenues from voyage charters are generally higher than equivalent time charter hire revenues, as they are of a shorter duration and, cover all costs relatingwhere applicable, pool arrangements. See Note 17 to a given voyage, including port expenses, canal dues and fuel (bunker) costs. Accordingly, year-to-yearour consolidated financial statements included elsewhere in this annual report for further details regarding segment revenues. 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.comparison and such measure is one of the metrics used by our management to assess the performance of our business and segments.
The BDIDry Bulk Industry
The Baltic Dry Index (BDI) average for the years ended December 31, 20192021, and 20202022 was 1,3522,943 points and 1,0661,934 points, respectively; notably though,respectively. During 2022, the charter rate volatility exhibited within this period duedry bulk market was affected by the extended “zero COVID” policy of China which resulted in reduced demand of raw materials. In addition, port congestion eased at the majority of ports around the world and docking repairs and crew changes resumed to the Covid-19 pandemicpre-pandemic normal operation mode. There was significant and negatively affected our revenues. In particular,volatility during the Baltic Dry Index (BDI) closed at 411year as the BDI recorded its annual high of 3,369 points on February 10, 2020 and slowly recoveredMay 23, 2022, but ended the year 55% lower, at 1,515 points. The global dry cargo fleet deadweight carrying capacity for 2022 increased by year end. Followingapproximately 2.8% which remains significantly lower from the increased flow of newbuilding vessels that entered the marketsubstantial increases during the early 2010's, the oversupply of capacity had a negative impact on the market as2000s and mid-2010s, while demand for dry bulk commodities, transfer was not able to absorb the flow of the vessels entering the market. The deadweight carrying capacity for 2020 increaseddecreased by approximately 3.7%, which is significantly lower from the double digit increases during the early 2000's and from 2009 to 2012, while increase in demand of commodities is expected to increase by approximately 1 to 2%2.7%. 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 earnings on our charters, and similarly affects our earnings, cash flows and liquidity.
The tanker industry has also varied significantly, with Aframax LR2 tanker spotContainership Industry
Container shipping markets declined sharply during the second half of 2022 following exceptional highs in the first half of 2022 and charter rates peaking in April 2020, accordingfor containerships have continued to BIMCO, before falling significantly in 2020ease into early 2023. Freight and charter rates remain weak on the back of a severe pressure on global box trade as a result of the weak macroeconomic negative outlook and elevated inflation rates, the easing of port congestion and logistical disruptions. The global pandemic.container fleet for 2022 increased by 4% in terms of deadweight carrying capacity, while demand in 2023 for containerized products is expected by market analysts to decrease by 1% compared to 2022 due to the deteriorating economic outlook.
The Tanker Industry
The spot tanker market performed strongly in 2022, particularly after the first quarter and, overall 2022 was one of the best years for spot crude tanker trades since 2000. Deadweight carrying capacity of the tanker fleet increased by approximately 3.4% in 2022, as compared to 1.6% in 2021, while demand for crude oil and products is expected to continue at a high pace. During 2022, the spot tanker market improved after an initial period of increased volatility following the invasion of Ukraine by Russia and subsequent imposition of sanctions against Russia. However, the spot tanker market remains volatile and subject to uncertainty due to such invasion and its ongoing effects on global demand for and supply of crude oil and refined petroleum products. Volatility in charter rates in the tanker market may affect the value of tanker vessels, which occasionally follow the trends of tanker charter rates, and similarly affects our earnings, cash flows and liquidity.
Employment and operation of our Fleetfleet
Another factor that impacts our profitability is the employment and operation of our Fleetfleet. The profitable employment of our fleet is highly dependent on the levels of demand and supply in the shipping sectors in which we operate, our commercial strategy including the decisions regarding the employment mix of our fleet among time, voyage and pool charters as well as our managers’ and sub-managers’ ability to leverage our relationships with existing or potential customers. Our customer base in our various segments is currently concentrated to a small number of charterers and pool managers, in part due to the fact that we are a new entrant to the containership and tanker shipping industries. In particular, for the years ended December 31, 2022 and 2021, we derived 75% and 55%, respectively, of our dry bulk segment operating revenues from three charterers. For the years ended December 31, 2022 and 2021, we also derived 100% of our Handysize tanker segment operating revenues from the pool in which both our Handysize tankers participate and 43% and 52%, respectively, of our Aframax/LR2 tanker segment revenues from two pool managers and a charterer and two charterers, respectively. Further, for the year ended December 31, 2022, we derived 100% of our containership segment operating revenues from one charterer.
Further, the effective operation of our fleet mainly requires regular maintenance and repair, effective crew selection and training, ongoing supply of our Fleetfleet with the spares and the stores that it requires, contingency response planning, auditing of our vessels'vessels’ onboard safety procedures, arrangements for our vessels'vessels’ insurance, chartering of the vessels, training of onboard and on shoreonshore personnel with respect to the vessels'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 at the segment level and measures for analyzing trendsto allocate capital accordingly:
Total vessel revenues. Total vessel revenues were historically generated from time charters, voyage charters and pool arrangements, as applicable in our results of operations include the following:
We measure revenues in the dry bulk, Aframax/LR2 tanker, Handysize tanker and containership segments in which we historically operated for three separate activities: (i) time charter revenues, (ii) voyage charter revenues, and (iii) pool revenues. For a breakdown of vessel revenues for the year ended December 31, 2022, please refer to Notes 2 and 12 to our consolidated financial statements included elsewhere in this annual report. For a description of these types of chartering arrangements, refer to ‘‘Item 4. Information on the Company—B. Business Overview—Chartering of Our Fleet’’.
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. 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 for reasons such as major repairs, vessel upgrades, dry-dockingsduring dry docking or special or intermediate surveys anddue to other unforeseen events.circumstances. Under voyage charters, relevant to our tanker segments that were contributed to Toro in connection with the Spin-Off, the majority of voyage expenses were generally borne by us whereas for vessels in a pool, such expenses were handled by the pool operator. 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 ship 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.
Off-hire. The period our Fleetfleet 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 Fleetfleet 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' operating expenses, including crewing costs, insurancevessels 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 maintenance costs. Our ability to control our vessels' operating expenses also affects our financial results. These expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, lubricating oil costs, tonnage taxes and other miscellaneous expenses. Daily vessel operating expenses areidle days.
Fleet Utilization. Fleet Utilization is calculated by dividing Fleet operating expensesthe Operating Days during a period by the Ownershipnumber 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 the relevant period.
Daily Time Charter Equivalent (“TCE”) Rate. The Daily Time Charter Equivalent Rate (“Daily TCE Rate”), is a measure of the conductaverage daily revenue performance of our business,a vessel. The Daily TCE Rate is not a measure of financial performance under U.S. GAAP (i.e., it is a non-GAAP measure) and are calculatedshould not be considered as an alternative to any measure of financial performance presented in accordance with U.S. GAAP. We calculate Daily TCE Rate by dividing company administration expenses by the Ownership days for the relevant period.
Daily vessel operating expenses. Daily vessel operating expenses are a measure of the average daily expenses of a vessel and are calculated by dividing vessel operating expenses for the relevant period. Please see please see "Item 3. Key Information— A. Selected Financial Data" on the useperiod by the Company of this Non-GAAP measure.Ownership Days for such period.
| For the year ended | ||||||||
| December 31, 2019 | December 31, 2020 | |||||||
| Operational Metrics | ||||||||
| Available days | 545 | 1,219 | ||||||
| Ownership days | 556 | 1,405 | ||||||
| Fleet utilization | 98 | % | 87 | % | ||||
| Daily time charter equivalent (or TCE) | $ | 10,471 | $ | 9,765 | ||||
| Daily vessel operating expenses | $ | 5,041 | $ | 5,301 | ||||
| Daily management fees | $ | 382 | $ | 662 | ||||
| Daily general and administrative expenses | $ | 681 | $ | 805 | ||||
EBITDA (1) | $ | 2,175,894 | $ | 2,327,671 | ||||
The Daily TCE Rate and EBITDA are non-GAAP measures used by management to assess the performance of our business and segments. 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, 2022, 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 share data, utilization and days). We entered the containerships business in the fourth quarter of 2022 and, accordingly, no comparative financial information exists for the year ended December 31, 2021.
Reconciliation of Daily TCE Rate to Total vessel revenues — Consolidated
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
| Total vessel revenues | $ | 132,049,710 | $ | 262,101,998 | ||||
| Voyage expenses - including commissions from related party | (12,950,783 | ) | (33,040,690 | ) | ||||
| TCE revenues | $ | 119,098,927 | $ | 229,061,308 | ||||
| Available Days | 6,657 | 10,212 | ||||||
| Daily TCE Rate | $ | 17,891 | $ | 22,431 | ||||
Reconciliation of Daily TCE Rate to Total vessel revenues — Dry Bulk Segment
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
| Total vessel revenues | $ | 102,785,442 | $ | 148,930,997 | ||||
| Voyage expenses - including commissions from related party | (1,891,265 | ) | (3,649,943 | ) | ||||
| TCE revenues | $ | 100,894,177 | $ | 145,281,054 | ||||
| Available Days | 4,843 | 7,105 | ||||||
| Daily TCE Rate | $ | 20,833 | $ | 20,448 | ||||
Reconciliation of Daily TCE Rate to Total vessel revenues — Aframax/LR2 Tanker Segment
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
| Total vessel revenues | $ | 26,559,413 | $ | 96,248,215 | ||||
| Voyage expenses - including commissions from related party | (11,003,925 | ) | (29,100,348 | ) | ||||
| TCE revenues | $ | 15,555,488 | $ | 67,147,867 | ||||
| Available Days | 1,446 | 2,307 | ||||||
| Daily TCE Rate | $ | 10,758 | $ | 29,106 | ||||
Reconciliation of Daily TCE Rate to Total vessel revenues — Handysize Tanker Segment
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
| Total vessel revenues | $ | 2,704,855 | $ | 15,637,653 | ||||
| Voyage expenses - including commissions from related party | (55,593 | ) | (219,066 | ) | ||||
| TCE revenues | $ | 2,649,262 | $ | 15,418,587 | ||||
| Available Days | 368 | 730 | ||||||
| Daily TCE Rate | $ | 7,199 | $ | 21,121 | ||||
Reconciliation of Daily TCE Rate to Total vessel revenues — Containership Segment
| Period Ended December 31, | ||||
| 2022 | ||||
| Total vessel revenues | $ | 1,285,133 | ||
| Voyage expenses - including commissions from related party | (71,333 | ) | ||
| TCE revenues | $ | 1,213,800 | ||
| Available Days | 70 | |||
| Daily TCE Rate | $ | 17,340 | ||
Operational Metrics — Consolidated
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
Daily vessel operating expenses | $ | 5,759 | $ | 6,007 | ||||
Ownership Days | 6,807 | 10,482 | ||||||
Available Days | 6,657 | 10,212 | ||||||
Operating Days | 6,562 | 10,153 | ||||||
Fleet Utilization | 99 | % | 99 | % | ||||
| Daily TCE Rate | $ | 17,891 | $ | 22,431 | ||||
| EBITDA | $ | 69,910,529 | $ | 152,765,204 | ||||
Operational Metrics — Dry Bulk Segment
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
Daily vessel operating expenses | $ | 5,418 | $ | 5,577 | ||||
Ownership Days | 4,954 | 7,297 | ||||||
Available Days | 4,843 | 7,105 | ||||||
Operating Days | 4,766 | 7,056 | ||||||
Fleet Utilization | 98 | % | 99 | % | ||||
| Daily TCE Rate | $ | 20,833 | $ | 20,448 | ||||
Operational Metrics — Aframax/LR2 Tanker Segment
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
Daily vessel operating expenses | $ | 6,761 | $ | 7,290 | ||||
Ownership Days | 1,446 | 2,385 | ||||||
Available Days | 1,446 | 2,307 | ||||||
Operating Days | 1,428 | 2,298 | ||||||
Fleet Utilization | 99 | % | 100 | % | ||||
| Daily TCE Rate | $ | 10,758 | $ | 29,106 | ||||
Operational Metrics — Handysize Tanker Segment
| Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
Daily vessel operating expenses | $ | 6,352 | $ | 5,921 | ||||
Ownership Days | 407 | 730 | ||||||
Available Days | 368 | 730 | ||||||
Operating Days | 368 | 730 | ||||||
Fleet Utilization | 100 | % | 100 | % | ||||
| Daily TCE Rate | $ | 7,199 | $ | 21,121 | ||||
Operational Metrics — Containership Segment
| Period Ended December 31, | ||||
| 2022 | ||||
Daily vessel operating expenses | $ | 8,024 | ||
Ownership Days | 70 | |||
Available Days | 70 | |||
Operating Days | 69 | |||
Fleet Utilization | 99 | % | ||
| Daily TCE Rate | $ | 17,340 | ||
Reconciliation of consolidated EBITDA to net income — Consolidated
Year Ended December 31, | ||||||||
| 2021 | 2022 | |||||||
| Net Income | $ | 52,270,487 | $ | 118,560,690 | ||||
| Depreciation and amortization | 14,362,828 | 25,829,713 | ||||||
Interest and finance costs, net (including related party interest costs) (1) | 2,779,875 | 7,025,951 | ||||||
| Income taxes | 497,339 | 1,348,850 | ||||||
| EBITDA | $ | 69,910,529 | $ | 152,765,204 | ||||
| (1) | Includes interest and finance costs and interest income, if any. |
Consolidated Results of Operations
Year ended December 31, 20202022 as compared to year ended December 31, 20192021
| (In U.S. Dollars, except for share and per share data) | Year ended December 31, 2019 | Year ended December 31, 2020 | Change -amount | Change-% | ||||||||||||
| Vessel revenues (net of charterers' commissions) | 5,967,772 | 12,487,692 | 6,519,920 | 109.3 | % | |||||||||||
| Expenses: | ||||||||||||||||
| Voyage expenses (including commissions from related parties) | (261,179 | ) | (584,705 | ) | 323,526 | 123.9 | % | |||||||||
| Vessel operating expenses | (2,802,991 | ) | (7,447,439 | ) | 4,644,448 | 165.7 | % | |||||||||
| Management fees to related parties | (212,300 | ) | (930,500 | ) | 718,200 | 338.3 | % | |||||||||
| General and administrative expenses | ||||||||||||||||
| • Company administration expenses (including administrations costs from related party) | (378,777 | ) | (1,130,953 | ) | 752,176 | 198.6 | % | |||||||||
| • Public registration costs | (132,091 | ) | — | (132,091 | ) | (100 | )% | |||||||||
| Provision for doubtful debt | — | (37,103 | ) | 37,103 | 100 | % | ||||||||||
| Depreciation and amortization | (897,171 | ) | (1,904,963 | ) | 1,007,792 | 112.3 | % | |||||||||
| Operating income | 1,283,263 | 452,029 | (831,234 | ) | (64.8 | )% | ||||||||||
| Interest and finance costs, net (including interest costs from related party) | (190,574 | ) | (2,154,601 | ) | 1,964,027 | 1,030.6 | % | |||||||||
| Total Other Income / (expenses), net | (195,114 | ) | (2,183,922 | ) | 1,988,808 | 1,019.3 | % | |||||||||
| US Source Income Taxes | — | (21,640 | ) | — | 100 | % | ||||||||||
| Net income/ (loss) and comprehensive income/ (loss) | 1,088,149 | (1,753,533 | ) | (2,841,682 | ) | (261.1 | )% | |||||||||
| Earnings/ (Loss) per common share, basic and diluted | 0.31 | (0.03 | ) | |||||||||||||
| Weighted average number of common shares, basic and diluted | 2,662,383 | 67,735,195 | ||||||||||||||
Year ended December 31, 2021 | Year ended December 31, 2022 | Change- amount | Change % | |||||||||||||
| Total vessel revenues | 132,049,710 | 262,101,998 | 130,052,288 | 98.5 | % | |||||||||||
| Expenses: | ||||||||||||||||
| Voyage expenses (including commissions to related party) | (12,950,783 | ) | (33,040,690 | ) | 20,089,907 | 155.1 | % | |||||||||
| Vessel operating expenses | (39,203,471 | ) | (62,967,844 | ) | 23,764,373 | 60.6 | % | |||||||||
| Management fees to related parties | (6,744,750 | ) | (9,395,900 | ) | 2,651,150 | 39.3 | % | |||||||||
| Depreciation and amortization | (14,362,828 | ) | (25,829,713 | ) | 11,466,885 | 79.8 | % | |||||||||
| Provision for doubtful accounts | (2,483 | ) | (266,732 | ) | 264,249 | 10,642.3 | % | |||||||||
| General and administrative expenses (including related party) | (3,266,310 | ) | (7,043,937 | ) | 3,777,627 | 115.7 | % | |||||||||
| Gain on sale of vessel | — | 3,222,631 | 3,222,631 | 100.0 | % | |||||||||||
| Operating income | 55,519,085 | 126,779,813 | 71,260,728 | 128.4 | % | |||||||||||
| Interest and finance costs, net (including interest costs from related party) | (2,779,875 | ) | (7,025,951 | ) | 4,246,076 | 152.7 | % | |||||||||
| Total other expenses, net | (2,751,259 | ) | (6,870,273 | ) | 4,119,014 | 149.7 | % | |||||||||
| Income taxes | (497,339 | ) | (1,348,850 | ) | 851,511 | 171.2 | % | |||||||||
| Net income and comprehensive income | 52,270,487 | 118,560,690 | 66,290,203 | 126.8 | % | |||||||||||
| Earnings per common share, basic | 0.48 | 1.25 | ||||||||||||||
| Earnings per common share, diluted | 0.47 | 1.25 | ||||||||||||||
| Weighted average number of common shares, basic | 83,923,435 | 94,610,088 | ||||||||||||||
| Weighted average number of common shares, diluted | 85,332,728 | 94,610,088 | ||||||||||||||
Voyage Expenses – Voyage expenses consist primarily of brokerage commissions (including commissionsincreased by $20.1 million, from related parties, if any), port expenses, and gain/loss on bunkers. Gain/loss on bunkers may arise where the cost of the bunker fuel sold to the new charterer exceeds/falls short of the cost of the bunker fuel acquired, whereas, loss may also arise due to bunkers consumption due to repositioning, deviation(s) and/or port stay periods. The increase in voyage expenses by $323,526, or by 123.9%, in the years ended December 31, 2019 and 2020, was primarily attributable to (i) higher charges for chartering brokerage commissions, consistent with our higher vessel revenues and (ii) $222,753 of bunker losses we incurred$12.9 million in the year ended December 31, 2020, versus $127,9002021, to $33.0 million in the corresponding period of 2022. This variation in voyage expenses is mainly associated with the increase (i) in bunker lossesprices in the year ended December 31, 2019, mostly2022 as compared with the corresponding period in 2021, (ii) in bunkers consumption for our tanker segment vessels as a result of bunkers consumed during port stay, repositioning and/or deviation periods. Thean increase in the days that these were engaged in the voyage expenses of our fleet, though, on a daily basis, were commensurate withcharter market (from 633 Operating Days in the growth of our fleet since last year.
Vessel Operating Expenses – The increase in operating expenses by $23.8 million, from $2,802,991 during$39.2 million in the year ended December 31, 2019. On a daily basis,2021 to $63.0 million in the same period of 2022 mainly reflects the increase in the Ownership Days vessels in our operating expenses increased from $5,041 in 2019 to $5,301 in 2020. This increase was largely associated with (i) elevated crew costs for the vast majority of our fleet resulting from difficulties and delays in embarking and disembarking crew on our vessels amid the ongoing COVID-19 pandemic and, (ii) increased spares and repair maintenance costs for the M/V Magic Rainbow.fleet.
Management Fees – DuringManagement fees in the yearsyear ended December 31, 2019 and 2020, we incurred $212,300 and $930,5002021, amounted to $6.7 million, whereas, in the same period of 2022, management fees totaled $9.4 million. This increase in management fees respectively, or an average daily management fee of $382 and $662, respectively. From January 1, 2020, the daily management fee of the vessels then comprising our fleet was $500 per day and on September 1, 2020, we and Pavimar agreed to adjust the daily technical management fee of our fleet from $500 per day to $600 per day. In addition, effective September 1, 2020, we pay Castor Ships a daily commercial management fee of $250. These are the main attributesis due to the increase in daily management fees in 2020 as compared with the prior year, whereas, the gross increase is also attributed to the growthtotal number of Ownership Days of our fleet and the resultant increase infor which our fleet's Ownership Days from 556 in 2019 to 1,405 in 2020.
Depreciation and Amortization – Depreciation and amortization expenses are comprised of vessels'vessels’ depreciation and the amortization of vessels'vessels’ capitalized dry-dock costs. Depreciation and amortization expenses increased forfrom $13.2 million in the year ended December 31, 2020 due2021, to an increase$23.1 million in vessels' depreciation from $556,101 in 2019 to $1,750,434 in 2020the same period of 2022 as a result of the increase in the Ownership Days of our Ownership days which was partly offset by a lower dry-dockfleet. Dry-dock and special survey amortization charge of $154,529charges amounted to $2.7 million for the year ended December 31, 20202022, versus a relevant charge of $341,070$1.2 million in the respective period of 2019. Dry-dock2021. This increase in dry-dock amortization charges primarily resulted from the increase in dry-dock amortization days did not significantly varyfrom 1,524 days in the yearsyear ended December 31, 20192021, to 2,890 days in the year ended December 31, 2022.
General and 2020, however, average daily dry-dock amortization cost was approximately $527 during 2020 versusAdministrative Expenses – General and administrative expenses in the year ended December 31, 2021, amounted to $3.3 million, whereas, in the same period of 2022, general and administrative expenses totaled $7.0 million. This increase stemmed from higher corporate fees primarily related to the Spin-Off and the higher fees paid to Castor Ships, the head technical and commercial ship manager, following the amendments to our master management agreement with effect from July 1, 2022.
Gain on sale of vessel – On July 15, 2022, we concluded the sale of the M/T Wonder Arcturus which we sold, pursuant to an approximate costagreement dated May 9, 2022, for a cash consideration of $1,100$13.15 million. The sale resulted in 2019, which explainsnet proceeds to the above noted variation toCompany of $12.6 million and the Company recording a large extent.net sale gain of $3.2 million.
Interest and finance costs, net– The increase by $1,964,027$4.2 million in net interest and finance costs in the year ended December 31, 2020,2022, as compared with the previous year is due to the increase in (i) the level of our weighted average indebtedness from $60.5 million in 2021 to $145.1 million in 2022, and (ii) the weighted average interest rate on our long-term debt from 3.6% in the year ended December 31, 2021 to 5.1% in the year ended December 31, 2022.
Income Taxes – Income taxes comprise entirely of U.S. source income taxes. The $0.9 million increase in income taxes in the year ended December 31, 2022, as compared with the same period in 2021, is mainly attributed to the increase in our tanker segments’ pool earnings and charter rates, accompanied by a significant increase in port call days.
Segment Results of Operations
Year ended December 31, 2022, as compared to year ended December 31, 2021 — Dry Bulk Segment
Year ended December 31, 2021 | Year ended December 31, 2022 | Change-amount | Change % | |||||||||||||
| Total vessel revenues | 102,785,442 | 148,930,997 | 46,145,555 | 44.9 | % | |||||||||||
| Expenses: | ||||||||||||||||
| Voyage expenses (including commissions to related party) | (1,891,265 | ) | (3,649,943 | ) | 1,758,678 | 93.0 | % | |||||||||
| Vessel operating expenses | (26,841,600 | ) | (40,697,898 | ) | 13,856,298 | 51.6 | % | |||||||||
| Management fees to related parties | (4,890,900 | ) | (6,481,000 | ) | 1,590,100 | 32.5 | % | |||||||||
| Depreciation and amortization | (10,528,711 | ) | (18,039,966 | ) | 7,511,255 | 71.3 | % | |||||||||
| Provision for doubtful accounts | (2,483 | ) | — | (2,483 | ) | (100.0 | )% | |||||||||
| Segment operating income | 58,630,483 | 80,062,190 | 21,431,707 | 36.6 | % | |||||||||||
Total vessel revenues
Total vessel revenues for our dry bulk segment, increased from $102.8 million in the year ended December 31, 2021, to $148.9 million in the same period of 2022. This variation was mainly due to the increase in our dry bulk fleet’s Operating Days from 4,766 days in the year ended December 31, 2021, to 7,056 days in the year ended December 31, 2022, mainly driven by the growth of our dry bulk segment fleet.
Voyage Expenses
Voyage expenses increased by $1.7 million, from $1.9 million in the year ended December 31, 2021, to $3.6 million in the corresponding period of 2022. This variation in voyage expenses is mainly associated with the increase in (i) brokerage commissions by $1.2 million, commensurate with the increase in total vessel revenues in the period, and (ii) port and other voyage expenses by $0.3 million.
Vessel Operating Expenses
The increase in operating expenses by $13.9 million, to $40.7 million in the year ended December 31, 2022, from $26.8 million in the same period in 2021, mainly reflects the increase in the Ownership Days of our dry bulk fleet to 7,297 days in the year ended December 31, 2022, from 4,954 days in the corresponding period in 2021.
Management Fees
Management fees for our dry bulk fleet in the year ended December 31, 2022, amounted to $6.5 million, whereas, in the year ended December 31, 2021, management fees totaled $4.9 million. This increase in management fees is due to the increase in the total number of Ownership Days of our dry bulk fleet for which our managers charged us a daily management fee as well as the increased management fees following our entry into the Amended and Restated Master Management Agreement with effect from July 1, 2022.
Depreciation and Amortization
Depreciation expenses for our dry bulk fleet increased to $16.0 million in the year ended December 31, 2022, from $9.5 million in the year ended December 31, 2021 as a result of the increase in the Ownership Days of our fleet. Dry-dock and special survey amortization charges amounted to $2.0 million for the year ended December 31, 2022, compared to a charge of $1.0 million in the same period in 2021. This variation in dry-dock amortization charges primarily resulted from the increase in dry-dock amortization days from 1,349 days in the year ended December 31, 2021, to 2,326 dry-dock amortization days in the year ended December 31, 2022.
Year ended December 31, 2022, as compared to period ended December 31, 2021—Aframax/LR2 Tanker Segment
Period ended December 31, 2021 | Year ended December 31, 2022 | Change -amount | Change % | |||||||||||||
| Total vessel revenues | 26,559,413 | 96,248,215 | 69,688,802 | 262.4 | % | |||||||||||
| Expenses: | ||||||||||||||||
| Voyage expenses (including commissions to related party) | (11,003,925 | ) | (29,100,348 | ) | 18,096,423 | 164.5 | % | |||||||||
| Vessel operating expenses | (9,776,724 | ) | (17,386,009 | ) | 7,609,285 | 77.8 | % | |||||||||
| Management fees to related parties | (1,433,950 | ) | (2,167,000 | ) | 733,050 | 51.1 | % | |||||||||
| Depreciation and amortization | (3,087,764 | ) | (5,889,352 | ) | 2,801,588 | 90.7 | % | |||||||||
| Provision for doubtful accounts | — | (266,732 | ) | 266,732 | 100.0 | % | ||||||||||
| Gain on sale of vessel | — | 3,222,631 | 3,222,631 | 100.0 | % | |||||||||||
| Segment operating income | 1,257,050 | 44,661,405 | 43,404,355 | 3,452.9 | % | |||||||||||
Total vessel revenues
Total vessel revenues for our Aframax/LR2 tanker fleet amounted to $96.2 million in the year ended December 31, 2022, whereas, in the period ended December 31, 2021, vessel revenues amounted to $26.6 million. This increase is mainly due to (i) the improved Aframax/LR2 tanker market which resulted to our Aframax/LR2 tanker fleet earning on average a Daily TCE Rate of $29,106 during the year ended December 31, 2022, compared to an average Daily TCE Rate of $10,758 earned during the period ended December 31, 2021, and (ii) the expansion of our Aframax/LR2 tanker fleet, which resulted in an increase in our Operating Days to 2,298 days in the year ended December 31, 2022, from 1,428 days in the period ended December 31, 2021.
Voyage Expenses
Voyage expenses for our Aframax/LR2 tanker fleet amounted to $29.1 million and $11.0 million in the year ended December 31, 2022, and the period ended December 31, 2021, respectively. This increase in voyage expenses is mainly associated with (i) the $14.2 million increase in bunkers consumption for our Aframax/LR2 tanker segment vessels as a result of an increase in the leveldays that these were engaged in the voyage charter market (from 633 Operating Days in the voyage charter market in the year ended December 31, 2021 to 1,078 Operating Days in the voyage charter market in the same period of weighted outstanding indebtedness from approximately $3.52022), also associated with the ownership of a larger, on average, Aframax/LR2 fleet, (ii) the increase in bunker prices in the year ended December 31, 2022 as compared with the corresponding period in 2021, and (iii) a $2.0 million increase in brokerage commissions, consistent with the increase in total vessel revenues in the period, as discussed above.
Vessel Operating Expenses
The increase in operating expenses by $7.6 million, to $17.4 million in 2019 to approximately $20.2the year ended December 31, 2022, from $9.8 million in 2020 (partly set-off, however, by the lower levelperiod ended December 31, 2021, mainly reflects the increase in (i) the Ownership Days of 5.0%our Aframax/LR2 fleet vessels to 2,385 days in the year ended December 31, 2022, from 1,446 days in the period ended December 31, 2021 and, (ii) the increase in spares/repairs and stores costs for certain of weighted average interestour Aframax/ LR2 vessels.
Management Fees
Management fees for our Aframax/LR2 tanker fleet in the year ended December 31, 2022, amounted to $2.2 million, whereas, in the period ended December 31, 2021, management fees totaled $1.4 million. This variation in management fees is due to the increase in the total number of Ownership Days of the Aframax/LR2 tanker fleet for which our managers charged us a daily management fee as well as the increased management fees following our entry into the Amended and Restated Master Management Agreement.
Depreciation and Amortization
Depreciation expenses for our Aframax/LR2 tanker fleet increased to $5.5 million in the year ended December 31, 2022, from $3.1 million in the period ended December 31, 2021 as a result of the increase in the Ownership Days of our Aframax/LR2 tanker fleet. Dry-dock and special survey amortization charges in the year ended December 31, 2022 of $0.4 million relate to the amortization of the M/T Wonder Musica that underwent its scheduled dry-docking repairs during 2020the second quarter of 2022. No such charges were incurred in the period ended December 31, 2021.
Gain on sale of vessel
Refer to discussion under “Consolidated Results of Operations — Gain on sale of vessel” above for details on the sale of the M/T Wonder Arcturus.
Year ended December 31, 2022, as compared to 5.8% during 2019)period ended December 31, 2021 – Handysize Tanker Segment
Period ended December 31, 2021 | Year ended December 31, 2022 | Change -amount | Change % | |||||||||||||
| Total vessel revenues | 2,704,855 | 15,637,653 | 12,932,798 | 478.1 | % | |||||||||||
| Expenses: | ||||||||||||||||
| Voyage expenses (including commissions to related party) | (55,593 | ) | (219,066 | ) | 163,473 | 294.1 | % | |||||||||
| Vessel operating expenses | (2,585,147 | ) | (4,322,281 | ) | 1,737,134 | 67.2 | % | |||||||||
| Management fees to related parties | (419,900 | ) | (666,500 | ) | 246,600 | 58.7 | % | |||||||||
| Depreciation and amortization | (746,353 | ) | (1,405,124 | ) | 658,771 | 88.3 | % | |||||||||
| Segment operating (loss)/income | (1,102,138 | ) | 9,024,682 | 10,126,820 | 918.8 | % | ||||||||||
Total vessel revenues
Total vessel revenues for our Handysize tanker fleet amounted to $15.6 million in the year ended December 31, 2022, whereas, in the period ended December 31, 2021, total vessel revenues amounted to $2.7 million. The variation was mainly due to (i) the increase in the segment’s Operating Days from 368 days in the period ended December 31, 2021 to 730 days in the year ended December 31, 2022, and (ii) the non-cash recurringimprovement in the Handysize tanker market, reflected in the increase in the Handysize fleet average Daily TCE Rate from $7,199 in the period ended December 31, 2021 to $21,121 in the year ended December 31, 2022.
Voyage Expenses
Voyage expenses for our Handysize tanker segment amounted to $0.2 million in the year ended December 31, 2022, from $0.1 million in the period ended December 31, 2021. The increase in voyage expenses in the periods discussed is predominantly attributed to the increase in brokerage commissions, consistent with the increase in total vessel revenues, discussed above.
Vessel Operating Expenses
The increase in operating expenses by $1.7 million, to $4.3 million in year ended December 31, 2022, from $2.6 million in the period ended December 31, 2021, reflects the increase in the Ownership Days of our Handysize tanker fleet to 730 days in the year ended December 31, 2022, up from 407 days in the period ended December 31, 2021.
Management Fees
Management fees for our Handysize tanker fleet in the year ended December 31, 2022, amounted to $0.7 million, whereas, in the period ended December 31, 2021, management fees totaled $0.4 million. This increase in management fees is due to the increase in the total number of Ownership Days of our Handysize tanker fleet for which our managers charged us a daily management fee as well as the increased management fees following our entry into the Amended and Restated Master Management Agreement with effect from July 1, 2022.
Depreciation and Amortization
Depreciation expenses for our Handysize tanker fleet increased to $1.1 million in the year ended December 31, 2022, from $0.6 million in the period ended December 31, 2021 as a result of the increase in the Ownership Days of our Handysize tanker fleet. Dry-dock amortization charges in the year ended December 31, 2022, and the period ended December 31, 2021, amounted to $0.3 million and $0.1 million, respectively, and relate to the M/T Wonder Mimosa which underwent its scheduled dry-dock and special survey during 2021.
Period ended December 31, 2022 – Containership Segment
We entered the containership business in the fourth quarter of 2022 and, accordingly, no comparative financial information exists for the year ended December 31, 2021.
| | Period ended December 31, 2022 | |||
Total vessel revenues | $ | 1,285,133 | ||
| Expenses: | ||||
Voyage expenses (including commissions to related party) | (71,333 | ) | ||
Vessel operating expenses | (561,656 | ) | ||
Management fees to related parties | (81,400 | ) | ||
Depreciation and amortization | (495,271 | ) | ||
Segment operating income | $ | 75,473 | ||
Total vessel revenues
Total vessel revenues, for our containership segment amounted to $1.3 million in the period ended December 31, 2022. During the period ended December 31, 2022, we owned on average 0.2 containerships over the calendar year that earned a Daily TCE Rate of $17,340. During the period in which we owned them, both our containerships were engaged in period time charters.
Voyage Expenses
Voyage expenses for our containership segment amounted to $0.1 million in the period ended December 31, 2022, mainly comprising brokerage commissions.
Vessel Operating Expenses
Operating expenses for our containership segment amounted to $0.6 million in the period ended December 31, 2022, and mainly comprised of crew wages costs, repairs and maintenance costs and lubricants’ consumption costs.
Management Fees
Management fees for our containership segment amounted to $0.1 million in the period ended December 31, 2022.
Depreciation and Amortization
Depreciation and amortization expenses amounted to $0.5 million in connection with our existing credit facilities and the non-cash accelerated amortization expenses related to deferred financing costs and to a beneficial conversion feature recognized in connection with our fully repaid, as ofperiod ended December 31, 2020, $5.0 Million Convertible Debentures aggregating2022 and exclusively relate to an amount of $1,131,524.vessels’ depreciation for the period during which we owned them.
Implicationsof Being an Emerging Growth Company
We had less than $1.07 billion in revenue during our last fiscal year, which means that we are an "emerging“emerging growth company"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'smanagement’s assessment of the effectiveness of the emerging growth company'scompany’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'sauditor’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 provisionsrequirements until we cease to be an emerging growth company. This will occur on the endlast 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$1.235 billion in "total“total annual gross revenues"revenues” during our most recently completed fiscal year, if we become a "large“large accelerated filer"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. As of the date of this annual report, we expect that we will cease to be an emerging growth company on December 31, 2023.
In addition, Section 107 of the JOBS Act also 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. "KeyKey Information—D. Risk Factors—Risks Relating to Our Common Shares—We are an "emerging‘emerging growth company"company’ and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common sharessecurities less attractive to investors". As of October 1, 2018, weinvestors.” We have irrevocably elected to opt out of such extended transition period.
| B. |
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 a 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, 2020,2022, our principal sources of funds were cash from operations, and the net proceeds from (i) the issuance of common stock pursuant to the June Equity Offering and the July Equity Offering and the resultant issuance of certain Class A Warrants pursuant to the June Equity Offering and (ii) the incurrence of secured and unsecured debt that we incurred as discussed below under "Our“—Our Borrowing Activities"Activities”. In the past, we have also issued equity as a source of financing, as discussed below under “—Equity Transactions”.As of December 31, 20202022 and December 31, 2019,2021, we had cash and cash equivalents of $8.9$142.4 million and $4.6$37.2 million (which excludes $0.5$9.9 million and $6.2 million of minimum cash restricted in both yearseach 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, 2020,2022, we had a working capital surplus of $2.7$114.9 million as compared to a working capital surplus of $3.2$21.0 million as of December 31, 2019. 2021.
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,fleet, meet our normal working capital requirements and service the principal and interest on our debt.debt for that period.
As noted above, 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 principal repayments), both of which could lower our available cash. See ‘‘Item 3. Key Information—D. Risk Factors—Risks Relating to Our Company—We may not be able to execute our growth strategy and we may not realize the benefits we expect from acquisitions or other strategic transactions.”
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
From time to time, 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 and expect to continue to finance with cash from operations, debt and equity issuances. As of December 31, 2020,2022, and the date of this annual report, we had nodid not have any commitments for capital expenditures related to vessel acquisitions.
As of December 31, 2022, we had outstanding commitments to install and put into use BWTS on one of our two Handysize tanker vessels, the Wonder Formosa, which was retrofitted in early March 2023, and two of our Aframax/LR2 tanker vessels, which are expected to be retrofitted during 2024. As of the same date, it was estimated that the contractual obligations related to these installations as well as past completed installations on other fleet vessels, excluding installation costs, would be on aggregate approximately €1.4 million (or $1.5 million on the basis of this annual report, remaining capital expenditure requirements relating to our recent vessel acquisitions amount to 26.7a Euro/US Dollar exchange rate of €1.0000/$1.0649 as of December 31, 2022), of which €0.2 million all(or $0.2 million) are due within 2021.in 2023 and €1.2 million (or $1.3 million) are due in 2024. We expect to cover suchfinance these capital expenditures with cash from operations and cash on hand. Following the Spin-Off, all tanker business-related BWTS obligations were assumed by Toro.
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 resultsoperating results.
Equity IssuancesTransactions
On January 27, 2020, we entered into a securities purchase agreement with YAII PN, LTD, pursuant to which we agreed to sell and the Investorit agreed to purchase up to three convertible debentures for a maximum aggregate price of $5.0 million, further discussed below under "Our“—Our Borrowing Activities"Activities.” During the period from January 2020 up until June 2020, the Investor had converted in full the full $5.0 million principal amount and $0.1 million of interest under the $5.0 Million Convertible Debentures for 8,042,078804,208 common shares.
On June 23, 2020, we entered into an agreement with Maxim, acting as underwriter, pursuant to which we offered and sold 59,110,0005,911,000 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 $0.01$0.10 per common share (a "Pre-Funded Warrant"“Pre-Funded Warrant”), and (ii) one Class A Warrant to purchase one common share (a "Class“Class A Warrant"Warrant”), for $0.35$3.50 per unit (or $0.34$3.40 per unit including a Pre-Funded Warrant), or the(the “2020 June Equity Offering.Offering”). The 2020 June Equity Offering which closed on June 26, 2020 and resulted in the issuance of 59,082,6865,908,269 common shares and 59,110,0005,911,000 Class A Warrants, which also included 7,710,000771,000 over-allotment units pursuant to an over-allotment option that was exercised by Maxim on June 24, 2020. In connection with this offering, weWe raised gross and net cash proceeds from this transaction of approximately $20.7 million and $18.6 million, respectively. Further, as of March 26, 2021,December 31, 2022, an aggregate of 58,393,7005,848,656 Class A Warrants have been exercised at an exercise price of $0.35$3.50 per warrant, for which we have received total gross proceeds of approximately $20.4$20.5 million. On March 7, 2023, in connection with the Spin-Off, the exercise price of the Class A Warrants was reduced to $2.53.
On July 12, 2020, we entered into agreements with certain unaffiliated institutional investors pursuant to which we offered 57,750,0005,775,000 common shares in a registered offering (the "July“2020 July Equity Offering"Offering”). In a concurrent private placement, we also issued warrants to purchase up to 57,750,0005,775,000 common shares (the "Private“Private Placement Warrants"Warrants”). The aggregate purchase price for each common share and Private Placement Warrant was $0.30.$3.00. In connection with the 2020 July Equity Offering, which closed on July 15, 2020, we received gross and net cash proceeds of approximately $17.3 million and $15.6$15.7 million, respectively. Further, as of March 26, 2021,December 31, 2022, an aggregate of 57,071,3605,707,136 Private Placement Warrants have been exercised at an exercise price of $0.35$3.50 per warrant, for which we have received total gross proceeds of approximately $20.0 million. On March 7, 2023, in connection with the Spin-Off, the exercise price of the Private Placement Warrants was reduced to $2.53.
On December 30, 2020, we entered into agreements with certain unaffiliated institutional investors pursuant to which we offered 94,750,0009,475,000 common shares and warrants to purchase 94,750,0009,475,000 common shares (the "January“January 5 Warrants"Warrants”) in a registered direct offering which closed on January 5, 2021.2021 (the “2021 January First Equity Offering”). The aggregate purchase price for each common share and January 5 Warrant was $0.19.$1.90. In connection with this offering, we received gross proceeds of approximately $18.0 million and net proceeds of approximately $16.4$16.5 million, net of estimated fees and expenses of approximately $1.6$1.5 million. AllBy February 10, 2021, all of the January 5 Warrants have been exercised at an exercise price of $0.19$1.90 per warrant, for which we have received total gross proceeds of approximately $18.0 million.
On January 8, 2021, we entered into agreements with certain unaffiliated institutional investors pursuant to which we offered 137,000,00013,700,000 common shares and warrants to purchase 137,000,00013,700,000 common shares (the "January“January 12 Warrants"Warrants”) in a registered direct offering.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 $0.19.$1.90. In connection with this offering, which closed on January 12, 2021, we received gross proceeds of approximately $26.0 million and net proceeds of approximately $24.0$24.1 million, net of estimated fees and expenses of approximately $2.0$1.9 million. AllBy February 10, 2021, all of the January 12 Warrants havehad been exercised at an exercise price of $0.19$1.90 per warrant, for which we have received total gross proceeds of approximately $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, 2022, all April 7 Warrants having an exercise price of $6.50 remained unexercised and potentially issuable into common shares. On March 7, 2023, in connection with the Spin-Off, the exercise price of the April 7 Warrants was reduced to $5.53.
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 (the “Equity Distribution Agreement’), which was amended and restated on March 31, 2022 (the “Amended Equity Distribution Agreement’). Under the Amended Equity Distribution Agreement, which expired on June 14, 2022, the Company could, from time to time, offer and sell its common shares through an at-the-market offering (the “ATM Program”), having an aggregate offering price of up to $150.0 million. No warrants, derivatives, or other share classes were associated with this transaction. No sales have been effected under the ATM Program during the year ended December 31, 2022. From the ATM Program effective date and as of December 31, 2022, 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.
In connection with the Spin-Off, the exercise price of each of the Class A Warrants, April 7 Warrants and Private Placement Warrants was decreased in accordance with their terms by the fair market value (as determined by our Board of Directors, in good faith) of the Toro common shares upon completion of the Spin-Off.
Our Borrowing Activities
As of December 31, 2020,2022, we had $18.5$153.7 million of gross indebtedness outstanding under our debt agreements, comprising of which $7.2$118.2 million maturesof indebtedness related to our dry bulk segment, $13.2 million of indebtedness related to our Aframax/LR2 segment, and $22.3 million of indebtedness related to our containership segment. Of this total figure, $32.5 million mature in the twelve-month period ending December 31, 2021.2023. Our contractualborrowing commitments, as of December 31, 2020, primarily relate2022, relating to debt and interest repayments of $20.0 million under our credit facilities amounted to $182.1 million, of which approximately $7.8$43.2 million mature in less than one year. The calculation of interest payments has been made assuming interest rates based on the LIBOR or SOFR specific to our variable rate credit facilities as of December 31, 2022, and our applicable margin rate.
As of December 31, 2020,2022, we also were in compliance with all the financial and liquidity covenants contained in the Alpha Bank Facility (defined below) and the Chailease Financial Services Facility.our debt agreements.
Dry Bulk Segment Credit Facilities
$5.011.0 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., our wholly-owned subsidiaries, concluded as co-borrowers, or the Borrowers,entered into our first senior secured financingterm loan facility in the amount of $11.0 million or thewith Alpha Bank Facility, the net proceeds of which wereS.A. The facility was drawn down in two tranches on December 2, 2019. The Alpha Bank FacilityThis 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,borrowers (the Magic Moon and the Magic P), an earnings account pledge, shares security deed relating to the shares of the vessels'vessels’ owning subsidiaries, manager'smanager’s undertakings and is guaranteed by Castor.
the Company. The Alpha Bank Facilityfacility also contains certain customary minimum liquidity restrictions and financial covenants that require the Borrowers to:
borrowers to (i) maintain a certain amount of minimum free liquidity per collateralized vessel ("the Minimum Liquidity Deposit");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 Depositminimum liquidity deposits referred to above to the aggregate principal amounts due under the Alpha Bank Facility.facility.
$4.5 Million Term Loan Facility - $4.5 Million Senior Secured Credit 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., our wholly-owned subsidiary, entered into a $4.5 million senior secured term loan facility with Chailease International Financial Services Co., Ltd., or the Chailease Financial Services Facility. The loanfacility 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% plusmargin 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'svessel’s earnings, insurances and any requisition compensation in relation to the vessel owned by the borrower, and is guaranteed by the Company and Pavimar. Pursuant to the terms of the Chailease Financial Services Facility,this facility, the Company is also subject to a certain minimum liquidity restriction requiring the borrower to maintain a certain credit balance withcash collateral deposit in an account held by the lender (the "Cash Collateral") as well as certain negative covenants customary for this type of facilities, negative covenants.facility. The credit agreement governing the Chailease Financial Services Facilitythis 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)cash collateral deposit referred to above), to the aggregate principal amount of the loan.
$15.315.29 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., our wholly-owned subsidiaries, entered into the $15.3 Million Term Loan Facilitya $15.29 million senior secured term loan facility with Hamburg Commercial Bank AG. The loanfacility 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% plusmargin 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, shares pledge and a general assignment over the vessels'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 the $15.3 Million Term Loan Facility,this facility, the Company is also subject to a certain minimum liquidity restriction requiring the borrowers to maintain a certain creditcash collateral deposit balance with the lender (the "Liquidity Accounts")(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 "Dry-dock Reserve Accounts"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, both 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. The credit agreement governingMoreover, the $15.3facility 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 guaranteed by Castor. The facility also requires maintenancecontained certain customary minimum liquidity restrictions and financial covenants that required 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 coverperiod), and, (ii) meet a specified minimum security requirement ratio, beingwhich is the ratio of the aggregate amount of (i) the fair market value of the collateralmortgaged vessels (ii)plus the value of any additional security and the value of the Liquidity Accounts, (iii) the value of the Dry-dock Reserve Accounts and (iv) any additional security provided, overminimum liquidity deposits referred to above to the aggregate principal amount outstanding ofamounts due under the loan.facility.
In connection with the net proceeds fromSpin-Off, the $15.3$18.0 Million Term Loan Facility Toro replaced Castor as guarantor under this facility and we ceased to supporthave any obligations under this facility.
Containership Segment Credit Facilities
$22.5 Million Term Loan Facility
On November 22, 2022, our two wholly owned containership owning subsidiaries, Jerry Shipping Co. and Tom Shipping Co., entered into a $22.5 million senior term loan facility with Chailease International Financial Services (Singapore) Pte. Ltd. The facility was drawn down in two tranches of $11.25 million each on November 28, 2022, and December 7, 2022, respectively. This facility has a term of five years from the Company's growth plansdrawdown date of each tranche, bears interest at a 3.875% margin over SOFR per annum and each tranche is repayable in sixty (60) consecutive monthly instalments (installments 1 to 9 in the amount of $250,000, installments 10 to 12 in the amount of $175,000, installments 13 to 59 in the amount of $150,000 and a balloon installment in the amount of $1,425,000 payable at maturity).
The above facility is secured by first preferred mortgage and first priority general and charter assignment covering earnings, insurances, requisition compensation and any charter and charter guarantee over the vessels owned by the borrowers (the Ariana A and the Gabriela A), shares security deed relating to the shares of the vessels’ owning subsidiaries, managers’ undertakings and is guaranteed by Castor. Pursuant to the terms of this facility, the Company is also subject to certain negative covenants customary for general corporate purposes.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.
Cash Flows
The following table summarizes our net cash flows from operating, investing and financing activities for the years ended December 31, 20202022, and 2019:
| For the year ended | ||||||||
| (In US Dollars) | December 31, 2019 | December 31, 2020 | ||||||
| Net cash provided by/ (used in) operating activities | 2,311,962 | (2,343,809 | ) | |||||
| Net cash used in investing activities | (17,227,436 | ) | (35,472,173 | ) | ||||
| Net cash provided by financing activities | 18,087,133 | 42,183,946 | ||||||
2021:
(in U.S Dollars) | For the year ended | |||||||
December 31, 2021 | December 31, 2022 | |||||||
Net cash provided by operating activities | 60,775,327 | 123,753,052 | ||||||
Net cash used in investing activities | (348,640,707 | ) | (63,737,095 | ) | ||||
Net cash provided by financing activities | 321,824,945 | 48,904,995 | ||||||
Operating Activities:For Net cash provided by operating activities amounted to $123.8 million for the year ended December 31, 2020, net cash used in operating activities amounted to $2.3 million,2022, consisting of net income after non-cash items of $1.1$142.7 million, less a decrease in working capital by $3.4of $13.8 million and payments related to dry-docking costs of $5.1 million. For the year ended December 31, 2019, netNet cash provided by operating activities amounted to $2.3$60.8 million for the year ended December 31, 2021, consisting of net income after non-cash items of $2.0$65.1 million, plus an increasepayments related to dry-docking costs of $3.7 million, and a decrease in working capital of $0.3$0.6 million. The major driver of the decrease$63.0 million increase, hence, in net cash provided by/ (used in)from operating activities isin the increase in interest costs paid as discussed in "Item 5. Operating and Financial Review and Prospects", as compared to the fiscal year ended December 31, 2019, further impacted by (i) increased cash outflows related to dry-docking capitalized expenses by $1.3 million in 2020 compared to 2019, (ii) decreased cash inflows from trade receivables by $1.6 million and (iii) other negative cash flow variations in working capital accounts during the fiscal year ended December 31, 20202022, as compared with the fiscal year ended December 31, 2019.same period of 2021, 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 tanker vessels of our fleet.
Investing Activities: Net cash used in investing activities inamounting to $63.7 million for the fiscal year ended December 31, 20202022, mainly reflects the cash outflows associated with (i) the vessel acquisitions ofwe made during the M/V Magic Rainbow, the M/V Magic Horizon and the M/V Magic Nova period, as discussed in the third and fourth quarters of 2020more detail under Note 6 to our audited consolidated financial statements included elsewhere in this annual report and (ii) the BWMSin progress or completed BWTS installations during 2022 on the M/VMagic Moon, Magic Rainbow, Magic Perseus, Magic Pand the M/V Magic SunWonder Formosa. Net cash used in investing activities in the fiscal year ended December 31, 2019 reflects the cash outflows associated with the acquisition of the M/V Magic Sun in September 2019 and of the M/V Magic Moon in October 2019.
Financing Activities: Net cash provided by financing activities during the year ended December 31, 2022 amounting to $48.9 million, relates to the $76.5 million net proceeds related to the $55.0 Million Term Loan Facility and the $22.5 Million Term Loan Facility (as further discussed above and further under Note 7 to our consolidated financial statements included elsewhere in this report), as mainly offset by $27.5 million of period scheduled principal repayments under our existing secured credit facilities.
Net cash provided by financing activities during the year ended December 31, 2021 amounting to $321.8 million, relates to (i) the net cash proceeds receivedraised 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 June Equity Offering$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 July Equity Offering amounting$23.15 Million Term Loan Facility (as further discussed above and further under Note 7 to $35.3our consolidated financial statements included elsewhere in this report), as offset by (v) the $14.4 million (ii) proceedscash redemption of $9.5the Series A Preferred Shares, (vi) $6.9 million inof period scheduled principal repayments under our existing secured credit facilities and (vii) the period fromrepayment, at its extended maturity, of the $5.0 Million Convertible Debentures and the Chailease Financial Services Facility, (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.Term Loan Facility.
| C. |
Not applicable.
| D. |
Our results of operations depend primarily on the charter hire rates that we are able to realize. Charter hire rates paid for dry bulk and tanker vessels as well as containerships are primarily a function of the underlying balance between vessel supply and demand. For a discussion regarding the market performance, please see "Item“Item 5. Operating and Financial Review and Prospects—A. Operating Results—Cyclical Nature of the Industry".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. Charter ratesThat may remain at current levels for some time, which may adversely affecthave a material adverse effect on our future growth potential and our profitability. Also, the Company'sCompany’s business could be materially and adversely affected by the risks, or the public perception of the risks and travel restrictions related to a resurgence of the COVID-19 pandemic. Furthermore, the Company’s business could be adversely affected by the risks related to the conflict in Ukraine and the severe worsening of Russia’s relations with Western economies that has created significant uncertainty in global markets, including increased volatility in the prices of certain of the commodities and products which our vessels transport and shifts in the trading patterns for such products which may continue into the future. The Company is unable to reasonably predict the estimated length or severity of any resurgence in the COVID-19 pandemic on future operating results.
Furthermore, many economies worldwide have any off-balance sheet arrangements.
| Payments due by period | ||||||||||||||||||||
| Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
| Long-term debt | $ | 18,450,000 | $ | 7,200,000 | $ | 4,400,000 | $ | 6,850,000 | $ | - | ||||||||||
Interest on long-term debt (1) | 1,539,058 | 557,163 | 744,892 | 237,003 | - | |||||||||||||||
Administration fees - Castor Ships (2) | 5,600,000 | 1,200,000 | 2,400,000 | 2,000,000 | - | |||||||||||||||
Management fees- Pavimar & Castor Ships (2) | 8,690,400 | 1,861,500 | 3,723,000 | 3,105,900 | - | |||||||||||||||
Capital expenditures related to BWMS purchases (3) | 849,122 | 495,871 | 353,251 | - | - | |||||||||||||||
| Total | $ | 35,128,580 | $ | 11,314,534 | $ | 11,621,143 | $ | 12,192,903 | $ | - | ||||||||||
| E. | CRITICAL ACCOUNTING ESTIMATES |
Critical Accounting Estimates
accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. 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“Item 18. Financial Statements"Statements” and more precisely "Note 2. Note 2(“Summary of Significant Accounting Policies" ofPolicies”)to our Consolidated Financial Statements.consolidated financial statements included elsewhere in this annual report.
Vessel Lives and Impairment
The Company reviews for impairment its long-lived assets held and used vessels 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 assetsvessels may not be recoverable. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the assetvessel is less than its carrying amount, including the value of unamortized dry-docking costs and the value of any related intangible assets and/or liabilities, 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.
The table below specifies (i)in “*” that the carrying value of eachthose four of our vessels that, as of December 31, 2020 and 2019 and (ii) which of those vessels we believe2022, had a charter-free market value below itstheir carrying value. We believe thatAs of December 31, 2022, the aggregate carrying value of thethese four vessels indicated with an asterisk below exceededwas $20.4 million more than their aggregate basic charter-freefair market value, by approximately $0.8 million as of December 31, 2020.based on broker quotes. This aggregate difference represents the approximate analysis of the amount by which we believe we would have to reduce our net lossincome if we sold all of such vessels in the current environment, on industry standard terms, in cash transactions, to a willing buyer in circumstances where we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy. For purposes of this calculation, we have assumed that the vessels would be sold at a price that reflects our estimate of their current basic market values.
| Vessels | Date acquired | Carrying value as of December 31, 2020 (in millions of United States dollars) | Carrying value as of December 31, 2019 (in millions of United States dollars) | ||||||
| Magic P | 21/02/2017 | $ | 6.8 | $ | 6.7 | ||||
| Magic Sun | 05/09/2019 | $ | 6.9 | * | $ | 6.8 | |||
| Magic Moon | 20/10/2019 | $ | 9.6 | * | $ | 10.2 | |||
| Magic Rainbow | 08/08/2020 | $ | 8.0 | $ | - | ||||
| Magic Horizon | 09/10/2020 | $ | 12.9 | $ | - | ||||
| Magic Nova | 15/10/2020 | $ | 13.8 | $ | - | ||||
| Total | $ | 58.0 | $ | 23.7 | |||||
| Vessels | Date acquired | Carrying value as of December 31, 2022 (in millions of United States dollars) | |||
| M/V Magic P | 02/21/2017 | $ | 6.6 | ||
| M/V Magic Sun | 09/05/2019 | $ | 5.9 | ||
| M/V Magic Moon | 10/20/2019 | $ | 9.0 | ||
| M/V Magic Rainbow | 08/08/2020 | $ | 8.3 | ||
| M/V Magic Horizon | 10/09/2020 | $ | 11.6 | ||
| M/V Magic Nova | 10/15/2020 | $ | 12.4 | ||
M/V Magic Venus | 03/02/2021 | $ | 14.7 | ||
M/T Wonder Polaris | 03/11/2021 | $ | 12.4 | ||
M/V Magic Orion | 03/17/2021 | $ | 16.3 | ||
M/V Magic Argo | 03/18/2021 | $ | 13.3 | ||
M/T Wonder Sirius | 03/22/2021 | $ | 12.4 | ||
M/V Magic Twilight | 04/09/2021 | $ | 13.8 | ||
M/V Magic Thunder | 04/13/2021 | $ | 15.7 | ||
M/V Magic Vela | 05/12/2021 | $ | 14.1 | ||
M/V Magic Nebula | 05/20/2021 | $ | 14.6 | ||
M/T Wonder Vega | 05/21/2021 | $ | 13.4 | ||
M/V Magic Starlight | 05/23/2021 | $ | 22.0 | ||
M/T Wonder Avior | 05/27/2021 | $ | 10.9 | ||
M/T Wonder Mimosa | 05/31/2021 | $ | 8.0 | ||
M/V Magic Eclipse | 06/07/2021 | $ | 17.2 | ||
M/T Wonder Musica | 06/15/2021 | $ | 10.8 | ||
M/T Wonder Formosa | 06/22/2021 | $ | 7.7 | ||
M/V Magic Pluto | 08/06/2021 | $ | 20.3 | ||
M/V Magic Perseus | 08/09/2021 | $ | 20.6 | ||
M/V Magic Mars | 09/20/2021 | $ | 19.6 | ||
M/V Magic Phoenix | 10/26/2021 | $ | 17.6 | * | |
M/T Wonder Bellatrix | 12/23/2021 | $ | 16.9 | ||
M/V Magic Callisto | 01/04/2022 | $ | 22.4 | * | |
M/V Ariana A | 11/23/2022 | $ | 23.9 | * | |
M/V Gabriela A | 11/30/2022 | $ | 23.5 | * | |
| Total | $ | 435.9 | |||
* Indicates vessels for which we believe that, as of December 31, 2020, the2022, their carrying value, including, where applicable, the value of related intangible assets, exceeded thetheir charter-free market value. As discussed below, we believe that the carrying values of ourthese vessels as of December 31, 2020 and 20192022, were recoverable as the undiscounted projected net operating cash flows of these vessels exceeded their carrying values including, where applicable, the value by a significant amount.of related intangible assets.
As of December 31, 2020, as2022, for the above indicated vessels, we performed 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 estimated days of scheduled off-hires and net of estimated commissions;
residual value of vessels;
commercial and technical management fees;
an estimated utilization rate; and
the remaining estimated lifelives of our vessels.
vessels, consistent with those used in our depreciation calculations.
The net operating undiscounted cash flows are then compared with the vessels'vessels’ net book value plus estimated unamortized dry-docking costs.costs and the unamortized portion of any intangible asset and/or liability. The difference, if any, between the carrying amount of the vessel plus unamortized dry-docking costs and the unamortized portion of any intangible asset and/or liability and their fair value is recognized in the Company'sCompany’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'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:
| • | our secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. We estimate the full useful life of vessels to be 25 years from the date of initial delivery 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 estimated future 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 an appropriate (or less than ten years if appropriate data is not available) approximation of the estimated future market rates for the following reasons:
it reflects more accurately the earnings capacity of the type, specification, deadweight capacity and average age of our vessels;
it reflectsis an appropriate period to capture the typevolatility of business conducted by us (periodthe market and includes numerous market highs and lows so as opposed to spot);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; and
vessel residual values are a product of a vessel'svessel’s lightweight tonnage and an estimated scrap rate; andrate.
The impairment test that we conduct, when required, is most sensitive to variances in future time charter rates. Based on the sensitivity analysis performed for December 31, 2020,2022, we would begin recording impairment loss on the first vessel, that will incur impairment if time charter declines by 7%4% from their ten-year historical averages.
Based on the above assumptions we determined that the undiscounted cash flows supportsupported the vessels'above vessels’ carrying amounts as of December 31, 2020.2022.
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. |
Set forth below are the names, ages and positions of our directors and executive officer. Our Board currently consists of three directors and iswho are elected annually on a staggered basis, and eachbasis. 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 | |||
Petros Panagiotidis | 32 | Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer and Class C Director | |||
| Dionysios Makris | 42 | Secretary and Class B Director | |||
| Georgios Daskalakis | 33 | 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 2017.2017 and, upon completion of the Spin-Off, will serve as the Chairman and Chief Executive Officer of Toro Corp. During his years with Castor Maritime he has been actively engaged in the successful company’s listing of the Company on the NASDAQNasdaq 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, heMr. Panagiotidis 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 ourthe Company’s establishment in September 2017.2017 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. He has invested all of his professional life in the shipping industry2017 and held various positions for different prominent companies. From 2013 to 2015, he was an insurance officer at Minerva Marine Inc. Later on, from 2015 to 2017, he served as an operator of tanker vessels at Trafigura Maritime Logistics PTE Ltd. He is currently the chairman of our Audit Committee. Mr. Daskalakis has been employed atsince 2017 by M/Maritime Corp., a shipmanagement company, holding a number of senior positions. As of today, he has been with since 2017 and in which he has held several positions. Currently, he serves as ais the Chief Commercial Officer and Chairman of the Board of Directors.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'sBachelor’s degree from Babson College with a concentration on Economics and Finance as well asfollowed 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.
| B. |
The compensation payable to our Chairman, Chief Executive Officer and Chief Financial Officer for the years ended December 31, 2020, and December 31, 2019, which includes the three-month transition period ended December 31, 2018, amounted to $0.01 million and $0.01 million, respectively. Effective October 1, 2020, we terminated the compensation payments towards our Chief Executive Officer and Chief Financial Officer. Subsequent to the termination of our executive compensation payments, the services rendered by our Chairman, Chief Executive Officer and Chief Financial Officer for the year ended December 31, 2022, are included in our amended master agreement with Castor Ships described under "Item“Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions",Transactions” below. For the year ended December 31, 2020,2022, we paid our non-executive directors fees in the aggregate amount of $20,000$72,000 per annum, or $10,000$36,000 per director per annum, plus reimbursement for their out-of-pocket expenses. We did not pay our non-executive directors any compensation since our inception until December 31, 2019. Our Chief Executive Officer and Chief Financial Officer who also serves as our director does not receive additional compensation for his service as director.
| C. |
Our Board currently consists of three directors and isWho are 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 25, 2020,December 15, 2022, our shareholders re-elected our Class CB director to serve until the annual meeting of shareholders to be held in 2025. The term of office of our Class C director expires at the annual meeting of shareholders to be held in 2023, and approved the granting of discretionary authority to our Board to effect one or more reverse stock splits of our issued common shares, at a ratio of not less than one-for-two and not more than one-for-75 and in the aggregate at a ratio of not more than one-for-75, inclusive, with the exact ratio to be set at a whole number within this range to be determined by the Board, or any duly constituted committee thereof. The term of office of our Class A director expires at the annual meeting of shareholders to be held in 2021, and the term of office our Class B director expires at the annual meeting of shareholders to be held in 2022.2024. 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“Audit Committee Financial Expert"Expert” under the Commission'sCommission’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.
| D. |
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.
| E. |
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“Item 7. Major Shareholders and Related Party Transactions".Transactions” Please also see "Item“Item 10. Additional Information—B. Memorandum and Articles of Association"Association” for a description of the rights of holders of our Series B Preferred Shares relative to the rights of holders of shares of our common stock.shares.
| F. | DISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION |
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| A. |
Based on information available to us, including information contained in public filings, as of March 26, 2021,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 March 26, 2021.the date of this annual report.
The percentage of beneficial ownership is based on 707,157,93694,610,088 common shares outstanding as of March 26, 2021.6, 2023.
| Name of Beneficial Owner | No. of Common Shares | Percentage | ||||||
All executive officers and directors as a group (1) (2) | - | - | % | |||||
(1) | Neither any member of our Board of Directors or executive officer individually, nor all of them taken as a group, |
(2) | Petros Panagiotidis |
All of our common shareholders are entitled to one vote for each common share held. As of March 7, 2023, there were six holders of record of our common shares, five of which have a U.S. mailing address, and who are expected to receive our common shares in the Distribution. One of these holders is CEDE & Co., a nominee company for The Depository Trust Company, which held approximately 99.85% of Castor’s 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. |
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
During the period from September 1, 2020 (being the initial Castor Ships Management Agreements (as defined below) effective date) and up to June 30, 2022, pursuant to the terms and conditions stipulated in a company controlled by Ismini Panagiotidis, master management agreement (the sister of our Chairman, Chief Executive Officer“Master Management Agreement”) and Chief Financial Officer, Petros Panagiotidis. Under the technicalseparate commercial ship 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 arrangements, provisioning, bunkering, accounting and audit support services, which it may choose to subcontract to other parties at its discretion. Pavimar and one of our wholly-owned subsidiaries have entered into a management agreement(the “Commercial Shipmanagement Agreements”) each with Fleet Ship Management Inc. ("Fleet Ship"), a third-party ship-management company, pursuant to which Fleet Ship provides technical management to the M/V Magic Nova. Pavimar pays, at its own expense, Fleet Ship a fee for the services it has subcontracted to it, 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. The technical management agreements also provide that the management fees shall be subject to an annual review on their anniversary.
In exchange for the services provided by Castor Ships, we and our vessel owning subsidiaries, pay Castor Ships (i) a flat quarterly management fee in the amount of $0.75 million for the management and administration of their business (the “Flat Management Fee”), (ii) a commission of 1.25% on all gross income received from the operation of their vessels, and (iii) a commission of 1% on each consummated sale and purchase transaction. In addition, each of the Company’s vessel owning subsidiaries pay Castor Ships a daily management fee of $925 per dry bulk vessel and containership, and, until the completion of the Spin-Off, $975 per tanker vessel (collectively, the “Ship Management Fees”) for the provision of the ship management services provided in the Ship Management Agreements. Pavimar is paid directly by the dry bulk vessel owning subsidiaries its previously agreed proportionate daily management fee of $600 per vessel and Castor Ships is paid the residual amount of $325 of the agreed daily ship management fee. The Ship Management Fees and Flat Management Fee will be adjusted annually for inflation on each anniversary of the Amended and Restated Master Management Agreement’s effective date. The Company also reimburses Castor Ships for extraordinary fees and costs, such as the costs of extraordinary repairs, maintenance or structural changes to the Company’s vessels.
The Amended and Restated Master Management Agreement has a term of fiveeight years from its effective date and suchthis term automatically renews for a successive five-yeareight-year term on each anniversary of the effective date, starting from the first 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 areAmended and Restated Master Management Agreement is terminated by the Company or areis 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 certain business combinations, such as a merger or the disposal of all or substantially all of the Company’s assets or changes in key personnel such as the Company’s current directors or Chief Executive Officer), Castor Ships shall be entitled to a termination fee equal to fourseven times the total amount of the flat management fee and the per vessel management feesFlat Management Fee calculated on an annual basis. The commercialThis termination fee is in addition to any termination fees provided for under each Ship Management Agreement.
Castor Ships may choose to subcontract some of these services to other parties at its discretion. As of December 31, 2022, in accordance with the provisions of the Amended Castor Ship Management Agreements, Castor Ships had subcontracted to two third-party ship management companies the technical management of all the Company’s tanker vessels, had subcontracted to Pavimar the technical management of the Company’s containerships and was co-managing with Pavimar the Company’s all dry bulk vessels. In later January 2023, Castor Ships transferred the technical management of our containership vessels from Pavimar to a third-party ship management company. Castor Ships pays, at its own expense, the containerships third-party technical management companies a fee for the services it has subcontracted to them, without any additional cost to the Company.
Prior to June 30, 2022, Pavimar provided, on an exclusive basis, our dry-bulk vessel owning subsidiaries with a wide range of shipping services, including crew management, technical management, operational management, insurance management, provisioning, bunkering, vessel accounting and audit support services, which it could choose to subcontract to other parties at its discretion. During the six-month period ended June 30, 2022, Pavimar provided the services stipulated in the technical management agreements in exchange for a daily management fee of $600 per vessel. Effective July 1, 2022, the technical management agreements entered between Pavimar and our tanker vessel owning subsidiaries were terminated by mutual consent. In connection with such termination, Pavimar and the tanker vessel owning subsidiaries agreed to mutually discharge and release each other from any past and future liabilities arising from the respective agreements. Further, with effect from July 1, 2022, pursuant to the terms of the Amended and Restated Master Management Agreement, Pavimar, continues to provide, as co-manager with Castor Ships, the dry-bulk vessel owning subsidiaries with the same range of technical management services it provided prior to our entry into the Amended and Restated Management Agreement, in exchange for the previously agreed daily management fee of $600 per vessel.
The V8 Plus Pool
In the period between September 30, 2022, and December 12, 2022, the M/T Wonder Polaris, M/T Wonder Sirius, M/T Wonder Bellatrix, M/T Wonder Musica, M/T Wonder Avior and M/T Wonder Vega, entered into a series of separate agreements with V8, a member of the Navig8 Group of companies, for the participation of the vessels in the V8 Plus Pool. In February 2023, the agreement relating to the M/T Wonder Sirius’s participation in the V8 Plus Pool was terminated and the vessel commenced a period time charter. The V8 Plus Pool is managed by V8 Plus Management Pte Ltd., a company in which Petros Panagiotidis has a minority equity interest. The following description of such agreements’ terms does not purport to be complete and is subject to, and qualified in its entirety by reference to the Form of Pooling Agreement, which is included as an exhibit to this annual report and incorporated by reference into this annual report on Form 20-F.
During the period between the vessels’ entry into the V8 Plus Pool and completion of the Spin-Off, each vessel was provided with certain commercial management services and entered into charters by the pool manager. In return for such services, the pool manager was entitled to a $250 daily fee and customary 2% commission on all income received under charters and contracts of affreightment. The relevant ship owning subsidiary received its proportional share of pool revenues, subject to adjustments for expenses, among other factors. Each relevant ship owning subsidiary was entitled to elect one voting representative to the pool’s committee, which approves (i) the basis for calculating pool costs and (ii) requirements under which pool participants may be required to make additional contributions to the pool’s working capital. Under the terms of the respective agreements, the vessels shall participate in the V8 Plus Pool for a minimum period of six months, subject to certain rights of suspension and/or early termination. The agreement was negotiated and approved by the Special Committee.
For further information, please refer to Note 3 to our audited consolidated financial statements included elsewhere in this annual report.
The Spin-Off Resolutions
On November 15, 2022 and December 30, 2022, in connection with the Spin-Off, our Board of Directors resolved with effect from the completion of the Spin-Off, among other things, (i) to focus our efforts on our current business of dry bulk shipping services, (ii) that we have no interest or expectancy to participate or pursue any opportunity in areas of business outside of the dry bulk shipping business and (iii) that Petros Panagiotidis, our director, Chairman, Chief Executive Officer, Chief Financial Officer and controlling shareholder and his affiliates, such as Castor Ships, are not required to offer or inform us of any such opportunity. This does not preclude us, however, from pursuing opportunities outside of the dry bulk shipping business if in the future our Board determines to do so. For example, we entered the containership shipping industry in the fourth quarter of 2022 with the purchase of two containership vessels. Nevertheless, focusing our efforts on dry bulk shipping may reduce the scope of opportunities we may exploit.
Similarly on November 15, 2022 and December 30, 2022, Toro’s board of directors resolved, among other things, (i) to focus its efforts on its tanker shipping services, (ii) that Toro has no interest or expectancy to participate or pursue any opportunity in areas of business outside of the tanker shipping business and (iii) that Petros Panagiotidis, its director, Chairman, Chief Executive Officer and controlling shareholder and his affiliates are not required to offer or inform it of any such opportunity. This does not preclude Toro from pursuing opportunities outside of its declared business focus area, including in the dry bulk shipping business, if in the future Castor’s board determines to do so.
Mr. Panagiotidis will devote such portion of his business time and attention to our business as is appropriate and will also devote substantial time to Toro’s business and other business and/or investment activities that Mr. Panagiotidis maintains now or in the future. Mr. Panagiotidis’ intention to provide thatadequate time and attention to other ventures will preclude him from devoting substantially all his time to our business. Our Board of Directors and Toro’s board have each resolved to accept this arrangement.
Contribution and Spin-Off Distribution Agreement
The following description of the Contribution and Spin-Off Distribution Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the Contribution and Spin-Off Distribution Agreement, which is included as an exhibit to this annual report and is incorporated by reference herein. The terms of the transactions which are the subject of the Contribution and Spin-Off Distribution Agreement were negotiated and approved by a special committee of our disinterested and independent directors.
In connection with the Spin-Off, based on the recommendation of a special committee comprised of independent, disinterested directors, we entered into the Contribution and Spin-Off Distribution Agreement with Toro, pursuant to which (i) we contributed the Toro Subsidiaries to Toro in exchange for all issued and outstanding common shares of Toro, 140,000 Series A Preferred Shares of Toro and the issue of 40,000 Series B Preferred Shares of Toro to Pelagos against payment of their nominal value, (ii) we agreed to indemnify Toro and our vessel-owning subsidiaries for any and all obligations and other liabilities arising from or relating to the operation, management or employment of vessels or subsidiaries it retains after March 7, 2023 and Toro agreed to indemnify us for any and all obligations and other liabilities arising from or relating to the operation, management or employment of the vessels contributed to us or our vessel-owning subsidiaries, and (iii) Toro replaced us as guarantor under the $18.0 Million Term Loan Facility upon completion of the Spin-Off. The Contribution and Spin-Off Distribution Agreement also provided for the settlement or extinguishment of certain liabilities and other obligations between us and Toro.
Under the Contribution and Spin-Off Distribution Agreement, we distributed on March 7, 2023, all of Toro’s outstanding common shares to holders of our common shares, with one of Toro’s common shares being distributed for every ten shares of our common shares held by Castor stockholders as of the close of business New York Time on February 22, 2023.
Further, the Contribution and Spin-Off Distribution Agreement provides us with certain registration rights relating to Toro’s common shares, if any, issued upon conversion of the Series A Preferred Shares (the “Registrable Securities”). Such securities will cease to be registrable by us upon the earliest of (i) their sale pursuant to an effective registration statement, (ii) their eligibility for sale or sale pursuant to Rule 144 of the Securities Act, and (iii) the time at which they cease to be outstanding. Subject to our timely provision to Toro of all information and documents reasonably requested by Toro in connection with such filings and to certain blackout periods, Toro has agreed to file, as promptly as practicable and in any event no later than 30 calendar days after our request, one or more registration statements to register Registrable Securities then held by us and to use our reasonable best efforts to have each such registration statement declared effective as soon as practicable after such filing and keep such registration statement continuously effective until such registration rights terminate. All fees and expenses incident to Toro’s performance of its obligations in connection with such registration rights shall be subjectborne solely by Toro and we shall pay any transfer taxes and fees and expenses of its counsel relating to an annual reviewa sale of Registrable Securities. These registration rights shall terminate on their anniversary.(i) the date occurring after the seventh anniversary of the original issue date of the Series A Preferred Shares on which Castor owns no Registrable Securities or (ii) if earlier, the date on which we own no Series A Preferred Shares and no Registrable Securities.
Any and all agreements and commitments, currently existing between us and our subsidiaries, on the one hand, and Toro and its subsidiaries upon completion of the Spin-Off, on the other hand, was terminated as of March 7, 2023. None of these arrangements and commitments is deemed material to us. Further, based on the recommendation of a special committee comprised of independent, disinterested directors, Toro’s vessel-owning subsidiaries ceased to be parties to the master management agreement among the Company and Castor Ships that is currently in effect and entered into a master management agreement with Toro and Castor Ships, with substantial similar terms to the Amended and Restated Master Management Agreement described above. The tanker vessel-owning subsidiaries contributed to Toro ceased to be party to certain custodial and cash pooling deeds entered into individually by each of the such subsidiaries and Castor Maritime SCR Corp. and entered into substantively similar cash management and custodial arrangements with Toro’s wholly owned treasury subsidiary, Toro RBX Corp.. Under the Contribution and Spin-Off Distribution Agreement, Toro also agreed to reimburse us for transaction expenses incurred in connection with its separation from us, such as advisor and filing fees.
Vessel AcquisitionAcquisitions
On October 14, 2019,26, 2022, we, through two of our wholly owned subsidiaries, entered into through atwo separate wholly-owned subsidiary, an agreementagreements to purchaseeach acquire a 2005 Japan built Panamax dry bulk carrier, the Magic Moon, for a purchase price of $10.2 millionGerman-built 2,700 TEU containership vessel, from a third party in which atwo separate entities beneficially owned by family membermembers of our Chairman, Chief Executive Officer and Chief Financial Officer has an interest.
| C. | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION |
| A. |
Please see "Item“Item 18. Financial Statements"Statements.”
Legal Proceedings
To our knowledge, we are not currently a party to any lawsuitlegal proceedings that, if adversely determined, would have a material adverse effect on our financial position,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. FromWe 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. We have not been involved in any legal proceedings which may have, or have had, a significant effect on our financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our financial position, results of operations or liquidity.
Dividend Policy
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 prospects,conditions, current capital expenditure programs and investment opportunities, and the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors.
Marshall Islands law provides that we may pay dividends on and redeem any shares of capital stock including the Series A Preferred Shares, 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 including the Series A Preferred Shares, 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.report, excluding the distribution of Toro shares to common shareholder of Castor.
| B. |
On February 13, 2023, in connection with the Spin-Off, we announced March 7, 2023 as the date for the Distribution and, which was completed on such date. For further details on the Spin-Off, see “Item 3. Key Information”, “Item 4. Information on the Company¾A. History and Development of the Company” and “Item 7. Major Shareholders and Related Party Transactions¾Related Party Transactions”.
| ITEM 9. | THE OFFER AND LISTING |
| A. |
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" and on the Nasdaq Capital Market under the symbol "CTRM"“CASTOR”.
| B. |
Not applicable.
| C. |
Please see "Item 9.“—A. The Offer and Listing—A. Offer and Listing Details".Details.”
| D. |
Not applicable.
| E. |
Not applicable.
| F. |
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION |
| A. |
Not applicable.
| B. |
Articles of Association and Bylaws
The following is a description of material terms of our Articlesarticles of Incorporationincorporation and bylaws. Because the following is incorporated by reference froma summary, it does not contain all information that you may find useful. For more complete information, you should read our registration statement on Form F-4 (Registration No. 333-224242),articles of incorporation and our bylaws, as amended, copies of which was filed with the Securities and Exchange Commission on April 11, 2018. Our Articles of Incorporation wereare filed as Exhibit 3.1exhibits to the F-4 Registration Statement and are hereby incorporated by reference into 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 707,157,93694,610,088 common shares were issued and outstanding as of March 26, 2021,6, 2023, and 50,000,000 preferred shares, par value $0.001 per share, of which 480,000 Series A Preferred Shares and 12,000 Series B Preferred Shares are currently issued and outstanding.
Description of Common Shares
For a vote of shareholders. Subject to preferences that may be applicable to any outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our Board out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred shares having liquidation preferences, if any, the holdersdescription of our common shares, are entitled to receive pro rata our remaining assets available for distribution. Holderssee Exhibit 2.2 (Description of common shares do not have conversion, redemption or pre-emptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of our common shares are subject to the rights of the holders of any preferred shares, which we have issued in the past or which we may issue in the future.Securities).
Share History
Please see "Item“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Equity Issuances"Transactions” for a description of the Company'sCompany’s equity issuances.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:
the designation of the series;
the number of shares of the series;
the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and
the voting rights, if any, of the holders of the series.
Description of Series 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 shareholdersissued and outstanding Series A preferred shares. Based on the amended and restated statement of Spetses, under the Exchange Agreement. Ondesignations of Castor dated October 10, 2019, we adopted the Amended and Restated Statement of Designationsholders of the Series A Preferred Shares.
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 issuedmade certain issuances of our capital stock, including the issuance of 12,000 shares of Series B Preferred Shares to Thalassa, undera company controlled by Petros Panagiotidis, the Exchange Agreement.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.shares.On November 15, 2022, the independent disinterested members of our board of directors approved an amendment to the terms of our Series B Preferred Shares to entitle the holder thereof to (i) receive preferred shares with at least substantially identical rights and preferences in the event of a future spin-off of a controlled company, (ii) participate in a liquidation, dissolution or winding up of Castor pari passu with Castor’s common shares up to the Series B Preferred Shares’ nominal value and (iii) have their voting power adjusted to maintain a substantially identical voting interest upon the occurrence of certain events.
The Series B Preferred Shares have the following characteristics:1
| • | Conversion. The Series B Preferred Shares are not convertible into common shares. |
| • | Distributions. In the event that we declare a dividend of the stock of a subsidiary which we control, the holder(s) of the Series B Preferred Shares are entitled to receive preferred shares of such subsidiary. Such preferred shares will have at least substantially identical rights and preferences to our Series B Preferred Shares and be issued in an equivalent number to our Series B Preferred Shares. The Series B Preferred Shares have no other dividend or distribution rights. |
| • | Voting. Each Series B Preferred Share has the voting power of 100,000 common shares and counts for 100,000 votes for purposes of determining quorum at a meeting of shareholders, subject to adjustment to maintain a substantially identical voting interest in Castor following the (i) creation or issuance of a new series of shares of the Company carrying more than one vote per share to be issued to any person other than holders of the Series B Preferred Shares, except for the creation (but not the issuance) of Series C Participating Preferred Shares substantially in the form approved by the Board and included as an exhibit to this registration statement, without the prior affirmative vote of a majority of votes cast by the holders of the Series B Preferred Shares or (ii) issuance or approval of common shares pursuant to and in accordance with the Shareholder Protection Rights Agreement. The Series B Preferred Shares vote together with common shares as a single 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. |
| • | 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 and pari passu with the common shares up to their par value of $0.001 per share and, thereafter, the Series B Preferred Shares have no right to participate further in the liquidation, dissolution or winding up of the Company. |
Stockholders Rights Agreement
On November 21, 2017, our Board declared a dividend of one preferred share purchase right (a “Right” or a Right,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 or the Rights Agreement,(the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent.
The Rights may have anti-takeover effects. The Rights will cause substantial dilution to any person or group that attempts to acquire us withoutentitle 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.
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 will beis 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.
A holder will not have the right to exercise any portion of the Private Placement WarrantClass 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 Private PlacementClass 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. The
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 shares, including any distribution of cash, stock, property or options by way of dividend, or spin off, then, in each such case, then the exercise price of the Private PlacementClass A Warrants is subject to appropriate adjustmentshall be decreased, effective immediately after the effective date of such distribution, by the amount of cash and/or the fair market value (as determined by our Board of Directors, in the eventgood faith) of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common shares and also upon any distributions of assets, including cash, stocksecurities or other property to our shareholders.assets paid on each common share in respect of such distribution such that the holders of Class A Warrants may obtain the equivalent benefit of such 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 Private PlacementClass A Warrants with the same effect as if such successor entity had been named in the Private PlacementClass 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 Private Placement WarrantClass A Warrants following such fundamental transaction. In addition, we or the successor entity, at the request of Private PlacementClass A Warrant holders, will be obligated to purchase any unexercised portion of the Private PlacementClass A Warrants in accordance with the terms of such Private PlacementClass A Warrants. We have also agreed to file a registration statement to register the resale
Governing Law. The Class A Warrants and warrant agreement are governed by New York law.
Description of the common shares underlying the Private Placement Warrants within 30 calendar days from
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. Prior to the date of this annual report, 5,707,136 of the Securities Purchase Agreement. We have also agreed to use commercially reasonable efforts to cause such registration to become effective and to keep such registration statement effective at all times until no investor owns any Private Placement Warrants orwere exercised in full, resulting in the issuance of an aggregate of 5,707,136 common shares issuable uponfor an aggregate exercise thereof.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 $0.19$1.90 per common share and for aover an initial term of 5 years.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 231,750,00023,175,000 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 Class A Warrants described above. As of the date of this annual report, all 19,230,770 April 7 Warrants remain outstanding.
Adjustments to the Warrants in Connection with the Spin-Off
In accordance with their terms, the exercise price of each of the Class A Warrants, April 7 Warrants and Private Placement Warrants was decreased by the fair market value (as determined by our Board of Directors, in good faith) of the Toro common shares upon completion of the Spin-Off. 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"“CASTOR”. On February 11, 2019, our common shares began trading on the NASDAQ Capital Market under the ticker symbol "CTRM"“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.
For a description of significant differences between the statutory provisions of the BCA and the General Corporation Law of the State of Delaware relating to shareholders’ rights, refer to Exhibit 2.2 (Description of Securities).
| C. |
We refer you to "Item“Item 4. Information on the Company", "ItemCompany,” “Item 5. Operating and Financial Review and Prospects - B.—B. Liquidity and Capital Resources"Resources” and "Item 7“Item 7. Major Shareholders and Related Party Transactions – Transactions—B. Related Party Transactions"Transactions” for a discussion of thecertain material contracts to which we are a party that we consider to be both material and not entered into in the ordinary course of business during the two-year period immediately preceding the date of this annual report. Certain of these material agreements thatreport, which are to be performed in whole or in part at or after the date of this annual report arealso attached as exhibits to this annual report. Other than these contracts, we have no other material contracts, other than contracts entered into in the ordinary course of business, to which we are a party during the two-year period immediately preceding the date of this annual report.
| D. |
The Marshall Islands impose no exchange controls on non-resident corporations.
| E. |
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 stock.shares. This discussion does not purport to deal with the tax consequences of owning common stockshares 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, persons that purchase or sell common shares as part of a wash sale for tax purposes, U.S. Holders whose functional currency is not the United States dollar, persons required to recognized income no later than when such income is included on an "applicable financial statement," persons subject to the "base erosion and anti-avoidance" tax, and investors that own, actually or under applicable constructive ownership rules, 10% or more of our common shares, may be subject to special rules.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 stock.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"“we” and "us"“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.
U.S. Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation is subject to U.S. federal income taxation in respect of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating agreement, 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“shipping income,"” to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the United States, which we refer to as "U.S.-source“U.S. source gross shipping income".income” or USSGTI.
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States.U.S. source income. We are not permitted by law to engage in such transportation that producesand thus will not earn income whichthat is considered to be 100% derived from sources within the United States.
Shipping income attributable to transportation exclusively between non-U.S. ports will beis considered to be 100% derived from sources outside the United States. ShippingSuch income derived from sources outside the United States willis not be subject to any U.S. federal income tax.
If not exempt from tax under Section 883 of the Code, our gross U.S.-source shipping incomeUSSGTI would be subject to a 4% tax imposedof 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 U.S. federal incomethe 4% tax on our U.S.-source shipping incomeUSSGTI if:
(1) we are organized in a foreign country or our country of organization, that grants an "equivalent exemption"“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"“residents” of our country of organization or of anothera foreign country that grants an "equivalent exemption"“equivalent exemption” to corporations organized in the United States (each such individual is a "qualified shareholder"“qualified shareholder” and such individuals collectively, "qualified shareholders"“qualified shareholders”), which we refer to as the "50%“50% Ownership Test,"” or
(b) our stock is "primarily“primarily and regularly traded on an established securities market"market” in our country of organization, in another country that grants an "equivalent exemption"“equivalent exemption” to U.S. corporations, or in the United States, which we refer to as the "Publicly-Traded Test"“Publicly-Traded Test”.
The Marshall Islands, the jurisdiction wherein which we and our ship-owning subsidiaries are incorporated, grants an "equivalent exemption"“equivalent exemption” to U.S. corporations. Therefore, we will be exempt from U.S. federal income tax with respect tothe 4% on our U.S.-source shipping incomeUSSGTI if we meet either the 50% Ownership Test or the Publicly-Traded Test is met.Test.
Due to the wide publicly-heldwidely dispersed nature of the ownership of our common stock, we do not expectshares, it is highly unlikely that we will be able tocould satisfy the requirements of the 50% Ownership Test. Therefore, we willexpect to be exempt from U.S. federal income taxationthe 4% tax on our U.S. source shipping incomeUSSGTI only if we are able to satisfy the Publicly-Traded Test.
Treasury Regulations provide, in pertinent part, that stock of a foreign corporation willmust be considered to be "primarily traded"“primarily and regularly traded on an established securities market ifin 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 thatthe country exceedswhere 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 single country. Our common stock is "primarily traded"shares, which are traded on the Nasdaq Capital Market.Market, meet the test of being “primarily traded”.
To be considered to be "regularly traded" on an established securities market if“regularly traded” one or more classes of our stock representing more than 50% of our outstanding shares, bythe 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 market which we refer to as the listing threshold. Although ourvote and value” test) and meet certain other requirements. Our common stock isshares are listed on the Nasdaq Capital Market, our common stock maybut do not represent more than 50% of the voting power of all classes of stock entitiesentitled 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% 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 stock may not haveshares represented more than 50% of the voting power of all classesour 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 U.S. Treasury in light of the Publicly-Traded Test enunciated in the regulations should be accepted as satisfying the exemption. Accordingly, beginning with our stock entitled to vote, notwithstanding that it was traded on the Nasdaq Capital Market in 2020 taxable year and going forward, we intend to take the position on our 2020 U.S. federal income tax returns that we didqualify for the benefits of Section 883. In this regard, we filed a petition with the US Treasury to change the Publicly-Traded Test in such a way that our stock structure would qualify us for exemption. There can be no assurance that our petition will be successful. Based on the current wording of the relevant regulation our particular stock structure does not satisfy the Publicly-TradedPublicly Traded Test. However,Accordingly, there can be no assurance that we mayor our subsidiaries will qualify for the exemption underbenefits of Section 883 in futurefor any taxable years, although no assurance can be given in this regard.year.
Taxation in the Absence of Exemption under Section 883 of the Code
If contrary to our position described above the IRS determines that we do not qualify for the benefits of Section 883 of the Code, may be unavailable, we intend to take the position that our U.S.-source shipping income,USSGTI, to the extent not considered to be "effectively connected"“effectively connected” with the conduct of a U.S. trade or business, as described below, iswould be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the "4%“4% gross basis tax regime," for the 2020 taxable year. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping income should never exceed 2% under the 4% gross basis tax regime.regime”.
To the extent the benefits of the exemption under Section 883 of the Code are unavailable and our U.S.-source shipping incomeUSSGTI is considered to be "effectively connected"“effectively connected” with the conduct of a U.S. trade or business, as described below, any such "effectively connected"“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"“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"“effectively connected” with the conduct of a U.S. trade or business only if:
We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and
substantially all of our U.S.-source shipping incomeUSSGTI 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.
We do not currently have, nor intend to have or permit circumstances that would result in having, any vessel operating to the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S.-source shipping incomeUSSGTI will be "effectively connected"“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 willdo 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"“U.S. Holder” means a beneficial owner of our common stockshares 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.
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If a partnership holds our common stock,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 stock,shares, you are encouraged to consult your tax advisor.
No ruling has been or will be requested from the IRS regarding any matter affecting Castor or its shareholders. The statements made here may not be sustained by a court if contested by the IRS.
Distributions
Subject to the discussion of passive foreign investment companies, or PFIC, below, any distributions made by us with respect to our common stockshares 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'sHolder’s tax basis in his common stockshares on a dollar-for-dollar basis and thereafter as capital gain. However, we generally 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 stockshares will generally be treated as "passive“passive category income"income” for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
Dividends paid on our common stockshares to a U.S. Individual Holder who is an individual, trust or estate will generally be treated as ordinary income. However, if you are a U.S. Individual Holder, 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“extraordinary dividend,"” generally, a dividend paid by us in an amount which is equal to or in excess of 10% of a shareholder'sshareholder’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'sshareholder’s adjusted tax basis (or fair market value upon the shareholder'sshareholder’s election) in a common share. If we pay an "extraordinary dividend"“extraordinary dividend” on our common stockshares that is treated as "qualified“qualified dividend income,"” then any loss derived by a U.S. Non-CorporateIndividual Holder from the sale or exchange of such common stockshares will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common StockShares
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 stockshares 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'sHolder’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'sHolder’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'sHolder’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 stock,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'subsidiaries’ corporations in which we own at least 25% of the value of the subsidiary'ssubsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute "passive income"“passive income” for these purposes. By contrast, rental income would generally constitute "passive income"“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"“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"“passive income”. On the other hand, income derived from the time charter of a vessel should not be treated as "passive income"“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"“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“Qualified Electing Fund,"” which election is referred to as a "QEF Election"“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"“mark-to-market” election with respect to our common stock,shares, which election is referred to as a "Mark-to-Market Election"“Mark-to-Market Election”. A U.S. Holder holding PFIC shares that does not make either a "QEF Election"“QEF Election” or "Mark-to-Market Election"“Mark-to-Market Election” will be subject to the Default PFIC Regime, as defined and discussed below in "Taxation—“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"“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.
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The QEF Election
If a U.S. Holder makes a timely QEF Election, which U.S. Holder we refer to as an "Electing“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'sHolder’s adjusted tax basis in the common stockshares 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 stockshares 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 stock. 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.shares. 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"“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 stock isshares are traded on an over-the-counter market,the Nasdaq Capital Market, as itthey currently isare and as itthey may continue to be, our common stock may notshares should be considered "marketable stock"“marketable stock” for purposes of making the Mark-to-Market Election. However, a mark-to-market election generally cannot be made for equity interests in any lower-tier PFICs that we own, unless shares of such lower-tier PFIC are themselves “marketable”. As a result, even if a U.S. Holder validly makes a mark-to-market election with respect to our common shares, the U.S. Holder may continue to be subject to the Default PFIC Regime (described below) with respect to the U.S. Holder’s indirect interest in any of our subsidiaries that are treated as an equity interest in a PFIC. U.S. Holders are urged to consult their own tax advisors in this regard.advisors.
Taxation of U.S. Holders Not Making a Timely QEF or "Mark-to-Market"“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 stockshares 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'sHolder’s holding period for the common stock)shares), and (2) any gain realized on the sale, exchange, redemption or other disposition of the common stock.shares.
Under the Default PFIC Regime:
the excess distribution or gain would be allocated ratably over the Non-Electing Holder'sHolder’s aggregate holding period for the common stock;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"“excess distributions” by us to a Non-Electing Holder will be treated as discussed above under "Taxation—“Taxation—U.S. Federal Income Taxation of U.S. Holders—Distributions"Distributions”.
If a Non-Electing Holder who is an individual dies while owning the common stock,shares, such Non-Electing Holder'sHolder’s successor generally would not receive a step-up in tax basis with respect to the common stock.shares.
Shareholder Reporting
A U.S. Holder that owns “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with its tax return. “Specified foreign financial assets” may include financial accounts maintained by foreign financial institutions, as well as the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-United States persons, (ii) financial instruments and contracts that have non-United States issuers or counterparties, and (iii) interests in foreign entities. Significant penalties may apply for failing to satisfy this filing requirement. U.S. Holders are urged to contact their tax advisors regarding this filing requirement.
U.S. Federal Income Taxation of "Non-U.S. Holders"“Non-U.S. Holders”
A beneficial owner of our common stockshares (other than a partnership) that is not a U.S. Holder is referred to herein as a "Non-U.S. Holder"“Non-U.S. Holder”.
Dividends on Common StockShares
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 stock,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 StockShares
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 stock,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 stock,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
If you are a non-corporate U.S. Holder, information reporting requirements, on IRS Form 1099, generally will apply to dividend payments or other taxable distributions made to you within the United States, and the payment of proceeds to you will be subjectfrom the sale of common shares effected at a United States office of a broker.
Additionally, backup withholding may apply 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;
comply with applicable certification requirements or (in the case of dividend payments) are notified by the IRS that you have failed to report all interest orand dividends required to be shown on your U.S. federal income tax returns; or
If you sell your common stock to or throughare a U.S. office of a broker, the payment of the proceeds is subject to both U.S.Non-U.S. Holder, you are generally exempt from 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 stock through a non-U.S. office of a non-U.S. broker and the sales proceeds are paidrequirements with respect to you outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment isdividend payments made to you outside the United States if you sell yourby us or another non-United States payor. You are also generally exempt from backup withholding and information reporting requirements in respect of dividend payments made within the United States and the payment of the proceeds from the sale of common stock throughshares effected at a non-U.S.United States office of a broker, that isas long as either (i) you have furnished a U.S.valid IRS Form W-8 or other documentation upon which the payor or broker may rely to treat the payments as made to a non-United States person, or (ii) you otherwise establish an exemption.
Payment of the proceeds from the sale of common shares effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale effected at a foreign office of a broker could be subject to information reporting in the same manner as a sale within the United States (and in certain cases may be subject to backup withholding as well) if (i) the broker has somecertain connections to the United States, (ii) the proceeds or confirmation are sent to the United States or (iii) the sale has certain other contactsspecified connections with the United States. Backup withholding tax is not an additional tax. Rather, you
You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your U.S. federal income tax liability by filing a refund claim with the IRS.
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 suchtonnage tax imposed upon our operations may be material.
| F. |
Not applicable.
| G. |
Not applicable.
| H. |
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. These materials, including this annual report and the accompanying exhibits may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549. 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, our websiteor 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. |
Not applicable.
| J. | ANNUAL REPORT TO SECURITY HOLDERS |
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 and interest 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.LIBOR and SOFR, which are the relevant reference under our credit facilities. Increasing interest rates could increase our interest expense and adversely impact our future results of operations. As of December 31, 2020,2022, our net effective exposure to floating interest rate fluctuations on our outstanding debt was $13.5$153.7 million. Our interest expense is affected by changes in the general level of interest rates, particularly LIBOR.LIBOR and SOFR. As an indication of the extent of our sensitivity to interest rate changes, an increase in LIBOR and/or SOFR of 1% would have increaseddecreased our net lossincome in the yearyears ended December 31, 20202021 and 2022 by approximately $0.1$0.6 million and $1.5 million, respectively, based upon our floating interest-bearing average debt level during 2020.2022. We expect our sensitivity to interest rate changes to increase in the future ifas 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 two credit facilities that use SOFR as the relevant reference rate and therefore do not currently view changes to SOFR as having a material effect on our previously announced and/or potential acquisitions of vessels from affiliated or unaffiliated third parties.business. For further information on the risks associated with our business,interest rates, please see "Item“Item 3. Key Information—D. Risk Factors" Factors— Most of our outstanding debt is exposed to Interbank Offered Rate (“LIBOR”) and Secured Overnight Financing Rate (“SOFR”) Risk. 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.” 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. TheA minority of our vessels'vessels’ operating expenses (approximately 18.0%10.6% for the year ended December 31, 2020)2022) and the minority of our general and administrative expenses (approximately 10.2%9.9%) 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, 2020,2022, these non-US dollar expenses represented 11.7%2.8% 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 given recent economic conditions.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.
100
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
| 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 share of our common stockshares includes one preferred shares purchase 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 stockshares without the approval of our Board. See "Item“Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights Agreement" 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“Item 10. Additional Information—B. Memorandum and Articles of Association"Association” for a description of the rights of holders of our Series A cumulative redeemable perpetual preferred shares and Series B Preferred Shares relative to the rights of holders of shares of our common stock.shares.
| ITEM 15. | CONTROLS AND PROCEDURES |
| A. |
As of December 31, 2022, our management conducted an evaluation pursuant to Rules 13a-15(e) and 15d-15(e) promulgated under the supervision and with the participationExchange Act, as amended, of our Chairman, Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant toas defined in Rules 13a-15(e) orand 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this annual report, as of December 31, 2020.Act.
The term disclosure controls and procedures areis 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'sSEC’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'sissuer’s management including its Chief Executive and Chief Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. 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 Chairman, Chief Executive Officer and Chief Financial Officermanagement concluded that, as of December 31, 2022, our disclosure controls and procedures arewhich 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 asin 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 December 31, 2020.the SEC.
| B. |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934.
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'sCompany’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. Based on this evaluation, our management believes that our internal control over financial reporting was effective as of December 31, 2022.
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. |
This annual report does not include an attestation report of the Company'sCompany’s registered public accounting firm regarding internal control over financial reporting. Management'sManagement’s report was not subject to attestation by the Company'sCompany’s registered public accounting firm, since, as an "emerging“emerging growth company"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. |
There have been no significant 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'sCompany’s internal control over financial reporting.
| ITEM 16. | RESERVED |
| 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“audit committee financial expert"expert” under SEC rules, and that Mr. Daskalakis is "independent"“independent” under applicable Nasdaq rules and SEC standards.
| ITEM 16B. | CODE OF ETHICS |
We adopted a code of ethicsconduct that applies to any of our employees, including our principal executiveChief Executive Officer and financial officer.Chief Financial Officer. The code of ethicsconduct 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 ethicsconduct at no cost. If we make any substantive amendment to the code of ethicsconduct or grant any waivers, including any implicit waiver, from a provision of our code of ethics,conduct, we will disclose the nature of that amendment or waiver on our website. During the year ended December 31, 2020,2022, 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, 20192021, and 20202022 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. In addition, represent compensation for professional services rendered for the audit of the Predecessor Toro Corp. financial statements for the period ended December 31, 2021 and for the review of the financial information for the six and nine months ended June 30 and September 30, 2022, as well as in connection with (i) the issuance of related consents and (ii) the review of the Company’s registration statement 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 | December 31, 2019 | December 31, 2020 | ||||||
| Audit Fees | 140,385 | 188,750 | ||||||
| For the year ended | ||||||||
| In U.S. dollars | December 31, 2021 | December 31, 2022 | ||||||
| Audit Fees | $ | 367,000 | $ | 482,000 | ||||
Audit-Related Fees
Not applicable.
Tax Fees
Not applicable.
All Other Fees
Not applicable.
Audit Committee'sCommittee’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 |
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. |
| • | 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. |
| • | 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. |
| • | 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. |
| • | 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. |
| • | 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. |
| • | 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. |
| ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
| ITEM 16J. | INSIDER TRADING POLICIES |
Not applicable.
| ITEM 17. | FINANCIAL STATEMENTS |
See Item 18.
| ITEM 18. | FINANCIAL STATEMENTS |
The financial information required by this Item is set forth on pages F-1 to F-31F-38 filed as part of this annual report.
| ITEM 19. | EXHIBITS |
| Articles of Incorporation of the Company incorporated by reference to Exhibit 3.1 to the Company’s registration statement on Form F-4 filed with the | |||
| Articles of Amendment to the Articles of Incorporation of the Company, as amended, filed with the Registry of the Marshall Islands on May 27, 2021 incorporated by reference to Exhibit 99.1 to Amendment No. 2 to Form 8-A filed with the SEC on May 28, 2021. | |||
| Bylaws of the Company incorporated by reference to Exhibit 3.2 to the | |||
| Form of Common Share Certificate incorporated by reference to Exhibit | |||
| Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||
| Form of Class A |
| Form of | |||
| Stockholder Rights Agreement dated as of November 20, 2017 by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent, incorporated by reference to Exhibit 10.2 to the | |||
| Amended and Restated Statement of Designation | |||
| 2022. | |||
| Amended and Restated Statement of | |||
| $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 | |||
| $ | |||
| $40.75 Million Term Loan Facility, dated | |||
| $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, incorporated by reference to Exhibit 4.19 of the Company’s annual report on Form 20-F filed with the SEC on March 31, 2022. | |||
| $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, incorporated by reference to Exhibit 4.20 of the Company’s annual report on Form 20-F filed with the SEC on March 31, 2022. | |||
| $22.5 Million Term Loan Facility, dated November 22, 2022, by and among Chailease International Financial Services Co., Ltd., as lender, Jerry Shipping Co. and Tom Shipping Co., as borrowers and Castor Maritime, as guarantor. | |||
| Warrant Agency Agreement, among the Company and American Stock Transfer & Trust Company, LLC, dated June 26, 2020, incorporated by reference to Exhibit 4.1 of the Company’s report on Form 6-K furnished with the | |||
| Securities Purchase Agreement by and between the Company and the purchasers identified on the signature pages thereto, dated July 12, 2020, incorporated by reference to Exhibit 4.2 of the | |||
| Securities Purchase Agreement by and between the Company and the purchasers identified on the signature pages thereto, dated April 5, 2021, incorporated by reference to Exhibit 4.2 of | |||
| Master Management Agreement, dated September 1, 2020, by and among the Company, its shipowning subsidiaries and Castor Ships S.A., incorporated by reference to Exhibit 99.3 of the Company’s report on Form 6-K furnished with the SEC on September 11, 2020. | |||
| Amended and Restated Master Management Agreement, dated July 28, 2022, by and among Castor Maritime Inc., its shipowning subsidiaries and Castor Ships S.A.. | |||
| Addendum No.1 to the Amended and Restated Master Management Agreement, dated November 18, 2022, by and among Castor Maritime Inc., its shipowning subsidiaries, its ex-shipowning subsidiary and Castor Ships S.A.. |
| Contribution and Spin Off Distribution Agreement entered into by and between Castor Maritime Inc. and Toro Corp., dated March 7, 2023. | |||
| List of Subsidiaries. | |||
| Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer and Chief Financial Officer. | |||
| Certification of the Chief Executive Officer | |||
| Consent of Independent Registered Public Accounting | |||
| 101.INS | Inline XBRL Instance Document | ||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL | Inline XBRL Taxonomy Extension Schema Calculation Linkbase Document | ||
| 101.DEF | Inline XBRL Taxonomy Extension Schema Definition Linkbase Document | ||
| 101.LAB | Inline XBRL Taxonomy Extension Schema Label Linkbase Document | ||
| 101.PRE | Inline XBRL Taxonomy Extension Schema Presentation Linkbase Document | ||
| 104 | Cover Page Interactive Data File (Inline XBRL) |
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.
| CASTOR MARITIME INC. | ||
| /s/ Petros Panagiotidis | March | |
| Name: Petros Panagiotidis | ||
Title: Chairman, Chief Executive Officer and Chief Financial Officer |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||
Report of Independent Registered Public Accounting Firm (PCAOB ID 1163) | F-2 | ||
| F-3 | |||
| F-4 | |||
| F-5 | |||
| F-6 | |||
| F-7 |
To the shareholders and the Board of Directors of Castor Maritime Inc.,
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Castor Maritime Inc. and subsidiaries (the "Company") as of December 31, 20202021 and 2019,2022, the related consolidated statements of comprehensive (loss)/income, shareholders’shareholders' equity, and cash flows, for the year ended September 30, 2018,each of the three monthsyears in the period ended December 31, 2018, the year ended December 31, 2019 and the year ended December 31, 2020,2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202021 and 2019,2022, and the results of its operations and its cash flows for the year ended September 30, 2018,each of the three monthsyears in the period ended December 31, 2018, the year ended December 31, 2019 and the year ended December 31, 2020,2022, in conformity withaccounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
March 30, 2021
8, 2023We have served as the Company'sCompany’s auditor since 2017.
F-2
| CASTOR MARITIME INC. | ||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||
| December 31, 2019 and 2020 | ||||||||||||
(Expressed in U.S. Dollars – except for share data) | ||||||||||||
ASSETS | December 31, | December 31, | ||||||||||
| CURRENT ASSETS: | Note | 2019 | 2020 | |||||||||
| Cash and cash equivalents | $ | 4,558,939 | $ | 8,926,903 | ||||||||
| Accounts receivable trade, net | 216,485 | 1,302,218 | ||||||||||
| Due from related party | 3 | 759,386 | 1,559,132 | |||||||||
| Inventories | 143,534 | 714,818 | ||||||||||
| Prepaid expenses and other assets | 375,255 | 1,061,083 | ||||||||||
| Deferred charges, net | 167,298 | — | ||||||||||
| Total current assets | 6,220,897 | 13,564,154 | ||||||||||
| NON-CURRENT ASSETS: | ||||||||||||
| Vessels, net | 5 | 23,700,029 | 58,045,628 | |||||||||
| Restricted cash | 6 | 500,000 | 500,000 | |||||||||
| Prepaid expenses and other assets, non-current | 6 | — | 200,000 | |||||||||
| Deferred charges, net | 4 | — | 2,061,573 | |||||||||
| Total non-current assets | 24,200,029 | 60,807,201 | ||||||||||
| Total assets | $ | 30,420,926 | $ | 74,371,355 | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Current portion of long-term debt, net | 6 | 1,522,895 | 2,102,037 | |||||||||
| Current portion of long-term debt, related party | 3, 6 | — | 5,000,000 | |||||||||
| Accounts payable | 410,592 | 2,078,695 | ||||||||||
| Due to related party, current | 3 | — | 1,941 | |||||||||
| Deferred revenue, net | 493,015 | 108,125 | ||||||||||
Accrued liabilities (including $100,000 and $405,000 accrued interest to related party for years ended December 31,2019 and 2020, respectively) | 3 | 556,248 | 1,613,109 | |||||||||
| Total current liabilities | 2,982,750 | 10,903,907 | ||||||||||
| Commitments and contingencies | 9 | |||||||||||
| NON-CURRENT LIABILITIES: | ||||||||||||
| Long-term debt, net | 6 | 9,234,165 | 11,083,829 | |||||||||
| Long-term debt, related party | 3, 6 | 5,000,000 | — | |||||||||
| Total non-current liabilities | 14,234,165 | 11,083,829 | ||||||||||
| SHAREHOLDERS' EQUITY: | ||||||||||||
| Common shares, $0.001 par value; 1,950,000,000 shares authorized; 3,318,112 shares issued and outstanding as of December 31, 2019 and 131,212,376 issued and outstanding as of December 31, 2020 | 7 | 3,318 | 131,212 | |||||||||
| Preferred shares, $0.001 par value: 50,000,000 shares authorized: | 7 | |||||||||||
| Series A Preferred Shares- 9.75% cumulative redeemable perpetual preferred shares (liquidation preference of $30 per share), 480,000 shares issued and outstanding as of December 31, 2019 and 2020, respectively | 7 | 480 | 480 | |||||||||
| Series B Preferred Shares – 12,000 shares issued and outstanding as of December 31, 2019 and 2020, respectively | 7 | 12 | 12 | |||||||||
| Additional paid-in capital | 12,763,403 | 53,568,650 | ||||||||||
| Retained earnings/ (Accumulated deficit) | 436,798 | (1,316,735 | ) | |||||||||
| Total shareholders' equity | 13,204,011 | 52,383,619 | ||||||||||
| Total liabilities and shareholders' equity | $ | 30,420,926 | $ | 74,371,355 | ||||||||
Year Ended September 30, | Three Months Ended December 31, | Year Ended December 31, | Year Ended December 31, | |||||||||||||||||
| Note | 2018 | 2018 | 2019 | 2020 | ||||||||||||||||
| REVENUES: | ||||||||||||||||||||
| Vessel revenues (net of commissions to charterers of $153,406, $43,125 ,$302,556 and $629,015 respectively) | $ | 3,960,822 | $ | 1,111,075 | $ | 5,967,772 | $ | 12,487,692 | ||||||||||||
| Total revenues | 3,960,822 | 1,111,075 | 5,967,772 | 12,487,692 | ||||||||||||||||
| EXPENSES: | ||||||||||||||||||||
| Voyage expenses (including $40,471 and $29,769 to related parties for the years ended December 31, 2019 and 2020, respectively) | 3,12 | (37,373 | ) | (19,556 | ) | (261,179 | ) | (584,705 | ) | |||||||||||
| Vessel operating expenses | 12 | (1,727,770 | ) | (432,544 | ) | (2,802,991 | ) | (7,447,439 | ) | |||||||||||
| Management fees to related parties | 3 | (111,480 | ) | (29,440 | ) | (212,300 | ) | (930,500 | ) | |||||||||||
| Depreciation and amortization | 4,5 | (637,611 | ) | (177,378 | ) | (897,171 | ) | (1,904,963 | ) | |||||||||||
| Provision for doubtful accounts | 2 | — | — | — | (37,103 | ) | ||||||||||||||
| General and administrative expenses | 13 | |||||||||||||||||||
| - Company administration expenses (including $400,000 to related party for the year ended December 31, 2020) | (109,233 | ) | (22,954 | ) | (378,777 | ) | (1,130,953 | ) | ||||||||||||
| - Public registration costs | (350,167 | ) | (161,116 | ) | (132,091 | ) | — | |||||||||||||
| Total expenses | (2,973,634 | ) | (842,988 | ) | (4,684,509 | ) | (12,035,663 | ) | ||||||||||||
| Operating income | 987,188 | 268,087 | 1,283,263 | 452,029 | ||||||||||||||||
| OTHER INCOME/ (EXPENSES): | ||||||||||||||||||||
| Interest and finance costs (including $162,500 and $305,000 to related party for years ended December 31, 2019 and 2020, respectively) | 3,6, 14 | (3,393 | ) | (519 | ) | (222,163 | ) | (2,189,577 | ) | |||||||||||
| Interest income | 4,243 | 7,985 | 31,589 | 34,976 | ||||||||||||||||
| Foreign exchange (losses)/ gains | (8,539 | ) | 89 | (4,540 | ) | (29,321 | ) | |||||||||||||
| Other, net | 1,439 | 800 | — | — | ||||||||||||||||
| Total other income/ (expenses), net | (6,250 | ) | 8,355 | (195,114 | ) | (2,183,922 | ) | |||||||||||||
| Net income/(loss) and comprehensive income/(loss), before taxes | $ | 980,938 | $ | 276,442 | $ | 1,088,149 | $ | (1,731,893 | ) | |||||||||||
| US Source Income Taxes | 10 | — | — | — | (21,640 | ) | ||||||||||||||
| Net income/(loss) and comprehensive income/(loss) | $ | 980,938 | $ | 276,442 | $ | 1,088,149 | $ | (1,753,533 | ) | |||||||||||
| (Loss)/ Earnings per common share, basic and diluted | 11 | $ | (0.28 | ) | $ | (0.30 | ) | $ | 0.31 | $ | (0.03 | ) | ||||||||
| Weighted average number of common shares, basic and diluted | 2,400,000 | 2,400,000 | 2,662,383 | 67,735,195 | ||||||||||||||||
December 31, 2021 and 2022
| ASSETS | December 31, | December 31, | ||||||||||
| CURRENT ASSETS: | Note | 2021 | 2022 | |||||||||
| Cash and cash equivalents | $ | 37,173,736 | $ | 142,373,151 | ||||||||
| Restricted Cash | 7 | 2,382,732 | 1,684,269 | |||||||||
| Accounts receivable trade, net | 8,224,357 | 13,322,984 | ||||||||||
| Due from related parties | 3 | — | 2,995,682 | |||||||||
| Inventories | 4,436,879 | 2,833,258 | ||||||||||
| Prepaid expenses and other assets | 2,591,150 | 2,980,784 | ||||||||||
| Deferred charges, net | 12 | 191,234 | 51,138 | |||||||||
| Total current assets | 55,000,088 | 166,241,266 | ||||||||||
| NON-CURRENT ASSETS: | ||||||||||||
| Vessels, net | 3, 6 | 393,965,929 | 435,894,644 | |||||||||
| Advances for vessel acquisition | 6 | 2,368,165 | — | |||||||||
| Restricted cash | 7 | 3,830,000 | 8,250,000 | |||||||||
| Due from related parties | 3 | 810,437 | 5,222,572 | |||||||||
| Prepaid expenses and other assets | 2,075,999 | 6,825,999 | ||||||||||
| Deferred charges, net | 4 | 4,862,824 | 7,978,961 | |||||||||
| Fair value of acquired time charters | 5 | — | 2,507,506 | |||||||||
| Total non-current assets | 407,913,354 | 466,679,682 | ||||||||||
| Total assets | $ | 462,913,442 | $ | 632,920,948 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Current portion of long-term debt, net | 7 | 16,091,723 | 31,777,117 | |||||||||
| Accounts payable | 5,042,575 | 9,237,447 | ||||||||||
| Due to related parties | 3 | 4,507,569 | — | |||||||||
| Deferred revenue | 3,927,833 | 2,583,880 | ||||||||||
| Accrued liabilities | 4,459,696 | 7,763,325 | ||||||||||
| Total current liabilities | 34,029,396 | 51,361,769 | ||||||||||
| NON-CURRENT LIABILITIES: | ||||||||||||
| Long-term debt, net | 7 | 85,949,676 | 120,064,119 | |||||||||
| Total non-current liabilities | 85,949,676 | 120,064,119 | ||||||||||
| Commitments and contingencies | 10 | |||||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||||
Common shares, $0.001 par value; 1,950,000,000 shares authorized; 94,610,088 issued and outstanding as of December 31,2021, and December 31, 2022 | 8 | 94,610 | 94,610 | |||||||||
Preferred shares, $0.001 par value: 50,000,000 shares authorized; Series B Preferred Shares – 12,000 shares issued and outstanding as of December 31, 2021, and December 31, 2022 | 8 | 12 | 12 | |||||||||
| Additional paid-in capital | 303,658,153 | 303,658,153 | ||||||||||
| Retained earnings | 39,181,595 | 157,742,285 | ||||||||||
| Total shareholders’ equity | 342,934,370 | 461,495,060 | ||||||||||
| Total liabilities and shareholders’ equity | $ | 462,913,442 | $ | 632,920,948 | ||||||||
| Number of shares issued | ||||||||||||||||||||||||||||
Common shares | Preferred A shares | Preferred B shares | Par Value of Shares issued | Additional Paid-in capital | Retained earnings/ (Accumulated deficit) | Total Shareholders' Equity | ||||||||||||||||||||||
| Balance, September 30, 2017 | 2,400,000 | 480,000 | 12,000 | $ | 2,892 | $ | 7,612,108 | $ | 878,644 | $ | 8,493,644 | |||||||||||||||||
- Net income | — | — | — | — | — | 980,938 | 980,938 | |||||||||||||||||||||
| Balance, September 30, 2018 | 2,400,000 | 480,000 | 12,000 | $ | 2,892 | $ | 7,612,108 | $ | 1,859,582 | $ | 9,474,582 | |||||||||||||||||
- Net income | — | — | — | — | — | 276,442 | 276,442 | |||||||||||||||||||||
| Balance, December 31, 2018 | 2,400,000 | 480,000 | 12,000 | 2,892 | 7,612,108 | 2,136,024 | 9,751,024 | |||||||||||||||||||||
- Issuance of common stock, net of commissions and issuance costs, pursuant to the ATM Program (Note 7) | 618,112 | — | — | 618 | 2,319,083 | — | 2,319,701 | |||||||||||||||||||||
- Issuance of common stock related to Series A Preferred Stock dividends (Note 7) | 300,000 | — | — | 300 | 967,500 | (967,800 | ) | — | ||||||||||||||||||||
- Series A Preferred Stock dividend waived accounted as deemed contribution (Note 7) | — | — | — | — | 3,379,589 | — | 3,379,589 | |||||||||||||||||||||
- Series A Preferred Stock dividend waived (Note 7) | — | — | — | — | (1,560,014 | ) | (1,819,575 | ) | (3,379,589 | ) | ||||||||||||||||||
- Gain on extinguishment of preferred stock pursuant to the Series A Preferred Stock Amendment Agreement, net of expenses (Note 7) | — | — | — | — | 112,637 | — | 112,637 | |||||||||||||||||||||
- Preferred shareholders’ deemed dividend pursuant to the Series A Preferred Stock Amendment Agreement (Note 7) | — | — | — | — | (130,000 | ) | — | (130,000 | ) | |||||||||||||||||||
- Shareholder’s deemed contribution pursuant to the $7.5 Million Bridge Loan | — | — | — | — | 62,500 | — | 62,500 | |||||||||||||||||||||
- Net income | — | — | — | — | — | 1,088,149 | 1,088,149 | |||||||||||||||||||||
| Balance, December 31, 2019 | 3,318,112 | 480,000 | 12,000 | 3,810 | 12,763,403 | 436,798 | 13,204,011 | |||||||||||||||||||||
- Issuance of common stock pursuant to the $5.0 Million Convertible Debentures (Notes 6,7) | 8,042,078 | — | — | 8,042 | 5,049,731 | — | 5,057,773 | |||||||||||||||||||||
| - Issuance of common stock pursuant to the June Equity Offering, net of issuance costs (Note 7) | 59,082,686 | — | — | 59,083 | 18,539,169 | — | 18,598,252 | |||||||||||||||||||||
| - Issuance of common stock pursuant to the July Equity Offering, net of issuance costs (Note 7) | 57,750,000 | — | — | 57,750 | 15,630,104 | — | 15,687,854 | |||||||||||||||||||||
| - Issuance of common stock pursuant to the exercise of Class A Warrants (Note 7) | 3,019,500 | — | — | 3,019 | 1,053,806 | — | 1,056,825 | |||||||||||||||||||||
| - Beneficial conversion feature pursuant to the issuance of the $5.0 Million Convertible Debentures (Note 6) | — | — | — | — | 532,437 | — | 532,437 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (1,753,533 | ) | (1,753,533 | ) | |||||||||||||||||||
| Balance, December 31, 2020 | 131,212,376 | 480,000 | 12,000 | 131,704 | 53,568,650 | (1,316,735 | ) | 52,383,619 | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
| Note | Year Ended September 30, | Three Months Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||
| 2018 | 2018 | 2019 | 2020 | |||||||||||||||||
| Cash Flows provided by/(used in) Operating Activities: | ||||||||||||||||||||
| Net income/(loss) | $ | 980,938 | $ | 276,442 | $ | 1,088,149 | $ | (1,753,533 | ) | |||||||||||
| Adjustments to reconcile net income/(loss) to net cash provided by/(used in) Operating activities: | ||||||||||||||||||||
| Depreciation and amortization of deferred dry-docking costs | 4,5 | 637,611 | 177,378 | 897,171 | 1,904,963 | |||||||||||||||
| Amortization and write-off of deferred finance charges | 14 | — | — | 6,628 | 599,087 | |||||||||||||||
| Amortization of other deferred charges | — | — | 31,066 | 112,508 | ||||||||||||||||
| Deferred revenue amortization | — | — | (119,006 | ) | (430,994 | ) | ||||||||||||||
| Convertible debentures’ interest settled in common stock | 6,14 | — | — | — | 57,773 | |||||||||||||||
| Amortization and write-off of convertible notes beneficial conversion feature | 6,14 | — | — | — | 532,437 | |||||||||||||||
| Provision for doubtful accounts | 2 | — | — | — | 37,103 | |||||||||||||||
| Shareholders' deemed interest contribution | — | — | 62,500 | — | ||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Accounts receivable trade | 340,152 | (668,520 | ) | 454,488 | (1,122,836 | ) | ||||||||||||||
| Inventories | (14,111 | ) | 3,167 | (86,004 | ) | (571,284 | ) | |||||||||||||
| Due from/to related parties | (166,815 | ) | 86,645 | (582,952 | ) | (797,805 | ) | |||||||||||||
| Prepaid expenses and other assets | (15,537 | ) | (10,603 | ) | (320,055 | ) | (885,828 | ) | ||||||||||||
| Dry-dock costs paid | (784,474 | ) | — | — | (1,308,419 | ) | ||||||||||||||
| Other deferred charges | — | — | (198,364 | ) | 26,494 | |||||||||||||||
| Accounts payable | (71,621 | ) | 210,888 | 129,201 | 584,527 | |||||||||||||||
| Accrued liabilities | (3,437 | ) | 25,001 | 384,827 | 625,894 | |||||||||||||||
| Deferred revenue | — | 47,708 | 564,313 | 46,104 | ||||||||||||||||
| Net Cash provided by/(used in) Operating Activities | 902,706 | 148,106 | 2,311,962 | (2,343,809 | ) | |||||||||||||||
| Cash flow used in Investing Activities: | ||||||||||||||||||||
| Vessel acquisitions and other vessel improvements | 5 | — | — | (17,227,436 | ) | (35,472,173 | ) | |||||||||||||
| Net cash used in Investing Activities | — | — | (17,227,436 | ) | (35,472,173 | ) | ||||||||||||||
| Cash flows provided by Financing Activities: | ||||||||||||||||||||
| Gross proceeds from issuance of common stock and warrants | 7 | — | — | 2,625,590 | 39,053,325 | |||||||||||||||
| Common stock issuance expenses paid | — | — | (305,889 | ) | (3,710,394 | ) | ||||||||||||||
| Proceeds from long-term debt and convertible debentures | 6 | — | — | 11,000,000 | 9,500,000 | |||||||||||||||
| Repayment of long-term debt | 6 | — | — | — | (2,050,000 | ) | ||||||||||||||
| Proceeds from related party debt | 6 | — | — | 12,500,000 | — | |||||||||||||||
| Repayment of related party debt | 6 | — | — | (7,500,000 | ) | — | ||||||||||||||
| Payment of deferred financing costs | — | — | (232,568 | ) | (608,985 | ) | ||||||||||||||
| Net cash provided by Financing Activities | — | — | 18,087,133 | 42,183,946 | ||||||||||||||||
| Net increase in cash, cash equivalents, and restricted cash | 902,706 | 148,106 | 3,171,659 | 4,367,964 | ||||||||||||||||
| Cash, cash equivalents and restricted cash at the beginning of the year/period | 836,468 | 1,739,174 | 1,887,280 | 5,058,939 | ||||||||||||||||
| Cash, cash equivalents and restricted cash at the end of the year/period | $ | 1,739,174 | $ | 1,887,280 | $ | 5,058,939 | $ | 9,426,903 | ||||||||||||
| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||||||||||||||
| Cash and cash equivalents | $ | 1,739,174 | $ | 1,887,280 | $ | 4,558,939 | $ | 8,926,903 | ||||||||||||
| Restricted cash | — | — | 500,000 | 500,000 | ||||||||||||||||
| Cash, cash equivalents, and restricted cash | $ | 1,739,174 | $ | 1,887,280 | $ | 5,058,939 | 9,426,903 | |||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||||||||||
| Cash paid for interest | — | — | — | 654,555 | ||||||||||||||||
| Shares issued in connection with the settlement of the $5.0 Million Convertible Debentures | — | — | — | 5,057,773 | ||||||||||||||||
| Shares issued in connection with the Series A Preferred Shares Settlement Agreement | — | — | 967,800 | — | ||||||||||||||||
| Series A Preferred Stock dividend waived accounted as deemed contribution | — | — | 3,379,589 | — | ||||||||||||||||
| Preferred shareholders’ deemed contribution pursuant to the Series A Preferred Stock Amendment Agreement, net of expenses | — | — | 112,637 | — | ||||||||||||||||
| Shareholder’s deemed contribution pursuant to the $7.5 Million Bridge Loan | — | — | 62,500 | — | ||||||||||||||||
| Unpaid vessel acquisition and other vessel improvement costs (included in Accounts payable and Accrued liabilities) | — | — | 33,344 | 657,204 | ||||||||||||||||
| Unpaid deferred financing costs (included in Accounts payable) | — | — | 17,000 | — | ||||||||||||||||
| Unpaid deferred dry-dock costs (included in Accounts payable and Accrued liabilities) | — | — | — | 907,685 | ||||||||||||||||
CASTOR MARITIME INC.
For the years ended December 31, 2020, 2021 and 2022
(Expressed in U.S. Dollars – except for share data)
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||
| Note | 2020 | 2021 | 2022 | |||||||||||||
| REVENUES: | ||||||||||||||||
| Time charter revenues | 5,12 | 12,487,692 | 111,900,699 | 163,872,159 | ||||||||||||
| Voyage charter revenues | 12 | — | 15,002,012 | 51,805,097 | ||||||||||||
| Pool revenues | 12 | $ | — | $ | 5,146,999 | $ | 46,424,742 | |||||||||
| Total vessel revenues | 12,487,692 | 132,049,710 | 262,101,998 | |||||||||||||
| EXPENSES: | ||||||||||||||||
Voyage expenses (including $29,769, $1,671,145 and $3,381,564 to related party for the years ended December 31, 2020, 2021 and 2022, respectively) | 3,13 | (584,705 | ) | (12,950,783 | ) | (33,040,690 | ) | |||||||||
| Vessel operating expenses | 13 | (7,447,439 | ) | (39,203,471 | ) | (62,967,844 | ) | |||||||||
| Management fees to related parties | 3 | (930,500 | ) | (6,744,750 | ) | (9,395,900 | ) | |||||||||
| Depreciation and amortization | 4,6 | (1,904,963 | ) | (14,362,828 | ) | (25,829,713 | ) | |||||||||
| Provision for doubtful accounts | 2 | (37,103 | ) | (2,483 | ) | (266,732 | ) | |||||||||
General and administrative expenses (including $400,000, $1,200,000, and $2,100,000 to related party for the years ended December 31, 2020, 2021 and 2022, respectively) | 14 | (1,130,953 | ) | (3,266,310 | ) | (7,043,937 | ) | |||||||||
| Gain on sale of vessel | 6 | — | — | 3,222,631 | ||||||||||||
| Total expenses | (12,035,663 | ) | (76,530,625 | ) | (135,322,185 | ) | ||||||||||
| Operating income | 452,029 | 55,519,085 | 126,779,813 | |||||||||||||
| OTHER INCOME/ (EXPENSES): | ||||||||||||||||
Interest and finance costs (including $305,000, $204,167 and $0 to related party for the years ended December 31, 2020, 2021 and 2022, respectively) | 3,7,15 | (2,189,577 | ) | (2,854,998 | ) | (8,584,054 | ) | |||||||||
| Interest income | 34,976 | 75,123 | 1,558,103 | |||||||||||||
| Foreign exchange (losses)/ gains | (29,321 | ) | 28,616 | 103,700 | ||||||||||||
| Dividend on equity securities | — | — | 24,528 | |||||||||||||
| Gain on sale of equity securities | — | — | 27,450 | |||||||||||||
| Total other expenses, net | (2,183,922 | ) | (2,751,259 | ) | (6,870,273 | ) | ||||||||||
| Net (loss)/income and comprehensive (loss)/income, before taxes | $ | (1,731,893 | ) | $ | 52,767,826 | $ | 119,909,540 | |||||||||
| Income Taxes | 16 | (21,640 | ) | (497,339 | ) | (1,348,850 | ) | |||||||||
| Net (loss)/income and comprehensive (loss)/income | $ | (1,753,533 | ) | $ | 52,270,487 | $ | 118,560,690 | |||||||||
| Deemed dividend on Series A preferred shares | 8,11 | — | (11,772,157 | ) | — | |||||||||||
| Net (loss)/income and comprehensive (loss)/income attributable to common shareholders | (1,753,533 | ) | 40,498,330 | 118,560,690 | ||||||||||||
| (Loss)/Earnings per common share, basic | 11 | (0.26 | ) | 0.48 | 1.25 | |||||||||||
| (Loss)/Earnings per common share, diluted | 11 | $ | (0.26 | ) | $ | 0.47 | $ | 1.25 | ||||||||
| Weighted average number of common shares, basic | 6,773,519 | 83,923,435 | 94,610,088 | |||||||||||||
| Weighted average number of common shares, diluted | 6,773,519 | 85,332,728 | 94,610,088 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CASTOR MARITIME INC.
For the years ended December 31, 2020, 2021, and 2022
(Expressed in U.S. Dollars – except for share data)
| Number of shares issued | ||||||||||||||||||||||||||||
Common shares | Preferred A shares | Preferred B shares | Par Value of Shares issued | Additional Paid-in capital | Retained earnings/ (Accumulated deficit) | Total Shareholders’ Equity | ||||||||||||||||||||||
| Balance, December 31, 2019 | 331,811 | 480,000 | 12,000 | 824 | 12,766,389 | 436,798 | 13,204,011 | |||||||||||||||||||||
- Issuance of common stock pursuant to the $5.0 Million Convertible Debentures (Note 7) | 804,208 | — | — | 804 | 5,056,969 | — | 5,057,773 | |||||||||||||||||||||
- Issuance of common stock pursuant to the 2020 June Equity Offering, net of issuance costs (Note 8) | 5,908,269 | — | — | 5,908 | 18,592,344 | — | 18,598,252 | |||||||||||||||||||||
- Issuance of common stock pursuant to the 2020 July Equity Offering, net of issuance costs (Note 8) | 5,775,000 | — | — | 5,775 | 15,682,079 | — | 15,687,854 | |||||||||||||||||||||
- Issuance of common stock pursuant to the exercise of Class A Warrants (Note 8) | 301,950 | — | — | 302 | 1,056,523 | — | 1,056,825 | |||||||||||||||||||||
- Beneficial conversion feature pursuant to the issuance of the $5.0 Million Convertible Debentures (Note 7) | — | — | — | — | 532,437 | — | 532,437 | |||||||||||||||||||||
| Net loss and comprehensive loss | — | — | — | — | — | (1,753,533 | ) | (1,753,533 | ) | |||||||||||||||||||
Balance, December 31, 2020 | 13,121,238 | 480,000 | 12,000 | 13,613 | 53,686,741 | (1,316,735 | ) | 52,383,619 | ||||||||||||||||||||
| - Issuance of common stock pursuant to the registered direct offerings (Note 8) | 42,405,770 | — | — | 42,406 | 156,824,134 | — | 156,866,540 | |||||||||||||||||||||
| - Issuance of common stock pursuant to warrant exercises (Note 8) | 34,428,840 | — | — | 34,429 | 83,386,517 | — | 83,420,946 | |||||||||||||||||||||
| - Issuance of common stock pursuant to the ATM Program (Note 8) | 4,654,240 | — | — | 4,654 | 12,388,124 | — | 12,392,778 | |||||||||||||||||||||
| - Redemption of Series A Preferred Shares (Note 8) | (480,000 | ) | (480 | ) | (2,627,363 | ) | (11,772,157 | ) | (14,400,000 | ) | ||||||||||||||||||
| Net income and comprehensive income | — | — | — | — | — | 52,270,487 | 52,270,487 | |||||||||||||||||||||
| Balance, December 31, 2021 | 94,610,088 | — | 12,000 | 94,622 | 303,658,153 | 39,181,595 | 342,934,370 | |||||||||||||||||||||
| - Net income and comprehensive income | — | — | — | — | — | 118,560,690 | 118,560,690 | |||||||||||||||||||||
Balance, December 31, 2022 | 94,610,088 | — | 12,000 | 94,622 | 303,658,153 | 157,742,285 | 461,495,060 | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CASTOR MARITIME INC.
For the years ended December 31, 2020, 2021 and 2022 (Expressed in U.S. Dollars)
| Note | Year ended December 31, | |||||||||||||||
| 2020 | 2021 | 2022 | ||||||||||||||
| Cash Flows (used in)/provided by Operating Activities: | ||||||||||||||||
| Net (loss)/income | $ | (1,753,533 | ) | $ | 52,270,487 | $ | 118,560,690 | |||||||||
| Adjustments to reconcile net(loss)/income to net cash (used in)/provided by Operating activities: | ||||||||||||||||
| Depreciation and amortization | 4,6 | 1,904,963 | 14,362,828 | 25,829,713 | ||||||||||||
| Amortization and write-off of deferred finance charges | 15 | 599,087 | 414,629 | 850,244 | ||||||||||||
| Amortization of other deferred charges | 112,508 | — | — | |||||||||||||
| Deferred revenue amortization | (430,994 | ) | — | — | ||||||||||||
| Amortization of fair value of acquired charters | 5 | — | (1,940,000 | ) | 409,538 | |||||||||||
| Interest settled in common stock | 7,15 | 57,773 | — | — | ||||||||||||
| Amortization and write-off of convertible notes beneficial conversion feature | 7,15 | 532,437 | — | — | ||||||||||||
| Provision for doubtful accounts | 2 | 37,103 | 2,483 | 266,732 | ||||||||||||
| Gain on sale of vessel | 6 | — | — | (3,222,631 | ) | |||||||||||
| Gain on sale of equity securities | — | — | (27,450 | ) | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable trade, net | (1,122,836 | ) | (6,924,622 | ) | (5,365,359 | ) | ||||||||||
| Inventories | (571,284 | ) | (3,722,061 | ) | 1,603,621 | |||||||||||
| Due from/to related parties | (797,805 | ) | 5,254,323 | (11,915,386 | ) | |||||||||||
| Prepaid expenses and other assets | (885,828 | ) | (3,406,066 | ) | (4,515,365 | ) | ||||||||||
| Other deferred charges | 26,494 | (191,234 | ) | 140,096 | ||||||||||||
| Accounts payable | 584,527 | 3,070,287 | 4,649,549 | |||||||||||||
| Accrued liabilities | 625,894 | 1,495,032 | 2,920,210 | |||||||||||||
| Deferred revenue | 46,104 | 3,819,708 | (1,343,953 | ) | ||||||||||||
| Dry-dock costs paid | (1,308,419 | ) | (3,730,467 | ) | (5,087,197 | ) | ||||||||||
| Net Cash (used in)/provided by Operating Activities | (2,343,809 | ) | 60,775,327 | 123,753,052 | ||||||||||||
| Cash flow used in Investing Activities: | ||||||||||||||||
| Vessel acquisitions (including time charters attached) and other vessel improvements | 6 | (35,472,173 | ) | (346,273,252 | ) | (76,405,829 | ) | |||||||||
| Advances for vessel acquisition | 6 | — | (2,367,455 | ) | — | |||||||||||
| Net proceeds from sale of vessel | 6 | — | — | 12,641,284 | ||||||||||||
| Purchase of equity securities | — | — | (60,750 | ) | ||||||||||||
| Proceeds from sale of equity securities | — | — | 88,200 | |||||||||||||
| Net cash used in Investing Activities | (35,472,173 | ) | (348,640,707 | ) | (63,737,095 | ) | ||||||||||
| Cash flows provided by Financing Activities: | ||||||||||||||||
| Gross proceeds from issuance of common stock and warrants | 8 | 39,053,325 | 265,307,807 | — | ||||||||||||
| Common stock issuance expenses | (3,710,394 | ) | (12,527,747 | ) | (65,797 | ) | ||||||||||
| Proceeds from long-term debt and convertible debentures | 7 | 9,500,000 | 97,190,000 | 77,500,000 | ||||||||||||
| Redemption of Series A Preferred Shares | 8 | — | (14,400,000 | ) | — | |||||||||||
| Repayment of long-term debt | 7 | (2,050,000 | ) | (6,878,500 | ) | (27,543,000 | ) | |||||||||
| Repayment of related party debt | 3 | — | (5,000,000 | ) | — | |||||||||||
| Payment of deferred financing costs | (608,985 | ) | (1,866,615 | ) | (986,208 | ) | ||||||||||
| Net cash provided by Financing Activities | 42,183,946 | 321,824,945 | 48,904,995 | |||||||||||||
| Net increase in cash, cash equivalents, and restricted cash | 4,367,964 | 33,959,565 | 108,920,952 | |||||||||||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 5,058,939 | 9,426,903 | 43,386,468 | |||||||||||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | 9,426,903 | $ | 43,386,468 | $ | 152,307,420 | ||||||||||
| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||||||||||
| Cash and cash equivalents | $ | 8,926,903 | $ | 37,173,736 | $ | 142,373,151 | ||||||||||
| Restricted cash, current | — | 2,382,732 | 1,684,269 | |||||||||||||
| Restricted cash, non-current | 500,000 | 3,830,000 | 8,250,000 | |||||||||||||
| Cash, cash equivalents, and restricted cash | $ | 9,426,903 | $ | 43,386,468 | $ | 152,307,420 | ||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||||||
| Cash paid for interest | 654,555 | 2,271,525 | 6,360,170 | |||||||||||||
Shares issued in connection with the settlement of the $5.0 Million Convertible Debentures | 5,057,773 | — | — | |||||||||||||
| Unpaid capital raising costs (included in Accounts payable and Accrued Liabilities) | — | 99,797 | 34,000 | |||||||||||||
| Unpaid vessel acquisition and other vessel improvement costs (included in Accounts payable and Accrued liabilities) | 657,204 | 1,592,001 | 204,763 | |||||||||||||
| Unpaid advances for vessel acquisitions (included in Accounts payable and Accrued Liabilities) | — | 710 | — | |||||||||||||
| Unpaid deferred dry-dock costs (included in Accounts payable and Accrued liabilities) | 907,685 | 1,113,547 | 1,850,568 | |||||||||||||
| Unpaid deferred financing costs | — | 3,980 | 25,178 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CASTOR MARITIME INC.
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 1. | Basis of Presentation and General |
Castor Maritime Inc. (“Castor”) was incorporated in September 2017 under the laws of the Republic of the Marshall Islands. The accompanying consolidated financial statements include the accounts of Castor and its wholly-ownedwholly owned subsidiaries (collectively, the “Company”).
The Company is engaged in the worldwide transportation of ocean-going cargoes through its vessel-owning subsidiaries. On December 21, 2018, Castor’s common shares began trading on the Norwegian OTCEuronext NOTC, under the symbol “CASTOR” and, on February 11, 2019, they began trading on the Nasdaq Capital Market, or Nasdaq, under the symbol “CTRM”.
As of December 31, 2020,2022, Castor was controlled by Thalassa Investment Co. S.A. (“Thalassa”) by virtue of its ownership of 100% of the 100% Series B preferred shares owned by itof Castor and, as a result, could controlThalassa controlled the outcome of matters on which shareholders are entitled to vote. Thalassa is controlled by Petros Panagiotidis, the Company'sCompany’s Chairman, Chief Executive Officer and Chief Financial Officer.
On March 7, 2023 (the “Distribution Date”), the Company contributed the subsidiaries constituting the Company’s Aframax/LR2 and Handysize tanker segments and Elektra (as defined below) to the Company’s wholly owned subsidiary, Toro Corp. (“Toro”), in exchange for (i) the issuance by Toro to Castor of all 9,461,009 of Toro’s issued and outstanding common shares, and 140,000 1.00% Series A fixed rate cumulative perpetual convertible preferred shares of Toro, having a stated amount of $1,000 and a par value of $0.001 per share and (ii) the issuance of 40,000 Series B preferred shares of Toro, par value $0.001 per share, to Pelagos Holdings Corp, a company controlled by the Company’s Chairman, Chief Executive Officer and Chief Financial Officer. On the same day, the Company distributed all issued and outstanding shares of Toro to its common shareholders of record as of February 22, 2023, on a pro rata basis (such transactions collectively, the “Spin Off”) (see also Note 18).
With effect from July 1, 2022, Castor Ships S.A., a corporation incorporated under the laws of the Republic of the Marshall Islands (“Castor Ships”), a related party controlled by the Company’s Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis, manages the Company’s business overall. Prior to this date, Castor Ships provided only commercial ship management and administrative services to the Company (see also Note 3).
Pavimar S.A., a corporation incorporated under the laws of the Republic of the Marshall Islands (“Pavimar”), a related party controlled by the sister of Petros Panagiotidis, Ismini Panagiotidis,, provides provided technical, crew and operational management services to the Company.
Company through the first half of 2022. With effect from July 1, 2022, Pavimar co-manages with Castor Ships S.A., a corporation incorporated under the lawstechnical management of the Republic of the Marshall Islands (“Castor Ships”), a related party controlled by the Company’s Chairman, Chief Executive Officer and Chief Financial Officer, manages overall the Company’s business and provides commercial, chartering and administrative services to the Company.dry bulk vessels.
As of December 31, 2020,2022, the Company was the sole ownerowned a diversified fleet of all outstanding sharesthirty vessels, with a combined carrying capacity of 2.5 million dwt, consisting of one Capesize, seven Kamsarmax and twelve Panamax dry bulk vessels, as well as two 2,700 TEU containerships and one Aframax, five Aframax/LR2 and two Handysize tankers. Details of the following subsidiary companies:
| Company | Country of incorporation | Vessel Name | DWT | Year Built | Delivery date to Castor |
| Spetses Shipping Co. (“Spetses”) | Marshall Islands | Magic P | 76,453 | 2004 | February 2017 |
| Bistro Maritime Co. (“Bistro”) | Marshall Islands | Magic Sun | 75,311 | 2001 | September 2019 |
| Pikachu Shipping Co. (“Pikachu”) | Marshall Islands | Magic Moon | 76,602 | 2005 | October 2019 |
| Bagheera Shipping Co. (“Bagheera”) | Marshall Islands | Magic Rainbow | 73,593 | 2007 | August 2020 |
| Pocahontas Shipping Co. (“Pocahontas”) | Marshall Islands | Magic Horizon | 76,619 | 2010 | October 2020 |
| Jumaru Shipping Co. (“Jumaru”) | Marshall Islands | Magic Nova | 78,833 | 2010 | October 2020 |
F-7
| 1. | Basis of Presentation and General information (continued): |
(a) Consolidated vessel owning subsidiaries:
| Company | Country of incorporation | Vessel Name | DWT | Year Built | Delivery date to Castor | |||||
| 1 | Spetses Shipping Co. (“Spetses”) | Marshall Islands | M/V Magic P | 76,453 | 2004 | February 2017 | ||||
| 2 | Bistro Maritime Co. (“Bistro”) | Marshall Islands | M/V Magic Sun | 75,311 | 2001 | September 2019 | ||||
| 3 | Pikachu Shipping Co. (“Pikachu”) | Marshall Islands | M/V Magic Moon | 76,602 | 2005 | October 2019 | ||||
| 4 | Bagheera Shipping Co. (“Bagheera”) | Marshall Islands | M/V Magic Rainbow | 73,593 | 2007 | August 2020 | ||||
| 5 | Pocahontas Shipping Co. (“Pocahontas”) | Marshall Islands | M/V Magic Horizon | 76,619 | 2010 | October 2020 | ||||
6 | Jumaru Shipping Co. (“Jumaru”) | Marshall Islands | M/V Magic Nova | 78,833 | 2010 | October 2020 | ||||
| 7 | Super Mario Shipping Co. (“Super Mario”) | Marshall Islands | M/V Magic Venus | 83,416 | 2010 | March 2021 | ||||
| 8 | Pumba Shipping Co. (“Pumba”) | Marshall Islands | M/V Magic Orion | 180,200 | 2006 | March 2021 | ||||
| 9 | Kabamaru Shipping Co. (“Kabamaru”) | Marshall Islands | M/V Magic Argo | 82,338 | 2009 | March 2021 | ||||
| 10 | Luffy Shipping Co. (“Luffy”) | Marshall Islands | M/V Magic Twilight | 80,283 | 2010 | April 2021 | ||||
| 11 | Liono Shipping Co. (“Liono”) | Marshall Islands | M/V Magic Thunder | 83,375 | 2011 | April 2021 | ||||
| 12 | Stewie Shipping Co. (“Stewie”) | Marshall Islands | M/V Magic Vela | 75,003 | 2011 | May 2021 | ||||
| 13 | Snoopy Shipping Co. (“Snoopy”) | Marshall Islands | M/V Magic Nebula | 80,281 | 2010 | May 2021 |
| 14 | Mulan Shipping Co. (“Mulan”) | Marshall Islands | M/V Magic Starlight | 81,048 | 2015 | May 2021 | ||||
| 15 | Cinderella Shipping Co. (“Cinderella”) | Marshall Islands | M/V Magic Eclipse | 74,940 | 2011 | June 2021 | ||||
| 16 | Rocket Shipping Co. (“Rocket”) (1) | Marshall Islands | M/T Wonder Polaris | 115,351 | 2005 | March 2021 | ||||
| 17 | Gamora Shipping Co. (“Gamora”) (1) | Marshall Islands | M/T Wonder Sirius | 115,341 | 2005 | March 2021 | ||||
| 18 | Starlord Shipping Co. (“Starlord”) (1) | Marshall Islands | M/T Wonder Vega | 106,062 | 2005 | May 2021 | ||||
| 19 | Hawkeye Shipping Co. (“Hawkeye”) (1) | Marshall Islands | M/T Wonder Avior | 106,162 | 2004 | May 2021 | ||||
| 20 | Mickey Shipping Co. (“Mickey”) | Marshall Islands | M/V Magic Callisto | 74,930 | 2012 | January 2022 | ||||
| 21 | Vision Shipping Co. (“Vision”) (1) | Marshall Islands | M/T Wonder Mimosa | 36,718 | 2006 | May 2021 | ||||
| 22 | Colossus Shipping Co. (“Colossus”) (1) | Marshall Islands | M/T Wonder Musica | 106,290 | 2004 | June 2021 | ||||
23 | Xavier Shipping Co. (“Xavier”) (1) | Marshall Islands | M/T Wonder Formosa | 36,660 | 2006 | June 2021 | ||||
| 24 | Songoku Shipping Co. (“Songoku”) | Marshall Islands | M/V Magic Pluto | 74,940 | 2013 | August 2021 | ||||
| 25 | Asterix Shipping Co. (“Asterix”) | Marshall Islands | M/V Magic Perseus | 82,158 | 2013 | August 2021 | ||||
| 26 | Johnny Bravo Shipping Co. (“Johnny Bravo”) | Marshall Islands | M/V Magic Mars | 76,822 | 2014 | September 2021 | ||||
| 27 | Garfield Shipping Co. (“Garfield”) | Marshall Islands | M/V Magic Phoenix | 76,636 | 2008 | October 2021 | ||||
| 28 | Drax Shipping Co. (“Drax”) (1) | Marshall Islands | M/T Wonder Bellatrix | 115,341 | 2006 | December 2021 | ||||
| 29 | Jerry Shipping Co. (“Jerry S”) | Marshall Islands | M/V Ariana A | 38,117 | 2005 | November 2022 | ||||
| 30 | Tom Shipping Co. (“Tom S”) | Marshall Islands | M/V Gabriela A | 38,121 | 2005 | November 2022 |
(1) | Contributed to Toro on the Distribution Date in connection with the Spin-Off (Note 18). |
(b) Consolidated subsidiaries formed to acquire vessels:
| Company | Country of incorporation | ||
| 1 | Tom Maritime Ltd. (“Tom M”) | Malta | |
| 2 | Jerry Maritime Ltd. (“Jerry M”) | Malta | |
| 3 | Toro Corp. (2) | Marshall Islands | |
| 4 | Containco Shipping Inc. | Marshall Islands |
(2) | Incorporated on July 29, 2022. At the Distribution Date, Toro served as the holding company to which the equity interests of the Aframax/LR2 and Handysize tanker subsidiaries and Elektra were contributed (see Note 18). |
F-8
| 1. | Basis of Presentation and General information (continued): |
(c) Consolidated non-vessel owning subsidiaries:
| 1 | Castor Maritime SCR Corp. (“Castor SCR”) (3) | |
| 2 | Toro RBX Corp. (“Toro RBX”) (4) | |
| 3 | Elektra Shipping Co. (“Elektra”) (1)(5) |
(3) | Incorporated under the laws of the Marshall Islands on September 16, 2021, this entity serves as the Company’s subsidiaries’ cash manager of the Company’s subsidiaries with effect from November 1, 2021. |
(4) | Incorporated under the laws of the Marshall Islands on October 3, 2022, to serve, with effect from the Distribution Date, as the cash manager of Toro’s subsidiaries. |
(5) | Elektra Shipping Co., incorporated under the laws of the Marshall Islands, no longer owns any vessel following the sale of the M/T Wonder Arcturus on May 9, 2022, and delivery of such vessel to an unaffiliated third-party on July 15, 2022 (see also Note 6(a)). |
Credit concentration:
During the year ended September 30, 2018, the Transition Period ended December 31, 2018 and the years ended December 31, 20192020, 2021 and 2020,2022, charterers that individually accounted for more than 10% of the Company’s total vessel revenues (as percentages of total vessel revenues), all derived from the Company’s dry bulk segment, were as follows:
| Charterer | Charterer | Year Ended September 30, 2018 | Three Months Ended December 31, 2018 | Year Ended December 31, 2019 | Year Ended December 31, 2020 | Year Ended December 31, 2020 | Year Ended December 31, 2021 | Year Ended December 31, 2022 | |||||||||||||||||||||||
| A | A | 24 | % | 100 | % | 63 | % | 34 | % | 34 | % | 20 | % | 18 | % | ||||||||||||||||
| B | B | 52 | % | — | % | — | % | — | % | — | % | 12 | % | 15 | % | ||||||||||||||||
| C | C | 17 | % | — | % | — | % | — | % | — | % | — | % | 10 | % | ||||||||||||||||
| D | D | — | % | — | % | 13 | % | — | % | — | 11 | % | — | % | |||||||||||||||||
| E | — | % | — | % | 12 | % | 24 | % | 24 | % | — | — | % | ||||||||||||||||||
| F | — | % | — | % | 12 | % | — | % | |||||||||||||||||||||||
| Total | Total | 93 | % | 100 | % | 100 | % | 58 | % | 58 | % | 43 | % | 43 | % | ||||||||||||||||
| 2. | Significant Accounting Policies and Recent Accounting Pronouncements: |
Principles of consolidation
The accompanying consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principlesaccounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The consolidated financial statements include the accounts of Castor and its wholly-ownedwholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Castor, as the holding company, determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity. Under Financial Accounting
Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810 “Consolidation”, a voting interest entity is an entity in which the total equity investment at risk is deemed sufficient to absorb the expected losses of the entity, the equity holders have all the characteristics of a controlling financial interest and the legal entity is structured with substantive voting rights. The holding company consolidates voting interest entities in which it owns all, or at least a majority (generally, greater than 50%) of the voting interest. Variable interest entities (“VIE”) are entities, as defined under ASC 810, that in general either have equity investors with non-substantive voting rights or that have equity investors that do not provide sufficient financial resources for the entity to support its activities. The holding company has a controlling financial interest in a VIE and is, therefore, the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. A VIE should have only one primary beneficiary which is required to consolidate the VIE. A VIE may not have a primary beneficiary if no party meets the criteria described above. The Company evaluates all arrangements that may include a variable interest in an entity to determine if it is the primary beneficiary, and would therefore be required to include assets, liabilities and operations of a VIE in its consolidated financial statements.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include vessel valuations, the valuation of amounts due from charterers, residual value and the useful life of the vessels. Actual results may differ from these estimates.
F-9
| 2. | Significant Accounting Policies and Recent Accounting Pronouncements (continued): |
Segment Reporting
The Company reports financial information and evaluates its operations by charter revenues and by type of vessel. As a result, management, including the chief operating decision maker, reviews operating results by revenue per day and by the segmented operating results of its fleet. The Company determined that, as of December 31, 2022, it operated under four reportable segments: as a provider of dry bulk commodities transportation services (dry bulk segment), as a provider of transportation services for crude oil (Aframax/LR2 tanker segment) and oil products (Handysize tanker segment) and as a provider of containership cargoes transportation services (containership segment). The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements. When the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable.
Other comprehensive income
The Company follows the accounting guidance relating to comprehensive income, which requires separate presentation of certain transactions that are recorded directly as components of shareholders'shareholders’ equity. The Company has no other comprehensive income/(loss) items and, accordingly, comprehensive income equals net income for the periods presented.
Foreign currency translation
The Company'sCompany’s reporting and functional currency is the U.S. Dollar (“USD”). Transactions incurred in other currencies are translated into USD using the exchange rates in effect at the time of the transactions. At the balance sheet date, monetary assets and liabilities that are denominated in other currencies are translated into USD to reflect the end-of-period exchange rates and any gains or losses are included in the consolidated statements of comprehensive income.
Cash and cash equivalents
The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash may comprise of (i) minimum liquidity collateral requirements or minimum required cash deposits that are required to be maintained under the Company’s financing arrangements, (ii) cash deposits in so-called “retention accounts” which may only be used as per the Company’s borrowing arrangements for the purpose of serving the loan installments coming due or, (iii) other cash deposits required to be retained until other specified conditions prescribed in the Company’s debt agreements are met. In the event that the obligation to maintain such deposits is expected to elapse within the next operating cycle, these deposits are classified as current assets. Otherwise, they are classified as non-current assets.
Accounts receivable trade, net
The amount shown as trade receivables, net, at each balance sheet date, includes receivables from charterers for hire, freight, pool revenue, and other potential sources of income (such as demurrage, ballast bonus compensation and/or holds cleaning compensation)compensation, etc.) under the Company’s charter contracts and/or pool arrangements, net of any provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts. Provision for doubtful accounts recorded as of December 31, 20192020, 2021 and 20202022 amounted to $0$37,103, $2,483, and $37,103,$266,732, respectively.
Inventories
Inventories consist of bunkers, lubricants and provisions on board each vessel. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price less reasonably predictable costs of disposal and transportation. Cost is determined by the first in, first out method. Inventories may also consist of bunkers during periods when vessels are unemployed, undergoing dry-docking or special survey or under voyage charters, in which case, they are also stated at the lower of cost or net realizable value and cost is also determined by the first in, first out method.
F-10
| 2. | Significant Accounting Policies and Recent Accounting Pronouncements (continued): |
Intangible Assets/Liabilities Related to Time Charters Acquired
When the Company identifies any intangible assets or liabilities associated with the acquisition of a vessel, the Company records all such identified intangible assets or liabilities at fair value. Fair value is determined by reference to market data obtained by independent broker’s valuations. The valuations reflect the fair value of the vessel with and without the attached time charter and the cost of the acquisition is then allocated to the vessel and the intangible asset or liability on the basis of their relative fair values. The intangible asset or liability is amortized as an adjustment to revenues over the assumed remaining term of the acquired time charter and is classified as non-current asset or liability, as applicable, in the accompanying consolidated balance sheets.
Insurance Claims
The Company records insurance claim recoveries for insured losses incurred on damage to fixed assets, loss of hire and for insured crew medical expenses. Insurance claim recoveries are recorded, net of any deductible amounts, at the time when (i) the Company’s vessels suffer insured damages or at the time when crew medical expenses are incurred, (ii) recovery is probable under the related insurance policies, (iii) the Company can estimate the amount of such recovery following submission of the insurance claim and (iv) provided that the claim is not subject to litigation.
Investment in equity securities
The Company measures equity securities with readily determinable fair values (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies, but excluding equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee) at fair value with changes in the fair value recognized through net income, in accordance with ASC 321 “Investments–Equity Securities” and the provisions enumerated under ASC 825 “Financial Instruments”. Any dividends subsequently distributed by the investee to the Company are recognized as income when received.
The Company measures equity securities with readily determinable fair values (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies, but excluding equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee) at fair value with changes in the fair value recognized through net income, in accordance with ASC 321 “Investments–Equity Securities” and the provisions enumerated under ASC 825 “Financial Instruments”. Any dividends subsequently distributed by the investee to the Company are recognized as income when received.
Vessels, net
Vessels, net are stated at cost net of accumulated depreciation.depreciation and impairment, if any. The cost of a vessel consists of the contract price plus any direct expenses incurred upon acquisition, including improvements, delivery expenses and other expenditures to prepare the vessel for its intended use which is to provide worldwide integrated transportation services. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of a vessel; otherwise these amounts are charged to expense as incurred.
Vessels’ held for sale
The Company classifies a vessel as being held for sale when all of the following criteria, enumerated under ASC 360 “Property, Plant, and Equipment”, are met: (i) management has committed to a plan to sell the vessel; (ii) the vessel is available for immediate sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the vessel have been initiated; (iv) the sale of the vessel is probable, and transfer of the asset is expected to qualify for recognition as a completed sale within one year; (v) the vessel is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Vessels classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. The resulting difference, if any, is recorded under ‘Impairment loss’ in the consolidated statement of comprehensive income. A vessel ceases being depreciated once it meets the held for sale classification criteria.
The Company classifies a vessel as being held for sale when all of the following criteria, enumerated under ASC 360 “Property, Plant, and Equipment”, are met: (i) management has committed to a plan to sell the vessel; (ii) the vessel is available for immediate sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the vessel have been initiated; (iv) the sale of the vessel is probable, and transfer of the asset is expected to qualify for recognition as a completed sale within one year; (v) the vessel is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Vessels classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. The resulting difference, if any, is recorded under ‘Impairment loss’ in the consolidated statement of comprehensive income. A vessel ceases being depreciated once it meets the held for sale classification criteria.
Vessels’ depreciation
Depreciation is computed using the straight linestraight-line method over the estimated useful life of a vessel, after considering the estimated salvage value. Each vessel'svessel’s salvage value is equal to the product of its lightweight tonnage and estimated scrap rate. Salvage values are periodically reviewed and revised, if needed, to recognize changes in conditions, new regulations or for other reasons. Revisions of salvage value affect the depreciable amount of the vessels and affect depreciation expense in the period of the revision and future periods. Management estimates the useful life of its vessels to be 25 years from the date of their initial delivery from the shipyard.
F-11
| 2. | Significant Accounting Policies and Recent Accounting Pronouncements (continued): |
Impairment of long‑ long‑ lived assets
The Company reviews its vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of a vessel may not be recoverable. When the estimate of future undiscounted cash flows expected to be generated by the use of a vessel is less than its carrying amount, the Company evaluates the vessel for an impairment loss. Measurement of the impairment loss is based on the fair value of the vessel in comparison to its carrying value.value, including any related intangible assets and liabilities. In this respect, management regularly reviews the carrying amount of its vessels’vessels in connection with their estimated recoverable amount. As at December 31, 2022, the Company identified impairment indicators for certain of its vessels and, accordingly, estimated the vessels’ recoverable amount by projecting their undiscounted future operating cash flows. In developing estimates of future undiscounted operating cash flows, the Company made assumptions about future charter rates, utilization rates, vessel operating expenses, future dry-docking and/or special survey costs, the estimated remaining useful life of the vessels and their estimated residual value. Based on the results of the undiscounted cash flow tests performed, the Company determined that the vessels for which impairment indicators were present, were not impaired as of December 31, 2022. No impairment indicators were present as of December 31, 2021.
Dry-docking and special survey costs
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. Costs deferred are limited to actual costs incurred at the yard and parts used in the dry-docking or special survey. Costs deferred include expenditures incurred relating to shipyard costs, hull preparation and painting, inspection of hull structure and mechanical components, steelworks, machinery works, and electrical works as well as lodging and subsistence of personnel sent to the yard site to supervise. If a dry-dock and/or a special survey is performed prior to its scheduled date, the remaining unamortized balance is immediately expensed. Unamortized balances of vessels that are sold are written-off and included in the calculation of the resulting gain or loss in the period of a vessel’s sale. The amortization charge related to dry-docking costs and special survey costs is presented within Depreciation and amortization in the accompanying consolidated statements of comprehensive income.
Revenues and voyage expenses recognition (including Leases)
The Company currently generates and has historically generated its revenues only underfrom time charter contracts. Acontracts, voyage charter contracts and pool arrangements. Under a time charter isagreement, a type of contract that is entered into for the use of sucha vessel as well as such vessel’s operations for a specific period of time and a specified daily fixed or index-linked charter hire rate. An index-linked rate usually refers to freight rate indices issued by the Baltic Exchange, such as the Baltic Panamax Index. Under a voyage charter agreement, a contract is made for the use of a vessel for a specific voyage to transport a specified agreed upon cargo at a specified dailyfreight rate per ton or occasionally a lump sum amount. A less significant part of the Company’s revenues is also generated from pool arrangements, determined in accordance with the profit-sharing mechanism specified within each pool agreement.
Revenues related to time charter hire rate.contracts
The Company accounts for its time charter contracts as operating leases pursuant to ASC 842 “Leases” which was early adopted by the Company on October 1, 2018.. The Company has determined that the non-lease component in its time charter contracts relates to services for the operation of the vessel, which comprise of crew, technical and safety services, among others. The Company further elected to adopt the above discussed optionala practical expedient andthat provides it with the discretion to recognize lease revenue as a combined single lease component for all time charter contracts (operating leases) since it made a determinationdetermined that the related lease component and non-lease component have the same timing and pattern of transfer and the predominant component is the lease. The Company qualitatively assessed that more value is ascribed to the use of the asset (i.e(i.e., the vessel) rather than to the services provided under the time charter agreements.
F-12
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 2. | Significant Accounting Policies and Recent Accounting Pronouncements (continued): |
Lease revenues are recognized on a straight linestraight-line basis over the non-cancellable rental periods of such charter agreements, as rental service is provided, beginning when a vessel is delivered to the charterer until it is redelivered back to the Company, and is recorded as part of vessel revenues in the Company’s consolidated statements of comprehensive income/(loss). Revenue Revenues generated from variable lease payments isare recognized in the period when changes in facts and circumstances on which the variable lease payments are based occur. Deferred revenue includes (i) cash received prior to the balance sheet date for which all criteria to recognize as lease revenue have not yet been met as at the balance sheet date and, accordingly, is related to revenue earned after such date and (ii) deferred contract revenue such as deferred ballast compensation earned as part of a lease contract. Lease revenue is shown net of commissions payable directly to charterers under the relevant time charter agreements. Charterers’ commissions represent discount (sales incentive) on services rendered by the Company and no identifiable benefit is received in exchange for the consideration provided to the charterer. Apart from the agreed hire rate, the owner may be entitled to additional income, such as ballast bonus, which is considered as reimbursement of owner’s expenses and is recognized together with the lease component over the duration of the charter. The Company made an accounting policy election to recognize the related ballast costs, which mainly consist of bunkers, incurred over the period between the charter party date or the prior redelivery date (whichever is latest) and the delivery date to the charterer, provided they meet certain criteria, as contract fulfillment costs in accordance with ASC 340-40 and amortize these over the period of the charter.
Revenues related to voyage charter contracts
The Company accounts for its voyage charter contracts following the provisions of ASC 606, Revenue from contracts with customers. The Company has determined that its voyage charter agreements do not contain a lease because the charterer under such contracts amounteddoes not have the right to $112,508control the use of the vessel since the Company retains control over the operations of the vessel, provided also that the terms of the voyage charter are predetermined, and $430,994, respectively,any change requires the Company’s consent and are presented under Deferred charges, net (Current)therefore considered service contracts.
The Company assessed the provisions of ASC 606 and Deferredconcluded that there is one single performance obligation when accounting for its voyage charters, which is to provide the charterer with an integrated cargo transportation service within a specified period of time. In addition, the Company has concluded that voyage charter contracts meet the criteria to recognize revenue net (Current) respectively,over time as the charterer simultaneously receives and consumes the benefits of the Company’s performance. As a result of the foregoing, voyage revenue derived from voyage charter contracts is recognized from the time when a vessel arrives at the load port until the completion of cargo discharge. Demurrage income, which is considered a form of variable consideration, is included in voyage revenues, and represents payments by the charterer to the vessel owner when loading or discharging time exceeds the stipulated time in the accompanying consolidated balance sheet. Deferred ballast costsvoyage charter agreements.
Under a voyage charter agreement, the Company incurs and related deferred ballast income were zero aspays for certain voyage expenses, primarily consisting of December 31, 2020. Amortization expensesbunkers consumption, brokerage commissions, port and canal costs.
Revenues related to deferred ballast costspool contracts
Pool revenue for each vessel is determined in accordance with the years endedprofit-sharing mechanism specified within each pool agreement. In particular, the Company’s pool managers aggregate the revenues and expenses of all of the pool participants and distribute the net earnings to participants, as applicable, based on the pool points attributed to each vessel which are determined by vessel attributes such as cargo carrying capacity, speed, fuel consumption, design characteristics and the trading capabilities/restrictions of each vessel.
The Company records revenue generated from the pools in accordance with ASC 842, Leases, since it assesses that a vessel pool arrangement is a variable time charter with the variable lease payments recorded as income in profit or loss in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.
F-13
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars – except for share data unless otherwise stated) |
| 2. | Significant Accounting Policies and Recent Accounting Pronouncements (continued): |
Voyage Expenses
Voyage expenses, consist of:(a) port, canal and bunker expenses that are unique to a particular charter are paid for bythat the charterer under time charter arrangements or by the Company incurs primarily when its vessels operate under voyage charter arrangements or during repositioning periods, and (b) brokerage commissions, which are always paid for by the Company, regardless of charter type.commissions. All voyage expenses are expensed as incurred, except for brokerage commissions. Commissions paidcontract fulfilment costs which are capitalized to brokersthe extent the Company, in its reasonable judgement, determines that they (i) are directly related to a contract, (ii) will be recoverable and (iii) enhance the Company’s resources by putting the Company’s vessel in a location to satisfy its performance obligation under a contract pursuant to the provisions of ASC 340-40 “Other assets and deferred costs”. These capitalized contract costs are amortized on a straight-line basis as the related performance obligations are satisfied. Costs to fulfill the contract prior to arriving at the load port primarily consist of bunkers which are deferred and amortized overduring the related charter period tovoyage period. These capitalized contract fulfilment costs are recorded under “Deferred charges, net” in the extent revenue has been deferred since commissions are earned as the Company's revenues are earned.accompanying consolidated balance sheets. At the inception of a time charter, the Company records the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a bunker gain or loss within voyage expenses.
Accounting for Financial Instruments
The principal financial assets of the Company consist of cash and cash equivalents, restricted cash, amounts due from related parties and trade receivables, net. The principal financial liabilities of the Company consist of trade and other payables, accrued liabilities, long-term debt and amounts due to related parties. The Company is exposed to changes in the spot market rates associated with the deployment of its vessels and its objective is to manage the impact of such changes in its cash flows. In this respect, from time to time, the Company may engage in certain forward freight agreements. The Company may also enter into interest rate derivatives to economically hedge its exposure to interest rate fluctuations of its debt obligations as well as derivatives relating to the fluctuation of the price of bunker fuel consumed by its vessels.
Fair value measurements
The Company follows the provisions of ASC 820, “Fair Value Measurements and Disclosures” which defines, and provides guidance as to the measurement of fair value. ASC 820 creates a hierarchy of measurement and indicates that, when possible, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets and the lowest priority (Level 3) to unobservable data, for example, the reporting entity’s own data. Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy.
Repairs and Maintenance
All repair and maintenance expenses including underwater inspection expenses are expensed in the period incurred. Such costs are included in Vessel operating expenses in the accompanying consolidated statements of comprehensive income.income/(loss).
Financing Costs
Costs associated with long-term debt, including but not limited to, fees paid to lenders, fees required to be paid to third parties on the lender’s behalf in connection with debt financing or refinancing, or any unamortized portion thereof, are presented by the Company as a reduction of long-term debt. Such fees are deferred and amortized to interest and finance costs during the life of the related debt instrument using the effective interest method. Unamortized feesAny unamortized balance of costs relating to loansdebt repaid or refinanced as debt extinguishments and loan commitment fees arethat meet the criteria for Debt Extinguishment (Subtopic 470-50), is expensed asin interest and finance costs in the period incurred in which the accompanying statements of comprehensive income.repayment is made or refinancing occurs. Any unamortized balance of costs relating to debt refinanced long-term debt is deferred andthat do not meet the criteria for Debt Extinguishment, are amortized over the term of the credit facility in the period that such refinancing occurs, subject to the provisions of the accounting guidance prescribed under 470-50, Debt—Modifications and Extinguishments.refinanced debt.
Offering costs
Expenses directly attributable to an equity offering are deferred and set off against the proceeds of the offering within paid-in capital, unless the offering is aborted, in which case they are written-off and charged to earnings.
F-14
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 2. | Significant Accounting Policies and Recent Accounting Pronouncements (continued): |
Earnings/ (losses) per common share
Basic earnings/(losses) per common share are computed by dividing net income available to common stockholdersshareholders after subtracting the dividends accumulated for the perioddeemed dividend on redemption of cumulative preferred stock, (whether or not earned),which was recognized during the year ended December 31, 2021, by the weighted average number of common shares outstanding during the period. Diluted earnings per common share, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised.exercised.
Commitments and contingencies
Commitments are recognized when the Company has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle this obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the present value of the expenditure expected to be required to settle the obligation. Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable.
Recent Accounting Pronouncements – AdoptedPronouncements:
There are no recent accounting pronouncements the FASB issued ASU No. 2018-13, "Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU No. 2018-13"). ASU No. 2018-13,adoption of which is part of the FASB's broader disclosure framework project, modifies and supplements the current U.S. GAAP disclosure requirements pertainingexpected to fair value measurements, with an emphasishave a material effect on Level 3 disclosures of the valuation hierarchy. The Company adopted this ASU for the reporting period commencing on January 1, 2020 and has adjusted its disclosures accordingly.
| 3. | Transactions with Related Parties: |
During the year ended September 30, 2018, the Transition Period ended December 31, 2018 and the years ended December 31, 20192020, 2021, and 2020,2022, the Company incurred the following charges in connection with related party transactions, which are included in the accompanying consolidated statements of comprehensive income/ (loss):
Year ended September 30, | Three months ended December 31, | Year ended December 31, | Year ended December 31, | |||||||||||||
| 2018 | 2018 | 2019 | 2020 | |||||||||||||
| Management fees-related parties | ||||||||||||||||
| Management fees – Pavimar (a) | $ | 111,480 | $ | 29,440 | $ | 212,300 | $ | 768,000 | ||||||||
| Management fees – Castor Ships (d) | — | — | — | 162,500 | ||||||||||||
| Included in Voyage expenses | ||||||||||||||||
| Charter hire commissions (b),(d) | $ | — | $ | — | $ | 40,471 | $ | 29,769 | ||||||||
| Included in Interest and finance costs | ||||||||||||||||
| Interest expenses (c) – Thalassa | $ | — | $ | — | $ | 162,500 | $ | 305,000 | ||||||||
| Included in General and administrative expenses | ||||||||||||||||
| Administration fees – Castor Ships (d) | $ | — | $ | — | $ | — | $ | 400,000 | ||||||||
| Included in Vessels’ cost | ||||||||||||||||
| Sale & purchase commission – Castor Ships (d) | $ | — | $ | — | $ | — | $ | 138,600 | ||||||||
December 31, 2019 | December 31, 2020 | |||||||
| Assets: | ||||||||
| Working capital advances granted to Pavimar (a) | $ | 759,386 | $ | 1,559,132 | ||||
| Liabilities: | ||||||||
| Related party debt (c) – Thalassa | $ | 5,000,000 | $ | 5,000,000 | ||||
| Accrued loan interest (c) – Thalassa | 100,000 | 405,000 | ||||||
| Voyage Commissions due to Castor Ships (d) | — | 1,941 | ||||||
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| Management fees-related parties | ||||||||||||
Management fees – Castor Ships (a) | $ | 162,500 | $ | 1,983,750 | $ | 4,038,500 | ||||||
Management fees – Pavimar (b) | 768,000 | 4,761,000 | 5,357,400 | |||||||||
| Included in Voyage expenses | ||||||||||||
| Charter hire commissions – Castor Ships (a) | $ | 29,769 | $ | 1,671,145 | $ | 3,381,564 | ||||||
| Included in Interest and finance costs | ||||||||||||
Interest expenses – Thalassa (c) | $ | 305,000 | $ | 204,167 | $ | — | ||||||
| Included in General and administrative expenses | ||||||||||||
| Administration fees – Castor Ships (a) | $ | 400,000 | $ | 1,200,000 | $ | 2,100,000 | ||||||
| Included in Gain on sale of vessel | ||||||||||||
| Sale & purchase commission – Castor Ships (a) | $ | — | $ | — | $ | 131,500 | ||||||
F-15
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 3. | Transactions with Related Parties (continued): |
As of December 31, 2020, no amounts were prepaid under2021, and 2022, balances with related parties consisted of the $5.0 Million Term Loan Facility.following:
December 31, 2021 | December 31, 2022 | |||||||
| Assets: | ||||||||
| Due from Castor Ships (a) – current | $ | — | $ | 330,706 | ||||
| Due from Castor Ships (a) – non-current | — | 5,222,572 | ||||||
Due from Pavimar (b) – current | — | 2,664,976 | ||||||
| Due from Pavimar (b) – non-current | 810,437 | — | ||||||
| Liabilities: | ||||||||
| Voyage commissions, management fees and other expenses due to Castor Ships (a) – current | $ | 597,684 | $ | — | ||||
| Due to Pavimar (b) – current | 3,909,885 | — | ||||||
(a) Castor Ships:
Effective July 1, 2022, the Company and each of the Company’s vessel owning subsidiaries entered, by mutual consent, into an amended and restated master management agreement with Castor Ships (the “Amended and Restated Master Management Agreement”), appointing Castor Ships as commercial and technical manager for the Company’s vessels. The Amended and Restated Master Management Agreement along with new ship management agreements signed between each vessel owning subsidiary and Castor Ships (together, the “Amended Castor Ship Management Agreements”) superseded in their entirety the Castor Ships Management Agreements haveAgreements. Pursuant to the Amended and Restated Master Management Agreement, Castor Ships manages the Company’s overall business and provides the Company’s vessel owning subsidiaries with a wide range of shipping services such as crew management, technical management, operational employment management, insurance management, provisioning, bunkering, accounting and audit support services, commercial, chartering and administrative services, including, but not limited to, securing employment for the Company’s fleet, arranging and supervising the vessels’ commercial operations, providing technical assistance where requested in connection with the sale of a vessel, negotiating loan and credit terms for new financing upon request and providing general corporate and administrative services, among other matters, which it may choose to subcontract to other parties at its discretion. Castor Ships is generally not liable to the Company for any loss, damage, delay or expense incurred during the provision of the foregoing services, except insofar as such events arise from Castor Ships or its employees’ fraud, gross negligence or willful misconduct (for which the Company’s recovery will be limited to two times the Flat Management Fee, as defined below). Notwithstanding the foregoing, Castor Ships will in no circumstances be responsible for the actions of the Company’s crews. The Company has also agreed to indemnify Castor Ships in certain circumstances.
In exchange for the services provided by Castor Ships, the Company and its vessel owning subsidiaries, pay Castor Ships (i) a flat quarterly management fee in the amount of $0.75 million for the management and administration of their business (the “Flat Management Fee”), (ii) a commission of 1.25% on all gross income received from the operation of their vessels, and (iii) a commission of 1% on each consummated sale and purchase transaction. In addition, each of the Company’s vessel owning subsidiaries pay Castor Ships a daily management fee of $925 per containership and dry bulk vessel, and a daily management fee of $975 per tanker vessel (collectively, the “Ship Management Fees”) for the provision of the ship management services provided in the ship management agreements. Pavimar is paid directly by the dry bulk vessel owning subsidiaries its previously agreed proportionate daily management fee of $600 per vessel and Castor Ships is paid the residual amount of $325 of the agreed daily ship management fee. The Ship Management Fees and Flat Management Fee will be adjusted annually for inflation on each anniversary of the Amended and Restated Master Management Agreement’s effective date. The Company also reimburses Castor Ships for extraordinary fees and costs, such as the costs of extraordinary repairs, maintenance or structural changes to the Company’s vessels.
F-16
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 3. | Transactions with Related Parties (continued): |
The Amended and Restated Master Management Agreement has a term of fiveeight years from its effective date and suchthis term automatically renews for a successive five-yeareight-year term on each anniversary of the effective date, starting from the first anniversary of the effective date, unless the agreements are terminated earlier in accordance with the provisions contained therein. In the event that the Castor ShipsAmended and Restated Master Management Agreements areAgreement is terminated by the Company or areis terminated by Castor Ships due to a material breach of the Master Agreementmaster management agreement by the Company or a change of control in the Company (including certain business combinations, such as a merger or the disposal of all or substantially all of the Company’s assets or changes in key personnel such as the Company’s current directors or Chief Executive Officer), Castor Ships shall be entitled to a termination fee equal to fourseven times the total amount of the flat management fee and the per vessel management feesFlat Management Fee calculated on an annual basis. The Commercial ShipmanagementThis termination fee is in addition to any termination fees provided for under each Ship Management Agreement.
As of December 31, 2022, in accordance with the provisions of the Amended Castor Ship Management Agreements, Castor Ships had subcontracted to (i) two third-party ship management companies the technical management of all the Company’s tanker vessels and (ii) Pavimar the technical management of the Company’s containerships and was also provide thatco-managing with Pavimar the Company’s dry bulk vessels. Castor Ships pays, at its own expense, the tanker and containership technical management fees shall be subjectcompanies a fee for the services it has subcontracted to an annual review on their anniversary.them, without any additional cost to the Company.
During the years ended December 31, 2020 and 2021, the Company incurred sale and purchase commissions amounting to $138,600 and $3,406,400, respectively, included in ‘Vessels, net’ in the accompanying consolidated balance sheets. During the year ended December 31, 2020,2022, the Company incurred (i) management feessale and purchase commissions amounting to $400,000$874,500, of which $743,000 are included in ‘Vessels, net’ and $131,500 are included in ‘Gain on sale of vessel’ in the accompanying financial statements.
The Amended Castor Ship Management Agreements also provide for an advance funding equal to one month of vessel daily operating costs to be placed with Castor Ships as working capital guarantee, refundable in case a vessel is no longer under Castor Ship’s management. As of December 31, 2022, such advances amounted to $5,222,572 and are presented in ‘Due from related parties, non-current’, in the managementaccompanying consolidated balance sheet. In connection with the subcontracting services rendered by other related party and administrationthird-party ship-management companies, the Company had, as of December 31, 2022, paid Castor Ships working capital guarantee deposits aggregating the amount of $1,210,437, which are presented in ‘Due from related parties, current’ in the accompanying consolidated balance sheet. As of December 31, 2022, a net amount of $57,406 was due from Castor Ships in relation to operating expenses payments made by it on behalf of the Company. Further, as of December 31, 2021, and December 31, 2022, amounts of $597,684 and $937,137 were due to Castor Ships in connection with the services covered by the Castor Ships Management Agreements and the Amended Castor Ships Management Agreements, respectively. As a result, as of December 31, 2021 and December 31, 2022, net amounts of $597,684 and $330,706, respectively, were due to and due from Castor Ships which are presented in ‘Due to related parties, current’ and ‘Due from related parties, current’, respectively, in the accompanying consolidated balance sheets.
(b) Pavimar: From the Company’s inception and until June 30, 2022, Pavimar, provided, on an exclusive basis, all of the Company’s business,vessel owning subsidiaries with a wide range of shipping services, including crew management, technical management, operational management, insurance management, provisioning, bunkering, vessel accounting and audit support services, which it could choose to subcontract to other parties at its discretion. Effective January 1, 2020, and during the eight-month period ended August 31, 2020, the Company’s vessels then comprising its fleet were charged with a daily management fee of $500 per day per vessel. On September 1, 2020, the Company’s then vessel owning subsidiaries entered into revised ship management agreements with Pavimar which replaced the then existing ship management agreements in their entirety (the “Technical Management Agreements”). Pursuant to the terms of the Technical Management Agreements, effective September 1, 2020, Pavimar provided all of the Company’s vessel owning subsidiaries with the range of technical, crewing, insurance and operational services stipulated in the previous agreements in exchange for a daily management fee of $600 per vessel. Effective July 1, 2022, the technical management agreements entered into between Pavimar and the Company’s tanker vessel owning subsidiaries were terminated by mutual consent. In connection with such termination, Pavimar and the tanker vessel owning subsidiaries agreed to mutually discharge and release each other from any past and future liabilities arising from the respective agreements. Further, with effect from July 1, 2022, pursuant to the terms of the Amended and Restated Master Management Agreement, Pavimar, continues to provide, as co-manager with Castor Ships, the dry-bulk vessel owning subsidiaries with the same range of technical management services it provided prior to the Company’s entry into the Amended and Restated Management Agreement, in exchange for the previously agreed daily management fee of $600 per vessel. Pavimar also performed the technical management of containerships as sub-manager for Castor Ships from their date of acquisition. In late January 2023, Castor Ships transferred the technical sub-management of the Company’s containerships from Pavimar to a third-party ship management company.
F-17
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 3. | Transactions with Related Parties (continued): |
Pavimar had subcontracted the technical management of 12 (comprising of three dry bulk and nine tanker) and four (comprising of three dry bulk and one containership) of the Company’s vessels to third-party ship-management companies as of December 31, 2021 and December 31, 2022, respectively. These third-party management companies provided technical management services to the respective vessels for a fixed annual fee which is paid by Pavimar at its own expense. In connection with the subcontracting services rendered by the third-party ship-management companies, the Company had, as of December 31, 2021, paid Pavimar working capital guarantee deposits aggregating the amount of $1,568,689, of which $758,252 are netted within ‘Due to related party, current’ and $810,437 are presented in ‘Due from related parties, non-current’ in the accompanying consolidated balance sheet. As of December 31, 2022, the Company had paid Pavimar working capital guarantee deposits aggregating the amount of $258,252, which are presented in ‘Due from related parties, current’ in the accompanying consolidated balance sheet. In addition, Pavimar and its subcontractor third-party managers make payments for operating expenses with funds paid from the Company to Pavimar. As of December 31, 2021, and December 31, 2022, net amounts of $4,668,137 and $2,665,824 were due to and due from Pavimar, respectively, in relation to payments made by Pavimar or advance payments to Pavimar on behalf of the Company. Further, as of December 31, 2022, an amount of $259,100 was due to Pavimar in connection with additional services covered by the technical management agreements. As a result, as of December 31, 2021, and December 31, 2022, net amounts of $3,909,885 and $2,664,976, respectively, were due to and due from Pavimar, which are presented in ‘Due to related parties, current’ and ‘Due from related parties, current’, respectively, in the accompanying consolidated balance sheets.
(c) Thalassa - $5.0 Million Term Loan Facility: On August 30, 2019, the Company entered into a $5.0 million unsecured term loan with Thalassa, the proceeds of which were used to partly finance the acquisition of the M/V Magic Sun. The Company drew down the entire loan amount on September 3, 2019. The facility bore a fixed interest rate of 6.00% per annum and initially had a bullet repayment on March 3, 2021, which, pursuant to a supplemental agreement dated March 2, 2021, was granted a six-month extension. At its extended maturity, on September 3, 2021, the Company repaid $5.0 million of principal and $609,167 of accrued interest due and owing from it to Thalassa and, as a result, the Company, with effect from that date, was discharged from all its liabilities and obligations under this facility.
During the years ended December 31, 2020, and 2021, the Company incurred interest costs in connection with the above facility amounting to $305,000, and $204,167, respectively, which are included in General‘Interest and administrative expensesfinance costs’ in the accompanying consolidated statements of comprehensive income/(loss)/income.
(d) Vessel Acquisitions:
On January 4, 2022, the Company’s wholly owned subsidiary, Mickey, pursuant to a purchase agreement entered into on December 17, 2021, took delivery of the M/V Magic Callisto, (ii) management fees amountinga Japanese-built Panamax dry bulk carrier acquired from a third-party in which a family member of Petros Panagiotidis had a minority interest. The vessel was purchased for $23.55 million. The terms of the transaction were negotiated and approved by a special committee of disinterested and independent directors of the Company. The M/V Magic Callisto acquisition was financed with cash on hand.
Further, on October 26, 2022, two of the Company’s wholly owned subsidiaries, Tom S and Jerry S, entered into two separate agreements for each to $162,500acquire a 2005 German-built 2,700 TEU containership vessel, from two separate entities beneficially owned by family members of Petros Panagiotidis. The purchase price for such vessels was $25.75 million and $25.00 million, respectively. The terms of these transactions were negotiated and approved by a special committee of the Company’s disinterested and independent directors. The acquisition of both vessels was financed with cash on hand and by utilizing the net proceeds from the $22.5 Million Term Loan Facility.
F-18
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 3. | Transactions with Related Parties (continued): |
(e)Entry into pool agreement with V8 Pool Inc.: In the period between September 30, 2022, and December 12, 2022, the M/T Wonder Polaris,M/T Wonder Sirius, M/T Wonder Bellatrix, M/T Wonder Musica, M/T Wonder Avior, and M/T Wonder Vega entered into a series of separate agreements with V8 Pool Inc., a member of Navig8 Group of companies, for the provisionparticipation of the services undervessels in a pool operating Aframax tankers aged fifteen (15) years or more, the Commercial Shipmanagement AgreementsV8 Plus Pool. The V8 Plus Pool is managed by V8 Plus Management Pte Ltd., a company in which are included in Management fees to related partiesPetros Panagiotidis has a minority equity interest. As of December 31, 2022, all the above vessels were operating in the accompanying consolidated statements of comprehensive income/(loss), (iii) charter hire commissions amountingV8 Plus Pool. In February 2023, the agreement relating to $29,769 which are included in Voyage expensesthe M/T Wonder Sirius’s participation in the accompanying consolidated statements of comprehensive income/(loss)V8 Plus Pool was terminated and (iv) sale and purchase commission amounting to $138,600 which is included in Vessels, net in the accompanying consolidated balance sheet.vessel commenced employment under a period time charter.
| 4. | Deferred |
The movement in deferred dry-docking costs, net in the accompanying consolidated balance sheets is as follows:
| Dry-docking costs | Dry-docking costs | |||||||
| Balance September 30, 2018 | $ | 443,394 | ||||||
| Amortization | (102,324 | ) | ||||||
| Balance December 31, 2018 | $ | 341,070 | ||||||
| Amortization | (341,070 | ) | ||||||
| Balance December 31, 2019 | $ | — | $ | — | ||||
| Additions | 2,216,102 | 2,216,102 | ||||||
| Amortization | (154,529 | ) | (154,529 | ) | ||||
| Balance December 31, 2020 | $ | 2,061,573 | $ | 2,061,573 | ||||
| Additions | 3,936,331 | |||||||
| Amortization | (1,135,080 | ) | ||||||
| Balance December 31, 2021 | $ | 4,862,824 | ||||||
| Additions | 6,448,488 | |||||||
| Less: Insurance claim recognized | (624,270 | ) | ||||||
| Amortization and write-offs | (2,708,081 | ) | ||||||
| Balance December 31, 2022 | $ | 7,978,961 | ||||||
| 5. | Fair Value of Acquired Time Charters: |
In connection with the acquisition of the M/V Magic Pluto in May 2021 with a time charter attached, the Company initially recognized an intangible liability of $1,940,000, representing the fair value of the unfavorable time charter acquired. The M/V Magic Pluto attached charter commenced its scheduled dry-dock whichupon the vessel’s delivery, on August 6, 2021, and was completed on March 21, 2020concluded within the fourth quarter of 2021. Accordingly, the respective intangible liability was fully amortized during that period.
Further, in connection with the acquisitions in October 2022 of the M/V Ariana A and the M/V Gabriela A with time charters attached, the Company recognized intangible assets of $897,436 and $2,019,608, respectively, representing the fair values of the favorable time charters attached to the vessels. The M/V Ariana A and M/V Gabriela A attached charters commenced upon the vessels’ deliveries, on November 20, 202023, 2022 and November 30, 2022, respectively.
F-19
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 5. | Fair Value of Acquired Time Charters (continued): |
For the Magic Sun commenced its scheduled dry-dock which was completed on December 24, 2020. The Magic Moon was undergoing dry-dock as ofyears ended December 31, 2020. Amortization2021, and December 31, 2022, the amortization of deferred dry-docking coststhe acquired time charters related to the aboveacquisitions amounted to $1,940,000 and $409,538, respectively, and is included in Depreciation and amortizationTotal vessel revenues in the accompanying consolidated statements of comprehensive income/(loss)./income. The aggregate unamortized portion of the M/V Ariana A and M/V Gabriela A intangible assets as of December 31, 2022, amounted to $2,507,506 and is presented under “Fair value of acquired time charter contracts” in the accompanying consolidated balance sheets. The unamortized balance of the acquired time charter contracts as of December 31, 2022, is expected to be amortized to vessel revenues by $2,242,333 within 2023 and by $265,173 within 2024, in accordance with the anticipated expiration date of the respective charter contracts.
| Vessels, |
(a) Vessels, net: The amounts in the accompanying consolidated balance sheets are analyzed as follows:
| Vessel Cost | Accumulated depreciation | Net Book Value | ||||||||||
| Balance December 31, 2019 | 24,810,061 | (1,110,032 | ) | 23,700,029 | ||||||||
| — Acquisitions, improvements, and other vessel costs | 36,096,033 | — | 36,096,033 | |||||||||
| — Period depreciation | — | (1,750,434 | ) | (1,750,434 | ) | |||||||
| Balance December 31, 2020 | 60,906,094 | (2,860,466 | ) | 58,045,628 | ||||||||
| — Acquisitions, improvements, and other vessel costs | 299,460,599 | — | 299,460,599 | |||||||||
| — Transfers from Advances for vessel acquisitions (b) | 49,687,450 | — | 49,687,450 | |||||||||
| — Period depreciation | — | (13,227,748 | ) | (13,227,748 | ) | |||||||
| Balance December 31, 2021 | 410,054,143 | (16,088,214 | ) | 393,965,929 | ||||||||
| — Acquisitions, improvements, and other vessel costs | 72,100,835 | — | 72,100,835 | |||||||||
| — Transfers from Advances for vessel acquisitions (b) | 2,368,165 | — | 2,368,165 | |||||||||
| — Vessel disposal | (10,018,583 | ) | 599,930 | (9,418,653 | ) | |||||||
| — Period depreciation | — | (23,121,632 | ) | (23,121,632 | ) | |||||||
| Balance December 31, 2022 | 474,504,560 | (38,609,916 | ) | 435,894,644 | ||||||||
Vessel Acquisitions/Disposal and other Capital Expenditures:
During the year ended December 31, 2021, the Company agreed to acquire 14 dry bulk carriers and nine tanker vessels for an aggregate cash consideration of $363.6 million (the “2021 Vessel Acquisitions”). Of the 2021 Vessel Acquisitions, 22 were concluded during the year ended December 31, 2021, whereas the last one, this of the M/V Magic Callisto, was concluded on January 4, 2022. The 2021 Vessel Acquisitions were financed with cash on hand and the net proceeds from the debt and equity financings discussed under Notes 7 and 8 below.
During the year ended December 31, 2022, the Company agreed to acquire two containerships, the M/V Ariana A and the M/V Gabriela A, for an aggregate cash consideration of $50.75 million (the “2022 Vessel Acquisitions”, see also Note 3(d)). Both acquisitions were financed with cash on hand and the net proceeds from the $22.5 Million Term Loan Facility discussed in Note 7 and were delivered to the Company in November 2022.
F-20
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 6. | Vessels, net/ Advances for Vessel Acquisitions (continued): |
Details regarding the 2021 and the 2022 Vessel Acquisitions delivered as of December 31, 2021 and 2022, are presented below.
| Vessel Name | Vessel Type | DWT | Year Built | Country of Construction | Purchase Price (in million) | Delivery Date |
| 2021 Acquisitions | ||||||
| M/V Magic Venus | Kamsarmax | 83,416 | 2010 | Japan | $15.85 | 03/02/2021 |
| M/T Wonder Polaris | Aframax LR2 | 115,351 | 2005 | S. Korea | $13.60 | 03/11/2021 |
| M/V Magic Orion | Capesize | 180,200 | 2006 | Japan | $17.50 | 03/17/2021 |
| M/V Magic Argo | Kamsarmax | 82,338 | 2009 | Japan | $14.50 | 03/18/2021 |
| M/T Wonder Sirius | Aframax LR2 | 115,341 | 2005 | S. Korea | $13.60 | 03/22/2021 |
| M/V Magic Twilight | Kamsarmax | 80,283 | 2010 | S. Korea | $14.80 | 04/09/2021 |
| M/V Magic Thunder | Kamsarmax | 83,375 | 2011 | Japan | $16.85 | 04/13/2021 |
| M/V Magic Vela | Panamax | 75,003 | 2011 | China | $14.50 | 05/12/2021 |
| M/V Magic Nebula | Kamsarmax | 80,281 | 2010 | S. Korea | $15.45 | 05/20/2021 |
| M/T Wonder Vega | Aframax | 106,062 | 2005 | S. Korea | $14.80 | 05/21/2021 |
| M/V Magic Starlight | Kamsarmax | 81,048 | 2015 | China | $23.50 | 05/23/2021 |
| M/T Wonder Avior | Aframax LR2 | 106,162 | 2004 | S. Korea | $12.00 | 05/27/2021 |
| M/T Wonder Arcturus | Aframax LR2 | 106,149 | 2002 | S. Korea | $10.00 | 05/31/2021 |
| M/T Wonder Mimosa | Handysize | 36,718 | 2006 | S. Korea | $7.25 | 05/31/2021 |
| M/V Magic Eclipse | Panamax | 74,940 | 2011 | Japan | $18.48 | 06/07/2021 |
| M/T Wonder Musica | Aframax LR2 | 106,290 | 2004 | S. Korea | $12.00 | 06/15/2021 |
| M/T Wonder Formosa | Handysize | 36,660 | 2006 | S. Korea | $8.00 | 06/22/2021 |
| M/V Magic Pluto | Panamax | 74,940 | 2013 | Japan | $19.06 | 08/06/2021 |
| M/V Magic Perseus | Kamsarmax | 82,158 | 2013 | Japan | $21.00 | 08/09/2021 |
| M/V Magic Mars | Panamax | 76,822 | 2014 | S. Korea | $20.40 | 09/20/2021 |
| M/V Magic Phoenix | Panamax | 76,636 | 2008 | Japan | $18.75 | 10/26/2021 |
| M/T Wonder Bellatrix | Aframax LR2 | 115,341 | 2006 | S. Korea | $18.15 | 12/23/2021 |
| 2022 Acquisitions | ||||||
| M/V Magic Callisto | Panamax | 74,930 | 2012 | Japan | $23.55 | 01/04/2022 |
| M/V Ariana A | Containership | 38,117 | 2005 | Germany | $25.00 | 11/23/2022 |
| M/V Gabriela A | Containership | 38,121 | 2005 | Germany | $25.75 | 11/30/2022 |
On May 9, 2022, due to a favorable offer, the Company entered into an agreement with an unaffiliated third party for the sale of the M/T Wonder Arcturus for a gross sale price of $13.15 million.The vessel was delivered to its new owners on July 15, 2022. In connection with this sale, the Company recognized during the third quarter of 2022 a net gain of $3.2 million which is separately presented in ‘Gain on sale of vessel’in the accompanying consolidated statements of comprehensive (loss)/income.
During the year ended December 31, 2022, the Company incurred aggregate capitalized vessel improvement costs amounting to $3.0 million, mainly related to (i) the ballast water treatment system (“BWTS”) installations on the M/V Magic Moon, M/V Magic Rainbow, M/V Magic Perseus, M/V Magic P that were concluded in 2022,and (iii) the BWTS installation on the M/T Wonder Formosa that was initiated in February 2023 and was concluded in early March 2023.
During the year ended December 31, 2021, the Company incurred aggregate vessel improvement costs of $1.8 million mainly relating to (i) the purchase and installation of a BWTS on the M/T Wonder Mimosa during the vessel’s dry dock that was initiated late in the second quarter of 2021 and concluded early in the third quarter of 2021, and (ii) the consideration paid to acquire the BWTS equipment of the M/V Magic Vela and additional BWTS installation costs incurred during the vessel’s dry dock that was initiated in the third quarter and concluded in the fourth quarter of 2021.
As of December 31, 2022, 20 of the 30 vessels in the Company’s fleet having an aggregate carrying value of $301.5 million were first priority mortgaged as collateral to their loan facilities (Note 7).
Consistent with prior practices, the Company reviewed all its vessels for impairment, and none were found to be impaired at December 31, 2021 and December 31, 2022.
F-21
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 6. | Vessels, net/ Advances forVessel Acquisitions (continued): |
| (b) | Advances for vessel acquisitions: |
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
| Vessel Cost | Accumulated depreciation | Net Book Value | ||||||||||
| Balance September 30, 2018 | $ | 7,549,281 | $ | (478,877 | ) | $ | 7,070,404 | |||||
| —Period depreciation | — | (75,054 | ) | (75,054 | ) | |||||||
| Balance December 31, 2018 | $ | 7,549,281 | $ | (553,931 | ) | $ | 6,995,350 | |||||
| — Acquisitions | 17,260,780 | — | 17,260,780 | |||||||||
| —Yearly depreciation | — | (556,101 | ) | (556,101 | ) | |||||||
| Balance December 31, 2019 | $ | 24,810,061 | $ | (1,110,032 | ) | $ | 23,700,029 | |||||
| — Acquisitions and other improvements to fleet vessels | 36,096,033 | — | 36,096,033 | |||||||||
| —Yearly depreciation | — | (1,750,434 | ) | (1,750,434 | ) | |||||||
| Balance December 31, 2020 | 60,906,094 | (2,860,466 | ) | 58,045,628 | ||||||||
| Vessel Cost | ||||
Balance December 31, 2020 | $ | — | ||
| — Advances for vessel acquisitions and other vessel pre-delivery costs | 52,055,615 | |||
| —Transfer to Vessels, net (a) | (49,687,450 | ) | ||
Balance December 31, 2021 | $ | 2,368,165 | ||
| —Transfer to Vessels, net (a) | (2,368,165 | ) | ||
Balance December 31, 2022 | $ | — | ||
During the years ended December 31, 2021, and other Capital Expenditures:
| Long-Term Debt: |
The amount of long-term debt (including related party debt discussed under Note 3) shown in the accompanying consolidated balance sheet of December 31, 2020,2022, is analyzed as follows:
| Year Ended | |||||||||
Loan facilities | Borrowers- Issuers | December 31, 2019 | December 31, 2020 | ||||||
| $11.0 Million Alpha Bank Facility (a) | Spetses- Pikachu | $ | 11,000,000 | $ | 9,400,000 | ||||
| $4.5 Million Chailease Financial Services Facility (b) | Bistro | — | 4,050,000 | ||||||
| Total long-term debt | $ | 11,000,000 | $ | 13,450,000 | |||||
| Less: Deferred financing costs | (242,940 | ) | (264,134 | ) | |||||
| Total long-term debt, net of deferred finance costs | $ | 10,757,060 | 13,185,866 | ||||||
Presented: | |||||||||
| Current portion of long-term debt | $ | 1,600,000 | $ | 2,200,000 | |||||
| Less: Current portion of deferred finance costs | (77,105 | ) | (97,963 | ) | |||||
| Current portion of long-term debt, net of deferred finance costs | $ | 1,522,895 | $ | 2,102,037 | |||||
| Non-Current portion of long-term debt | 9,400,000 | 11,250,000 | |||||||
| Less: Non-Current portion of deferred finance costs | (165,835 | ) | (166,171 | ) | |||||
| Non-Current portion of long-term debt, net of deferred finance costs | $ | 9,234,165 | $ | 11,083,829 | |||||
Debt instruments from related party | |||||||||
| $5.0 Million Term Loan Facility (Note 3(c)) | Castor | 5,000,000 | 5,000,000 | ||||||
| Total long-term debt from related party | $ | 5,000,000 | $ | 5,000,000 | |||||
| Year Ended | |||||||||
| Loan facilities | Borrowers | December 31, 2021 | December 31, 2022 | ||||||
$11.0 Million Term Loan Facility (a) | Spetses- Pikachu | $ | 7,800,000 | $ | 6,200,000 | ||||
$4.5 Million Term Loan Facility (b) | Bistro | 3,450,000 | 2,850,000 | ||||||
$15.29 Million Term Loan Facility (c) | Pocahontas- Jumaru | 13,877,000 | 11,993,000 | ||||||
$18.0 Million Term Loan Facility (d) | Rocket- Gamora | 16,300,000 | 13,250,000 | ||||||
$40.75 Million Term Loan Facility (e) | Liono-Snoopy-Cinderella-Luffy | 39,596,000 | 34,980,000 | ||||||
$23.15 Million Term Loan Facility (f) | Bagheera-Garfield | 22,738,500 | 17,800,500 | ||||||
$55.00 Million Term Loan Facility (g) | Mulan- Johnny Bravo-Songoku-Asterix-Stewie | — | 44,395,000 | ||||||
$22.5 Million Term Loan Facility (h) | Tom-Jerry | — | 22,250,000 | ||||||
| Total long-term debt | $ | 103,761,500 | $ | 153,718,500 | |||||
| Less: Deferred financing costs | (1,720,101 | ) | (1,877,264 | ) | |||||
| Total long-term debt, net of deferred finance costs | $ | 102,041,399 | 151,841,236 | ||||||
Presented: | |||||||||
| Current portion of long-term debt | $ | 16,688,000 | $ | 32,548,400 | |||||
| Less: Current portion of deferred finance costs | (596,277 | ) | (771,283 | ) | |||||
| Current portion of long-term debt, net of deferred finance costs | $ | 16,091,723 | $ | 31,777,117 | |||||
| Non-Current portion of long-term debt | 87,073,500 | 121,170,100 | |||||||
| Less: Non-Current portion of deferred finance costs | (1,123,824 | ) | (1,105,981 | ) | |||||
| Non-Current portion of long-term debt, net of deferred finance costs | $ | 85,949,676 | $ | 120,064,119 | |||||
F-22
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 7. | Long-Term Debt (continued): |
| a. | $11.0 Million |
On November 22, 2019, the Company, through two of its wholly-ownedthe Company’s wholly owned dry bulk vessel ship-owning subsidiaries, Spetses and Pikachu owning the M/V Magic P and the M/V Magic Moon (the “Borrowers”), respectively, entered into a $11.0 millionthe Company’s first senior secured term loan facility in the amount of $11.0 million with Alpha Bank A.E., or the $11.0 Million Alpha Bank Facility.S.A. The facility was drawn down in two tranches on December 2, 2019. The $11.0 Million Alpha Bank FacilityThis facility has a term of five years from the drawdown date, bears interest at a 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 simultaneously with the last instalment 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,borrowers, 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 $11.0 Million Alpha Bank Financing net proceeds were partly used by the Company in order to repay the $7.5 Million Bridge Loan on December 6, 2019, whereas, the remainder of the proceeds was used for general corporate purposes including financing vessel acquisitions.
borrowers to (i) maintain a certain level of minimum free liquidity of at least $250,000 per collateralized vessel, (“the Minimum Liquidity Deposit”); 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 Depositminimum free liquidity requirement referred to above to the aggregate principal amounts due under the $11.0 Million Alpha Bank Facility;facility. This facility’s net proceeds were partly used by the Company to repay a $7.5 million bridge loan on December 6, 2019, whereas the remainder of the proceeds was used for general corporate purposes including financing vessel acquisitions.
| b. | $4.5 Million |
On January 23, 2020, pursuant to the terms of a credit agreement, the Company, through one of its wholly-owned subsidiaries owning the Magic Sun,Company’s wholly owned dry bulk vessel ship-owning subsidiary, Bistro, entered into a $4.5 million senior secured term loan facility with Chailease International Financial Services Co., Ltd., or the Chailease Financial Services Facility. The loanfacility 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 simultaneously with the last instalment at maturity, and bears interest at a 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 M/V Magic Sun),pledge of bank account, charter assignment, shares pledge and a general assignment over the vessel'svessel’s earnings, insurances and any requisition compensation in relation to the vessel owned by the borrower and is guaranteed by the Company and Pavimar. Pursuant to the terms of the Chailease Financial Services Facility,this facility, the Company is also subject to certain minimum liquidity restrictions requiring the borrower to maintain a $400,000certain credit balance within an account of the lender (the “Cash Collateral”)as “cash collateral” as well as certain negative covenants customary for facilities of this type of facilities, negative covenants. The Company shall, from the first anniversary of the drawdown date, be entitled to withdraw up to $200,000 in aggregate from this balance provided no default has occurred. As a result of the above, the $200,000 of the Cash Collateral was classified in Prepaid expenses and other assets, current in the accompanying consolidated balance sheet with the balance having been classified in Prepaid expenses and other assets, non-current.
type. The credit agreement governing the Chailease Financial Services Facilitythis facility also requires maintenance of a maximumminimum 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)cash collateral referred to above), to the aggregate principal amount of the loan. This facility’s net proceeds were used to fund the 2021 Vessel Acquisitions (see Note 6(a)) and for general corporate purposes.
| c. | $ |
On January 22, 2021, pursuant to the terms of a credit agreement, two of the Company’s wholly owned dry bulk vessel ship-owning subsidiaries, Pocahontas and Jumaru, entered into a $15.29 million senior secured term loan facility with Hamburg Commercial Bank AG. The loan 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 in the amount of $7.8 million payable at maturity and bears interest at a 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 M/V Magic Horizon and the M/V 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 this facility, the Company is also subject to a certain minimum liquidity restriction requiring the borrowers to maintain a certain restricted cash balance 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 negative covenants customary, for facilities of this type. The credit agreement governing this facility also 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 minimum liquidity deposits 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 of the loan outstanding.
F-23
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 7. | Long-Term Debt (continued): |
d. | $18.0 Million Term Loan Facility |
On April 27, 2021, two of the Company’s wholly owned tanker vessel ship-owning subsidiaries, Rocket and Gamora, 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 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, such balloon instalment payable at maturity together with the last repayment instalment. 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 M/T Wonder Sirius and the M/T Wonder Polaris), an earnings account pledge, shares security deed relating to the shares of the vessels’ owning subsidiaries, manager’s undertakings and was, until the Distribution Date, guaranteed by the Company. As of December 31, 2022, the facility also contained certain customary minimum liquidity restrictions and financial covenants that required the borrowers to (i) maintain a certain level of minimum free 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.
This facility’s net proceeds were used to fund the 2021 Vessel Acquisitions (Note 6(a)) and for general corporate purposes. In connection with the Spin-Off, the $18.0 Million Term Loan Facility was amended such that Toro replaced the Company as guarantor under the facility upon completion of the Spin-Off. At such time, the Company ceased to have any obligations under such facility (see Note 18).
| e. | $40.75 Million Term Loan Facility |
On July 23, 2021, pursuant to the terms of a credit agreement, four of the Company’s wholly owned dry bulk vessel ship-owning subsidiaries, Liono, Snoopy, Cinderella and Luffy, 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 margin over LIBOR per annum. The above facility contains a standard security package including first preferred mortgages on the vessels owned by the borrowers, 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(the M/V Magic Thunder, M/V Magic Nebula, M/V Magic Eclipse and the M/V Magic Twilight), and is guaranteed by the Company. The Company is also subject to a certain minimum liquidity restriction requiring the borrowers to maintain a certain minimum restricted cash balance with the lender (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 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 facilities of this type. The credit agreement governing this facility also 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. This facility’s net proceeds were used to fund the 2021 Vessel Acquisitions (Note 6(a)) and for general corporate purposes.
F-24
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 7. | Long-Term Debt (continued): |
| f. | $23.15 Million Term Loan Facility |
On November 22, 2021, pursuant to the terms of a credit agreement, two of the Company’s wholly owned dry bulk vessel ship-owning subsidiaries, Bagheera and Garfield, 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, the first in a principal amount of $10.15 million and the second in a principal amount of $13.0 million. Both tranches 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 bear interest at a margin over LIBOR per annum. The above facility contains a standard security package including first preferred mortgages on the vessels owned by the borrowers, pledge of bank accounts, shares security deed relating to the shares of the vessels’ owning subsidiaries, charter assignments, shares pledge, and a general assignment over the vessels’ earnings, insurances and any requisition compensation in relation to the vessels owned by the borrowers (the Magic Rainbow and the Magic Phoenix) and is guaranteed by the Company. Pursuant to this facility, the Company is also subject to certain negative covenants customary for facilities of this type and a certain minimum liquidity restriction requiring the borrowers to maintain a certain minimum cash balance with the lender. This facility’s net proceeds were used to fund the 2021 Vessel Acquisitions (Note 6(a)) and for general corporate purposes.
g. | $55.0 Million Term Loan Facility |
On January 27, 2020,12, 2022, the Company entered into a securities purchase agreement$55.0 million senior secured term loan facility with an institutional investor, YAII PN, LTD, orDeutsche Bank AG (the “$55.0 Million Term Loan Facility”), through and secured by five of the Investor, pursuant to which,Company’s dry bulk vessel owning subsidiaries, those owning the M/V Magic Starlight, M/V Magic Mars, M/V Magic Pluto, M/V Magic Perseus and the M/V Magic Vela, and guaranteed by the Company. The loan was drawn down in full in five tranches on January 27, 2020, February 10, 202013, 2022. This facility has a tenor of five years from the drawdown date, bears interest at a 3.15% margin over adjusted SOFR per annum and February 19, 2020,is repayable in (a) twenty (20) quarterly instalments (installments 1 to 6 in the amount of $3,535,000, installments 7 to 12 in the amount of $1,750,000 and installments 13 to 20 in the amount of $1,340,000) and (b) a balloon installment in the amount of $12.57 million, such balloon instalment payable at maturity together with the last repayment instalment. This facility contains a standard security package including a first preferred cross-collateralized mortgage on the vessels owned by the borrowers, pledge of bank accounts, charter assignments, shares pledge, a general assignment over the vessel’s earnings, insurances, and any requisition compensation in relation to the vessel owned by the borrower, and managers’ undertakings and is guaranteed by the Company. Pursuant to the terms of this facility, the borrowers are subject to (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 the Company issuedto maintain certain blocked and soldfree 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 Investor three unsecured convertible debentures that were convertiblenext 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 the Company’s fleet of vessels,to net interest expense ratio above a certain level,(ii)an amount of unencumbered cash above a certain level and, (iii) the Company’s trailing 12 months EBITDA to net interest expense ratio not to fall below a certain level.This facility’s net proceeds are for acquisitions and for general corporate purposes.
F-25
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 7. | Long-Term Debt (continued): |
h. | $22.5 Million Term Loan Facility |
On November 22, 2022, the Company entered into a $22.5 million senior secured term loan facility with Chailease International Financial Services (Singapore) Pte. Ltd. (the “$22.5 Million Term Loan Facility”), through and secured by two of the Company’s wholly owned containership owning subsidiaries, those owning the M/V Ariana A and the M/V Gabriela A. The facility was drawn down in two tranches of $11.25 million each on November 28, 2022, and December 7, 2022, respectively. This facility has a term of five years from the drawdown date of each tranche, bears interest at a 3.875% margin over SOFR per annum and each tranche is repayable in sixty (60) consecutive monthly instalments (installments 1 to 9 in the amount of $250,000, installments 10 to 12 in the amount of $175,000, installments 13 to 59 in the amount of $150,000 and a balloon installment in the amount of $1,425,000 payable at maturity).The above facility is secured by first preferred mortgage and first priority general and charter assignment covering earnings, insurances, requisition compensation and any charter and charter guarantee over the vessels owned by the borrowers, shares security deed relating to the shares of the Company’s common stock,vessels’ owning subsidiaries, managers’ undertakings 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 original principal amounts of $2.0 million, $1.5 million and $1.5 million each, respectively (individually, a “Convertible Debenture” and collectively,an account held by the “$5.0 Million Convertible Debentures”). The $5.0 Million Convertible Debentures originally matured 12 months from their issuance dates, bore fixed interest at 6% per annum, andlender. This facility’s net proceeds were convertible atused to fund the Investor’s option, at any time after issuance, into common sharesacquisitions of the Company at the lower of (i) a price of $2.25 per common share or (ii) 90% of the lowest daily volume weighted average price of the common stock during the 10 trading days prior to the conversion date. As of June 8, 2020, the Investor had converted the full principal amount and interest owed with respect to the $5.0 Convertible Debentures aggregating to an amount of $5,057,773M/V Ariana A and the Company issued 8,042,078 common shares in settlement thereof.M/V Gabriela A (Note 6(a)) and for general corporate purposes.
As of December 31, 2020,2021, and 2022, the Company was in compliance with all financial covenants prescribed in its debt agreements.
Restricted cash as of December 31, 20192022, current and 2020,non-current, includes $500,000(i) $7.3 million of non-legally restricted cash as perminimum liquidity deposits required pursuant to the $11.0 Million Alpha BankTerm Loan Facility, the $18.0 Million Term Loan Facility, the $15.29 Million Term Loan Facility, the $40.75 Million Term Loan Facility and the $55.0 Million Term Loan Facility discussed above, (ii) $0.9 million in the dry-dock reserve accounts required under the $15.29 Million Term Loan Facility, the $40.75 Million Term Loan Facility and the $55.00 Million Term Loan Facility discussed above, and (iii) $1.7 million of retention deposits required under the $15.29 Million Term Loan Facility and the $40.75 Million Term Loan Facility.
Restricted cash as of December 31, 2021, current and non-current, includes (i) $4.6 million of minimum liquidity requirements, or $250,000 per collateralized vessel.deposits required pursuant to the $11.0 million term loan facility, the $18.0 million term loan facility, the $15.29 million term loan facility and the $40.75 million term loan facility discussed above, (ii) $0.2 million in the dry-dock reserve accounts required under the $15.29 million term loan facility and the $40.75 million term loan facility discussed above, and (iii) $1.4 million of retention deposits.
The annual principal payments for the Company’s outstanding debt arrangements as of December 31, 2020 (including related party debt discussed under Note 3),2022, required to be made after the balance sheet date, are as follows:
| Year ending December 31, | Amount | |||
| 2021 | $ | 7,200,000 | ||
| 2022 | 2,200,000 | |||
| 2023 | 2,200,000 | |||
| 2024 | 5,200,000 | |||
| 2025 | 1,650,000 | |||
| Total long-term debt (including related party debt) | $ | 18,450,000 | ||
| Year ending December 31, | Amount | |||
| 2023 | $ | 32,548,400 | ||
| 2024 | 27,204,400 | |||
| 2025 | 33,915,400 | |||
| 2026 | 40,140,300 | |||
| 2027 | 19,910,000 | |||
| Total long-term debt | $ | 153,718,500 | ||
The weighted average interest rate on the Company’s long-term debt for the years ended December 31, 20192020, 2021 and 20202022 was 5.8%5.0%, 3.6% and 5.0%5.1% respectively.
Total interest incurred on long-term debt for the years ended December 31, 20192020, 2021 and 2020,2022, amounted to $210,085$1,030,925, $2,232,843 and $1,030,925$7,535,258 respectively, and is included in Interest and finance costs (Note 14)15) in the accompanying consolidated statements of comprehensive income/(loss)./income.
F-26
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| Equity Capital Structure: |
Under the Company's articlesCompany’s Articles of incorporation,Incorporation, as amended, the Company'sCompany’s authorized capital stock consists of 2,000,000,000 shares, par value $0.001 per share, of which 1,950,000,000 shares are designated as common shares and 50,000,000 shares are designated as preferred shares.
| (a) | Common Shares: |
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding preferred shares, common shareholders are entitled to receive ratably all dividends, if any, declared by the Company'sCompany’s board of directors out of funds legally available for dividends. Upon the Company'sCompany’s dissolution or liquidation or the sale of all or substantially all of its assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, the common shareholders are entitled to receive pro rata the remaining assets available for distribution. Common shareholders do not have conversion, redemption or preemptive rights to subscribe to any of the Company'sCompany’s securities. The rights, preferences and privileges of common shareholders are subject to the rights of the holders of any preferred shares, which the Company has or may issue in the future.
June 2020 underwritten common stock offering
On June 23, 2020, the Company entered into an agreement with Maxim, Group LLC, or Maxim, which actedacting as underwriter, pursuant to which it offered and sold 59,110,0005,911,000 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 $0.01$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 $0.35$3.50 per unit (or $0.34$3.40 per unit including a pre-funded warrant), or the June Equity Offering. The June Equity Offering, whichPre-Funded Warrant). This offering closed on June 26, 2020 and resulted in the issuance of 59,082,6865,908,269 common shares (the “June“ 2020 June Equity Offering Shares”) and 59,110,0005,911,000 Class A Warrants, which also included 7,710,000771,000 over-allotment units pursuant to an over-allotment option that was exercised by Maxim on June 24, 2020.2020. The Company raised gross and net cash proceeds from this transaction of $20.7 million and $18.6 million, respectively.
The Class A Warrants issued in the June Equity Offeringabove offering have a term of five years and are exercisable immediately and throughout their term for $0.35$3.50 per common share (American style option). The exercise price of the Class A Warrants is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common shares and also upon any distributions of assets, including cash, stock or other property to existing shareholders.
During the years ended December 31, 2020, and December 31, 2020,2021, there were exercises of 3,019,500301,950 and 5,546,706 Class A Warrants pursuant to which the Company received proceeds of $1,056,825,$1.1 million and as$19.4 million, respectively, while no exercises took place during the year ended December 31, 2022. As a result, as of December 31, 2020, 56,090,5002022, 62,344 Class A Warrants remained unexercised and potentially issuable into common stock of the Company.
On initial recognition the fair value of the Class A Warrants was $22.4 million and was determined using the Black-Scholes methodology. The fair value was considered by the Company to be classified as Level 3 in the fair value hierarchy since it was derived by unobservable inputs. The major unobservable input in connection with the valuation of the Class A Warrants was the volatility used in the valuation model, which was approximated by using historical observations of the Company’s share price. The annualized historical volatility that has been applied in the Class A Warrants valuation was 153.5%. A 5% increase in the volatility applied would have led to an increase of 1.4% in the fair value of the Class A Warrants.
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CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 8. | Equity Capital Structure (continued): |
2020 registered direct equity offering (the “2020 July Equity OfferingOffering”)
On July 12, 2020, the Company entered into agreements with certain unaffiliated institutional investors pursuant to which it offered and sold 57,750,0005,775,000 common shares in a registered offering or the July Equity Offering.offering. In a concurrent private placement, the Company also issued warrants to purchase up to 57,750,0005,775,000 common shares (the “Private Placement Warrants”). In connection with the July Equity Offering,this offering, which closed on July 15, 2020, the Company received gross and net cash proceeds of approximately $17.3 million and $15.7 million, respectively.
The 2020 Private Placement Warrants issued in the July Equity Offeringoffering discussed above have a term of five years and are exercisable immediately and throughout their term for $0.35$3.50 per common share (American style option). The exercise price of the Private Placement Warrants is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common shares and also upon any distributions of assets, including cash, stock or other property to existing shareholders.
Between their issuance date, being July 15, 2020, and December 31, 2020, as well as during the year ended December 31, 2022, there were no exercises of Private Placement Warrants. During the year ended December 31, 2021, there were exercises of 5,707,136 Private Placement Warrants and, as a result, aspursuant to which the Company received total gross proceeds of $20.0 million. As of December 31, 2020, 57,750,0002022, 67,864 Private Placement Warrants remained unexercised and potentially issuable into common stock of the Company.
On initial recognition the fair value of the Private Placement Warrants was $13.2 million and was determined using the Black-Scholes methodology. The fair value was considered by the Company to be classified as Level 3 in the fair value hierarchy since it was derived by unobservable inputs. The major unobservable input in connection with the valuation of the Private Placement Warrants was the volatility used in the valuation model, which was approximated by using historical observations of the Company’s share price. The annualized historical volatility that has been applied in the Private Placement Warrants valuation was 153.2%. A 5% increase in the volatility applied would have led to an increase of 1.9% in the fair value of the Private Placement Warrants.
2021 First Registered Direct Equity Offering
On December 30, 2020, the Company announced thatentered into agreements with certain unaffiliated institutional investors pursuant to which it receivedoffered and sold 9,475,000 common shares and warrants to purchase up to 9,475,000 common shares (the “January 5 Warrants”) in a notification letter from the Nasdaq Stock Market (“Nasdaq”) grantingregistered direct offering. In connection with this direct equity offering, which closed on January 5, 2021, the Company an additional 180-day extension, or until June 28, 2021, to regain compliance with Nasdaq’s minimum bid price requirement.received gross and net cash proceeds of approximately $18.0 million and $16.5 million, respectively.
The table below presentsJanuary 5 Warrants issued in the above equity offering had a summaryterm of five years and were exercisable immediately and throughout their term for $1.90 per common share (American style option). The exercise price of the January 5 Warrants was subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common shares and upon any distributions of assets, including cash, stock or other property to existing shareholders.
As of February 10, 2021, all seriesthe January 5 Warrants had been exercised, and, pursuant to their exercise and the issuance by the Company of preferred9,475,000 common shares, outstandingthe Company received gross and net proceeds of $18.0 million.
On initial recognition the fair value of the January 5 Warrants was $22.2 million and was determined using the Black-Scholes methodology. The fair value was considered by the Company to be classified as Level 3 in the fair value hierarchy since it was derived by unobservable inputs. The major unobservable input in connection with the valuation of December 31, 2019 and 2020:
| Series | Description | Initial Issuance Date | Total Shares Outstanding | Liquidation Preference per Share (in dollars) | Par Value | Dividend Rate | Carrying Value December 31, 2019 and 2020 |
| Series A | 9.75% Cumulative Perpetual Redeemable | 09/22/17 | 480,000 | $30 (1) | $480 | Effective January 1, 2022- 9.75% per annum of a value of $25 per share | $2,627,843 |
| Series B | n/a | 09/22/17 | 12,000 | - | $12 | n/a | $12 |
| Total | 492,000 | $492 | $2,627,855 |
the January 5 Warrants was the volatility used in the valuation model, which was approximated by using historical observations of the Company’s share price. The annualized historical volatility that has been applied in the January 5 Warrants valuation was 137.5%. A 5% increase in the volatility applied would have led to an increase of 1.7% in the fair value of the January 5 Warrants.
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CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| Equity Capital Structure (continued): |
2021 Second Registered Direct Equity Offering
On October 10, 2019,January 8, 2021, the Company reached an agreemententered into agreements with certain unaffiliated institutional investors pursuant to which it offered and sold 13,700,000 common shares and warrants to purchase up to 13,700,000 common shares (the “January 12 Warrants”) in a registered direct offering. In connection with this direct equity offering, which closed on January 12, 2021, the holdersCompany received gross and net cash proceeds of its Series A Preferred Shares$26.0 million and $24.1 million, respectively.
The January 12 Warrants issued in the above offering had a term of five years and were exercisable immediately and throughout their term for $1.90 per common share (American style option). The exercise price of the January 12 Warrants was subject to settleappropriate adjustment in full all accumulated dividend obligations on the Series A Preferred Shares (the “Series A Dividends Settlement Agreement”)event of certain stock dividends and to simultaneously adopt an Amended and Restated Statements of Designations of its Series A Preferred Shares (the “Series A Amended SOD”). Pursuant to the Series A Dividends Settlement Agreement, the Series A Preferred holders agreed to forgivedistributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s obligations relatedcommon shares and also upon any distributions of assets, including cash, stock or other property to existing shareholders.
As of February 10, 2021, all duethe January 12 Warrants had been exercised, and, overdue accumulated dividends onpursuant to their exercise and the Series A Preferred shares duringissuance by the period from their original issue date up to and including June 30, 2019, amounting to $4.3 million, and to receive, in settlement thereof, 300,000 newly issuedCompany of 13,700,000 common shares, the fair valueCompany received gross and net proceeds of which as of the settlement date amounted to $967,800 and was determined through Level 1 input data of the fair value hierarchy, i.e. the common share closing market price at the date of issuance (the “Settlement Shares”). The dividends waived amounted to $3,379,589 and an amount of $1,819,575 was charged against retained earnings and an amount of $1,560,014 in the absence of retained earnings, charged against paid-in-capital. The Settlement Shares were issued to the Series A Preferred holders on October 17, 2019.$26.0 million.
2021 Third Registered Direct Equity Offering
On April 5, 2021, the Company entered into agreements with certain unaffiliated institutional investors pursuant to which it 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. In connection with this direct equity offering, which closed on April 7, 2021, the Company received gross and net cash proceeds of approximately $125.0 million and $116.3 million, respectively.
The April 7 Warrants issued in the above offering have a term of five years and are exercisable immediately and throughout their term for $6.50 per common share (American style option). The exercise price of the April 7 Warrants is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common shares and also upon any distributions of assets, including cash, stock or other property to existing shareholders.
Between their issuance date and December 31, 2022, there were no exercises of the April 7 Warrants and, as a result, as of December 31, 2022, 19,230,770 April 7 Warrants remained unexercised and potentially issuable into common stock of the Company.
On initial recognition the fair value of the April 7 Warrants was based on$106.6 million and was determined using the Black-Scholes methodology. The fair value was considered by the Company to be classified as Level 3 hierarchical data usingin the income approach,fair value hierarchy since it was derived by unobservable inputs. The major unobservable input in connection with the valuation of the April 7 Warrants was the volatility used in the valuation model, which was based on projected cash flows discounted to their present valueapproximated by using a discount rate that considers the timing and riskhistorical observations of the forecasted cash flows.Company’s share price. The discount rate usedannualized historical volatility that has been applied in the April 7 Warrants valuation was 16.6% and was based on201.7%. A 5% increase in the average estimatedvolatility applied would have led to an increase of 0.7% in the fair value of a market participant’s cost of capital and debt, derived using customary market metrics and is considered an unobservable significant input.the April 7 Warrants.
The Company accounted for the Class A Warrants, the Private Placement Warrants and the January 5, January 12 and April 7 Warrants as equity in accordance with the accounting guidance under ASC 815-40. The accounting guidance provides a scope exception from classifying and measuring as a financial liability a contract that would otherwise meet the definition of a derivative if the contract is both (i) indexed to the entity’s own stock and (ii) meets the equity classifications conditions. The Company concluded these warrants were equity-classified since they contained no provisions which would require the Company to account for the warrants as a derivative liability, and therefore were initially measured at fair value in permanent equity with subsequent changes in fair value not measured.
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CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| Equity Capital Structure (continued): |
June 2021 at-the-market common stock offering program, as amended on March 31, 2022 (the “ATM Program”)
On June 14, 2021 (the “ATM Program Effective Date”), the Company entered into an equity distribution agreement which was amended and restated on March 31, 2022 (the “Equity Distribution Agreement’). Under the Equity Distribution Agreement, which expired on June 14, 2022, the Company could, from time to time, offer and sell its common shares through an at-the-market offering (the “ATM Program”), having an aggregate offering price of up to $150.0 million. No warrants, derivatives, or other share classes were associated with this transaction. No sales have been effected under the ATM Program during the year ended December 31, 2022, whereas, during the year ended December 31, 2021, the Company issued and sold 4,654,240 shares, thereby raising gross and net proceeds (after deducting sales commissions and other fees and expenses) of $12.9 and $12.4 million, respectively.
Reverse Stock Split
On May 28, 2021, the Company effected a one-for-ten reverse stock split of its common stock without any change in the number of authorized common shares. All share and per share amounts, as well as warrant shares eligible for purchase under the Company’s effective warrant schemes in the accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. 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.
| (b) | Preferred Shares: |
On September 22, 2017, Castor entered into a share exchange agreement (the “Exchange Agreement”) with the shareholders of Spetses to acquire all of the outstanding common shares of Spetses in exchange for Castor issuing (i) 240,000 common shares proportionally to the then shareholders of Spetses, (ii) 12,000 Series B preferred shares to Thalassa, and (iii) 480,000 9.75% Series A cumulative redeemable perpetual preferred shares to the then shareholders of Spetses excluding Thalassa, all at par value of $0.001 (the “Series A Preferred Shares”). As the Exchange Agreement also involved the issuance of preferred shares, which were a new and additional class of shares, these have been recorded at fair value. The Company determined the fair value of the 9.75% Series A cumulative redeemable perpetual preferred shares to be $2.74 million as of September 22, 2017, the date of their issuance, and reflected the amount within Additional paid-in capital. The Series B preferred shares were deemed to have a fair value of zero as they have no rights to dividends, do not have redemption/call rights and do not have any redemption features or a liquidation preference.
Series A Preferred Shares redemption:
On December 8, 2021, the Company redeemed all its 480,000 Series A Preferred Shares, each with a cash liquidation preference of $30, resulting in an aggregate redemption price of $14.4 million. The Company considered the guidance under FASB ASC Topic 260-10-S99-2 for the Series A Preferred Shares redemption and, as a result, the difference between the carrying value and the fair value of the Series A Preferred Shares, amounting to $11.8 million, was recognized in retained earnings as a deemed dividend, and has been considered in the 2021 earnings per share calculations (Note 11).
As of December 31, 2019 and 2020,2021, there were no accumulated, due or overdue dividends on the Series A Preferred Shares.
F-30
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 8. | Equity Capital Structure (continued): |
Description of Series B Preferred Shares:
The Series B Preferred Shares have the following characteristics: (i) the Series B Preferred Shares are not convertible into common shares, (ii) each Series B Preferred Share has the voting power of 100,000 common shares and shall count for 100,000 votes for purposes of determining quorum at a meeting of shareholders, (iii) the Series B Preferred Shares have no dividend or distribution rights and (iv)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.
Series B Preferred Shares amendment:
On November 15, 2022, the Company approved an amendment to the terms of its Series B Preferred Shares to entitle the holder thereof to (i) receive preferred shares with at least substantially identical rights and preferences in the event of a future spin-off of a controlled company, (ii) participate in a liquidation, dissolution or winding up of Castor pari passu with Castor’s common shares up to the Series B Preferred Shares’ nominal value and (iii) have their voting power adjusted to maintain a substantially identical voting interest upon the occurrence of certain corporate events.
| Financial Instruments and Fair Value Disclosures: |
The principal financial assets of the Company consist of cash at banks, restricted cash, trade accounts receivable and amounts due from related party.party/(ies). The principal financial liabilities of the Company consist of trade accounts payable, accrued liabilities, amounts due to related party/(ies) and long-term debt (including related party debt).debt.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
| ◾ | Cash and cash equivalents, restricted cash, |
| ◾ | Long-term debt:The |
Concentration of credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of the financial institutions in which it places its deposits. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers'customers’ financial condition.
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CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| Commitments and |
Various claims, lawsuits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Company'sCompany’s vessels. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. The Company is covered for liabilities associated with the vessels’ actions to the maximum limits as provided by Protection and Indemnity (P&I) Clubs, members of the International Group of P&I Clubs.
| (a) | Commitments under Contracts for |
| (b) | Commitments under long-term lease contracts |
The Company’s following table sets forth the future minimum contracted lease payments (grossto the Company (gross of charterers’ commissions), based on the Company’s vessels’ commitmentcommitments to non-cancelable time charter contracts (including fixture recaps) as of December 31, 2020, was $6.8 million, all due within2022. Non-cancelable time charter contracts include both fixed-rate time charters or charters linked to the next 12 months. This amountBaltic Dry Index (“BDI”). For index linked contracts, contracted lease payments have been calculated using the BDI linked rate as measured at the commencement date.
In addition, certain of the variable-rate contracts have the option at the Company’s option to convert to a fixed rate for a predetermined period, in such cases where lease payments have been converted to a fixed rate, the minimum contracted lease payments for this period are calculated using the agreed converted fixed rate. The calculation does not include any assumed off-hire days.
| Twelve-month period ending December 31, | Amount | |||
| 2023 | $ | 81,496,819 | ||
| 2024 | 2,142,100 | |||
| Total | $ | 83,638,919 | ||
| 11. | (Loss)/Earnings Per Common Share: |
The Company calculates earnings/(loss) per common share by dividing net income/(loss) available to common shareholders in each period by the weighted-average number of common shares outstanding during that period, and, particularly for the year ended December 31, 2021, after also adjusting for the effect of the deemed dividend which resulted from the redemption of the Series A Preferred Shares on December 8, 2021. As further disclosed under Note 8, dividends on the Series A Preferred Shares did not accrue nor accumulate during the period from July 1, 2019 through their redemption date.
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CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| (Loss)/Earnings Per Common Share (continued): |
Diluted earnings/(loss) per common share, if applicable, reflects the potential dilution that could occur if potentially dilutive instruments were exercised, resulting in the issuance of additional shares that would then share in the Company’s net income. For the year ended December 31, 2022, the effect of the (i) 62,344 Class A Warrants, (ii) 67,864 Private Placement Warrants and (iii) 19,230,770 April 7 Warrants outstanding during that period and as of that date, would be antidilutive, and, accordingly, they were excluded from the computation of diluted earnings per share. For the year ended December 31, 2021, the denominator of diluted earnings per common share calculation includes the incremental shares assumed issued under the treasury stock method weighted for the period the shares were outstanding with respect to warrants that were outstanding during the year ended December 31, 2021. Securities that could potentially dilute basic earnings per share for the year ended December 31, 2021, that were excluded from the computation of diluted earnings per share because to do so would have been antidilutive, were the unexercised, as of December 31, 2021, April 7 Warrants, calculated in accordance with the treasury stock method. For the year ended December 31, 2020, the Company incurred losses and the effect of the warrants outstanding during that period and as of that date, would be antidilutive. As a result of the foregoing, for the years ended December 31, 2020, and December 31, 2022, “Basic (loss)/earnings per common share” equaled “Diluted (loss)/earnings per common share”. The components of the calculation of basic and diluted earnings/(loss) per common share in each of the periods comprising the accompanying consolidated statements of comprehensive (loss)/income are as follows:
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| Net (loss)/income and comprehensive (loss)/income | $ | (1,753,533 | ) | $ | 52,270,487 | $ | 118,560,690 | |||||
| Less: Deemed dividend on Series A Preferred Shares | — | (11,772,157 | ) | — | ||||||||
| Net (loss)/income and comprehensive (loss)/income available to common shareholders | (1,753,533 | ) | 40,498,330 | 118,560,690 | ||||||||
| Weighted average number of common shares outstanding, basic | 6,773,519 | 83,923,435 | 94,610,088 | |||||||||
| (Loss)/Earnings per common share, basic | (0.26 | ) | 0.48 | 1.25 | ||||||||
Plus: Dilutive effect of warrants | — | 1,409,293 | — | |||||||||
| Weighted average number of common shares outstanding, diluted | 6,773,519 | 85,332,728 | 94,610,088 | |||||||||
| (Loss)/Earnings per common share, diluted | $ | (0.26 | ) | $ | 0.47 | $ | 1.25 | |||||
| 12. | Total Vessel Revenues: |
The following table includes the voyage revenues earned by the Company by type of contract (time charters, voyage charters and pool agreements) in each of the years ended December 31, 2020, 2021, and 2022, as presented in the accompanying consolidated statements of comprehensive (loss)/income:
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| Time charter revenues | 12,487,692 | 111,900,699 | 163,872,159 | |||||||||
| Voyage charter revenues | — | 15,002,012 | 51,805,097 | |||||||||
| Pool revenues | — | 5,146,999 | 46,424,742 | |||||||||
| Total Vessel revenues | $ | 12,487,692 | $ | 132,049,710 | $ | 262,101,998 | ||||||
The Company generates its revenues from time charters, voyage contracts and pool arrangements.
The Company typically enters into fixed rate or index-linked rate with an option to convert to fixed rate time charters ranging from one month to twelve months and in isolated cases on longer terms depending on market conditions. The charterer has the full discretion over the ports visited, shipping routes and vessel speed, subject to the owner protective restrictions discussed below. Time charter agreements may have extension options ranging from months, to sometimes, years. The time charter party generally provides, among others, typical warranties regarding the speed and the performance of the vessel as well as owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws and war risks, and carries only lawful and non-hazardous cargo.
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CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 12. | Total Vessel Revenues (continued): |
From time to time, the Company’s dry bulk vessels are fixed on period charter contracts with the rate of daily hire linked to the average of the time charter routes comprising the respective indices for dry bulk vessels of the Baltic Exchange. Such contracts also carry an option for the Company to convert the index-linked rate to a fixed rate for a minimum period of three months and up to the maximum remaining duration of the charter contract, according to the average of the forward freight agreement curve of the respective Baltic index for the desired period, at the time of conversion. The index-linked contracts with conversion clause provide flexibility and allow the Company to either enjoy exposure in the spot market, when the rate is floating, or to secure foreseeable cash flow when the rate has been converted to fixed over a certain period.
Vessels are also chartered under voyage charters, where a contract is made for the use of a vessel under which the Company is paid freight on the basis of transporting cargo from a loading port to a discharge port. Depending on charterparty terms, freight can be fully prepaid, or be paid upon reaching the discharging destination upon delivery of the cargo, at the discharging destination but before discharging, or during a vessel’s voyage.
The Company employs certain of its vessels in pools. The main objective of pools is to enter into arrangements for the employment and operation of the pool vessels, so as to secure for the pool participants the highest commercially available earnings per vessel on the basis of pooling the revenue and expenses of the pool vessels and dividing it between the pool participants based on the terms of the pool agreement. Pool revenue for each vessel is determined in accordance with the profit-sharing mechanism specified within each pool agreement. In particular, the Company’s pool managers aggregate the revenues and expenses of all of the pool participants and distribute the net earnings to participants, as applicable, based on the pool points attributed to each vessel which are determined by vessel characteristics such as cargo carrying capacity, speed, fuel consumption, design characteristics and the trading capabilities/restrictions of each vessel.
As of December 31, 2022, and December 31, 2021, trade accounts receivable, net, related to voyage charters, amounted to $2,462,714 and $3,046,863, respectively. This decrease by $584,149 trade accounts receivable, net was mainly attributable to the timing of collections.
As of December 31, 2021, and December 31, 2022, deferred assets related to voyage charters amounted to $25,335 and $0, respectively, and are presented under ‘Deferred charges’ (Current) in the accompanying consolidated balance sheets. This change was mainly attributable to the timing of commencement of revenue recognition. The unamortized portion of deferred assets as of December 31, 2021, amounting to $25,335 was recognized as revenue in the first quarter of 2022.
| 13. | Vessel Operating Expenses and Voyage Expenses: |
The amounts in the accompanying consolidated statements of comprehensive (loss)/income are analyzed as follows:
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||
| Vessel Operating Expenses | 2020 | 2021 | 2022 | |||||||||
| Crew & crew related costs | 3,753,578 | 21,532,311 | 33,882,972 | |||||||||
Repairs & maintenance, spares, stores, classification, chemicals & gases, paints, victualling | 2,314,260 | 9,828,139 | 16,182,372 | |||||||||
| Lubricants | 429,967 | 2,375,901 | 3,534,957 | |||||||||
| Insurances | 507,885 | 3,126,169 | 4,721,191 | |||||||||
| Tonnage taxes | 131,674 | 592,701 | 1,228,678 | |||||||||
| Other | 310,075 | 1,748,250 | 3,417,674 | |||||||||
| Total Vessel operating expenses | $ | 7,447,439 | $ | 39,203,471 | $ | 62,967,844 | ||||||
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CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
13. | Vessel Operating Expenses and Voyage Expenses (continued): |
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||
| Voyage expenses | 2020 | 2021 | 2022 | |||||||||
| Brokerage commissions | 158,538 | 1,733,639 | 3,504,453 | |||||||||
Brokerage commissions- related party | 29,769 | 1,671,145 | 3,381,564 | |||||||||
| Port & other expenses | 173,645 | 4,520,584 | 6,652,844 | |||||||||
| Bunkers consumption | 321,252 | 7,742,450 | 23,143,236 | |||||||||
| Gain on bunkers | (98,499 | ) | (2,717,035 | ) | (3,641,407 | ) | ||||||
| Total Voyage expenses | $ | 584,705 | $ | 12,950,783 | $ | 33,040,690 | ||||||
| 14. | General and Administrative Expenses: |
General and administrative expenses are analyzed as follows:
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| Chief Executive and Chief Financial Officer and directors’ compensation | $ | 29,000 | $ | 48,000 | $ | 72,000 | ||||||
| Professional fees and other expenses | 701,953 | 2,018,310 | 4,871,937 | |||||||||
| Administration fees-related party (Note 3(a)) | 400,000 | 1,200,000 | 2,100,000 | |||||||||
| Total | $ | 1,130,953 | $ | 3,266,310 | $ | 7,043,937 | ||||||
The Chief Executive Officer and Chief Financial Officer compensation was terminated on October 1, 2020, and, subsequent to this date, all services rendered by the Company’s Chief Executive Officer and Chief Financial Officer are included in its Master Agreement with Castor Ships (see Note 3(a)).
| 15. | Interest and Finance Costs: |
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| Interest on long-term debt | $ | 668,152 | $ | 2,028,676 | $ | 7,535,258 | ||||||
| Interest on long-term debt – related party (Note 3 (c)) | 305,000 | 204,167 | — | |||||||||
| Interest on convertible debt – non cash | 57,773 | — | — | |||||||||
| Amortization and write-off of deferred finance charges | 599,087 | 414,629 | 850,244 | |||||||||
| Amortization and write-off of convertible notes beneficial conversion features | 532,437 | — | — | |||||||||
| Other finance charges | 27,128 | 207,526 | 198,552 | |||||||||
| Total | $ | 2,189,577 | $ | 2,854,998 | $ | 8,584,054 | ||||||
F-35
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
| 16. | Income Taxes: |
Castor and its subsidiaries are incorporated under the laws of the Republic of the Marshall Islands and they are not subject to income taxes in the Republic of the Marshall Islands. Castor’s ship-owning subsidiaries are subject to registration and tonnage taxes, which have been included in Vessel operating expenses in the accompanying consolidated statements of comprehensive income/(loss).
Pursuant to §883 of the Internal Revenue Code of the United States (the "Code"“Code”), U.S. source income from the international operation of ships is generally exempt from U.S. Federal income tax on such income if the company meets the following requirements: (a) the company is organized in a foreign country that grants an equivalent exception to corporations organized in the U. S. and (b) either (i) more than 50 percent of the value of the company'scompany’s stock is owned, directly or indirectly, by individuals who are "residents"“residents” of the company'scompany’s country of organization or of another foreign country that grants an "equivalent exemption"“equivalent exemption” to corporations organized in the U.S. (the "50%“50% Ownership Test"Test”) or (ii) the company'scompany’s stock is "primarily“primarily and regularly traded on an established securities market"market” in its country of organization, in another country that grants an "equivalent exemption"“equivalent exemption” to U.S. corporations, or in the U.S. (the "Publicly-Traded Test"“Publicly-Traded Test”). Marshall Islands, the jurisdiction where the Company and its ship-owning subsidiaries are incorporated, grants an equivalent exemption to United States corporations. Therefore, the Company is exempt from United States federal income taxation with respect to U.S.-source shipping income if either the 50% Ownership Test or the Publicly-TradedPublicly Traded Test is met.
In the year ended December 31, 2020, the Company determinedCompany’s case, it expects that it did not satisfywould have satisfied the Publicly-Traded Test as a resultif its common shares represented more than 50% of the voting power of its shares not meetingstock, and it can establish that nonqualified shareholders cannot exercise voting control over the "regularly traded" requirement as set forth undercorporation because a qualified shareholder controls the regulations. In addition,non-traded voting stock. The Company therefore believes its stock structure, when considered by the U.S. Treasury in light of the Publicly-Traded Test enunciated in the regulations satisfies the intent and purpose of the exemption. This position is uncertain and was disclosed to the Internal Revenue Service when the Company did not satisfyfiled its U.S. tax returns for 2021. It will be disclosed again when the 50% Ownership Test as itCompanyfiles its U.S. tax returns for 2022.
Because the position stated above is unable to substantiate certain requirements regarding the identity of its shareholders. As a result,uncertain, the Company did not qualifyhas recorded provisions of $497,339 and $1,348,850 for exemption under §883 of the Code from the 4% U.S. Federal income tax on its U.S. source gross transportation income. U.S. source gross transportation income is defined as 50% of shipping income that is attributable to transportation that begins or ends, but does not both begin and end,tax in the accompanying consolidated statements of comprehensive (loss)/income for the years ended December 31, 2021 and December 31, 2022, respectively. In addition, U.S. Grosssource gross transportation income from each voyage is equal to the product of (i) the number of days in each voyage and (ii) the daily charter rate paid to the Company by the charterer.
| 17. | Segment Information: |
In late 2022, the Company calculates earnings/(loss) per share by dividing net income/(loss) available to common stockholders in each period by the weighted-average number of common shares outstanding during that period, after adjustingacquired two containerships for the first time. As a result of the different characteristics of the containerships acquired in relation to the Company’s other three operating segments, the Company determined that, with effect from the fourth quarter of cumulative dividends2022, it operated in four reportable segments: (i) dry bulk, (ii) Aframax/LR2 tanker, (iii) Handysize tanker and (iv) containerships. 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) and the transport of containerized products (carried by containerships). Further, dry bulk vessels trade on the Series A Preferred Shares, whether or not earned, and only at periods when dividends on the Series A Preferred Shares are contractually alloweddifferent types of charter contracts as compared to accumulate.
F-36
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share because to do so would have been antidilutive fordata unless otherwise stated)
| 17. | Segment Information (continued): |
The table below presents information about the period presented, were the incremental shares in connection with the unexercised,Company’s reportable segments as of December 31, 2020, 56,090,500 Class A warrants and the 57,750,000 Private Placement Warrants (Note 7), calculated in accordance with the treasury stock method. The Company had no dilutive instruments in the year ended September 30, 2018, the Transition Period ended December 31, 2018 andfor the year ended December 31, 2019.
| Year ended September 30, | Three months ended December 31, | Year ended December 31, | Year ended December 31, | |||||||||||||
| 2018 | 2018 | 2019 | 2020 | |||||||||||||
| Net income/(loss) and comprehensive income/(loss) | $ | 980,938 | $ | 276,442 | $ | 1,088,149 | $ | (1,753,533 | ) | |||||||
Less: Cumulative dividends on Series A Preferred Shares | (1,646,775 | ) | (992,745 | ) | (372,022 | ) | — | |||||||||
| Plus: Gain on extinguishment of preferred stock pursuant to the Series A Preferred Stock Amendment Agreement, net of expenses | — | — | 112,637 | — | ||||||||||||
| Net income/ (loss) and comprehensive income/ (loss) available to common shareholders | (665,837 | ) | (716,303 | ) | 828,764 | (1,753,533 | ) | |||||||||
| Weighted average number of common shares outstanding, basic and diluted | 2,400,000 | 2,400,000 | 2,662,383 | 67,735,195 | ||||||||||||
| (Loss)/Earnings per common share, basic and diluted | $ | (0.28 | ) | $ | (0.30 | ) | $ | 0.31 | $ | (0.03 | ) | |||||
Year ended September 30, | Three months ended December 31, | Year ended December 31, | Year ended December 31, | |||||||||||||
| Vessel Operating Expenses | 2018 | 2018 | 2019 | 2020 | ||||||||||||
| Crew & crew related costs | 983,985 | 239,610 | 1,396,477 | 3,753,578 | ||||||||||||
| Repairs & maintenance, spares, stores, classification, chemicals & gases, paints, victualling | 415,306 | 124,354 | 868,915 | 2,314,260 | ||||||||||||
| Lubricants | 95,835 | 19,750 | 153,969 | 429,967 | ||||||||||||
| Insurances | 133,090 | 31,869 | 189,781 | 507,885 | ||||||||||||
| Tonnage taxes | 40,345 | 8,583 | 50,553 | 131,674 | ||||||||||||
| Other | 59,209 | 8,378 | 143,296 | 310,075 | ||||||||||||
| Total Vessel operating expenses | $ | 1,727,770 | $ | 432,544 | $ | 2,802,991 | $ | 7,447,439 | ||||||||
Year ended September 30, | Three months ended December 31, | Year ended December 31, | Year ended December 31, | |||||||||||||
| Voyage expenses | 2018 | 2018 | 2019 | 2020 | ||||||||||||
| Brokerage commissions | 90,194 | 14,375 | 87,179 | 188,307 | ||||||||||||
| Port & other expenses | 57,042 | 5,181 | 46,100 | 173,645 | ||||||||||||
| (Gain)/loss on bunkers | (109,863 | ) | — | 127,900 | 222,753 | |||||||||||
| Total voyage expenses | $ | 37,373 | $ | 19,556 | $ | 261,179 | $ | 584,705 | ||||||||
Year ended September 30, | Three months ended December 31, | Year ended December 31, | Year ended December 31, | |||||||||||||
| 2018 | 2018 | 2019 | 2020 | |||||||||||||
| Audit fees | $ | 91,700 | $ | 20,000 | $ | 119,535 | $ | 129,420 | ||||||||
| Chief Executive and Chief Financial Officer and directors’ compensation | 12,000 | 3,000 | 12,000 | 29,000 | ||||||||||||
| Other professional fees | 5,533 | (46 | ) | 247,242 | 572,533 | |||||||||||
| Administration fees-related party | - | - | - | 400,000 | ||||||||||||
| Total | $ | 109,233 | $ | 22,954 | $ | 378,777 | $ | 1,130,953 | ||||||||
Year ended December 31, | Year ended December 31, | Year ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | 2022 | ||||||||||||||||||||||||||||||||||||||
| Dry bulk segment | Dry bulk segment | Aframax/LR2 tanker segment | Handysize tanker segment | Total | Dry bulk segment | Aframax/LR2 tanker segment | Handysize tanker segment | Container ship segment | Total | |||||||||||||||||||||||||||||||
| - Time charter revenues | $ | 12,487,692 | $ | 102,785,442 | $ | 9,115,257 | $ | — | $ | 111,900,699 | $ | 148,930,997 | $ | 13,656,029 | $ | — | $ | 1,285,133 | $ | 163,872,159 | ||||||||||||||||||||
| - Voyage charter revenues | — | — | 15,002,012 | — | 15,002,012 | — | 51,805,097 | — | — | 51,805,097 | ||||||||||||||||||||||||||||||
| - Pool revenues | — | — | 2,442,144 | 2,704,855 | 5,146,999 | — | 30,787,089 | 15,637,653 | — | 46,424,742 | ||||||||||||||||||||||||||||||
| Total vessel revenues | $ | 12,487,692 | $ | 102,785,442 | $ | 26,559,413 | $ | 2,704,855 | $ | 132,049,710 | $ | 148,930,997 | $ | 96,248,215 | $ | 15,637,653 | $ | 1,285,133 | $ | 262,101,998 | ||||||||||||||||||||
| Voyage expenses (including charges from related party) | (584,705 | ) | (1,891,265 | ) | (11,003,925 | ) | (55,593 | ) | (12,950,783 | ) | (3,649,943 | ) | (29,100,348 | ) | (219,066 | ) | (71,333 | ) | (33,040,690 | ) | ||||||||||||||||||||
| Vessel operating expenses | (7,447,439 | ) | (26,841,600 | ) | (9,776,724 | ) | (2,585,147 | ) | (39,203,471 | ) | (40,697,898 | ) | (17,386,009 | ) | (4,322,281 | ) | (561,656 | ) | (62,967,844 | ) | ||||||||||||||||||||
| Management fees to related parties | (930,500 | ) | (4,890,900 | ) | (1,433,950 | ) | (419,900 | ) | (6,744,750 | ) | (6,481,000 | ) | (2,167,000 | ) | (666,500 | ) | (81,400 | ) | (9,395,900 | ) | ||||||||||||||||||||
| Depreciation and amortization | (1,904,963 | ) | (10,528,711 | ) | (3,087,764 | ) | (746,353 | ) | (14,362,828 | ) | (18,039,966 | ) | (5,889,352 | ) | (1,405,124 | ) | (495,271 | ) | (25,829,713 | ) | ||||||||||||||||||||
| Provision for doubtful accounts | (37,103 | ) | (2,483 | ) | — | — | (2,483 | ) | — | (266,732 | ) | — | — | (266,732 | ) | |||||||||||||||||||||||||
| Gain on sale of vessel | — | — | — | — | — | — | 3,222,631 | — | — | 3,222,631 | ||||||||||||||||||||||||||||||
| Segments operating income/(loss) | $ | 1,582,982 | $ | 58,630,483 | $ | 1,257,050 | $ | (1,102,138 | ) | $ | 58,785,395 | $ | 80,062,190 | $ | 44,661,405 | $ | 9,024,682 | $ | 75,473 | $ | 133,823,750 | |||||||||||||||||||
| Interest and finance costs | (810,317 | ) | (2,631,318 | ) | (8,545,149 | ) | ||||||||||||||||||||||||||||||||||
| Interest income | 9,387 | 11,651 | 1,485,368 | |||||||||||||||||||||||||||||||||||||
| Foreign exchange (losses)/gains | (28,455 | ) | 31,325 | 99,134 | ||||||||||||||||||||||||||||||||||||
| Less: Unallocated corporate general and administrative expenses | (1,130,953 | ) | (3,266,310 | ) | (7,043,937 | ) | ||||||||||||||||||||||||||||||||||
| Less: Corporate Interest and finance costs | (1,379,260 | ) | (223,680 | ) | (38,905 | ) | ||||||||||||||||||||||||||||||||||
| Less: Corporate Interest income | 25,589 | 63,472 | 72,735 | |||||||||||||||||||||||||||||||||||||
| Less: Corporate exchange (losses)/ gains | (866 | ) | (2,709 | ) | 4,566 | |||||||||||||||||||||||||||||||||||
| Dividend on equity securities | — | — | 24,528 | |||||||||||||||||||||||||||||||||||||
| Profit from equity securities | — | — | 27,450 | |||||||||||||||||||||||||||||||||||||
| Net (loss)/income and comprehensive (loss)/income, before taxes | $ | (1,731,893 | ) | $ | 52,767,826 | $ | 119,909,540 | |||||||||||||||||||||||||||||||||
F-37
CASTOR MARITIME INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars – except for share data unless otherwise stated)
17. Segment Information (continued):
A reconciliation of total segment assets to total assets presented in the accompanying consolidated balance sheets of December 31, 2021, and $0 respectively. Public registration costs relate2022, is as follows:
Year Ended December 31, 2021 | Year Ended December 31, 2022 | |||||||
| Dry bulk segment | $ | 314,407,704 | $ | 339,599,683 | ||||
| Aframax tanker segment | 104,953,507 | 134,093,678 | ||||||
| Handysize tanker segment | 19,093,379 | 23,385,458 | ||||||
| Containership segment | — | 52,850,927 | ||||||
Cash and cash equivalents (1) | 23,950,795 | 82,336,406 | ||||||
Prepaid expenses and other assets (1) | 508,057 | 654,796 | ||||||
| Total consolidated assets | $ | 462,913,442 | $ | 632,920,948 | ||||
(1) | Refers to assets of other, non-vessel owning, entities included in the consolidated financial statements. |
| 18. | Subsequent Events: |
Completion of the Spin-Off: On March 7, 2023, the Company completed the spin-off of its wholly owned subsidiary, Toro. On that day, the Company distributed all of the Toro common shares outstanding to its holders of common stock of record at the close of business on February 22, 2023 at a ratio of one Toro common share for every ten Company common shares. As part of the Spin-Off, Toro entered into various other agreements effecting the separation of Toro’s business from the Company including a master management agreement with Castor Ships with respect to its vessels in substantially the same form as the Company’s Master Management Agreement for its vessels and a Contribution and Spin-Off Distribution Agreement, pursuant to which, among other things, (i) the Company agreed to indemnify Toro and its vessel-owning subsidiaries for any and all obligations and other liabilities arising from or relating to the costs incurred byoperation, management or employment of vessels or subsidiaries the Company retains after the Distribution Date and Toro agreed to indemnify the Company for any and all obligations and other liabilities arising from or relating to the operation, management or employment of the vessels contributed to it or its vessel-owning subsidiaries, and (ii) Toro replaced the Company as guarantor under the $18.0 Million Term Loan Facility. The Contribution and Spin-Off Distribution Agreement also provided for the settlement or extinguishment of certain liabilities and other obligations between the Company and Toro and provides the Company with certain registration rights relating to Toro’s common shares, if any, issued upon conversion of the Toro Series A preferred shares issued to the Company in connection with the Company’s registration and listing of its 2,400,000 issued and outstanding common shares on the Norwegian OTC on December 21, 2018 and the NASDAQ Stock Market on February 11, 2019. Apart from registration and listing costs, public registration costs further include legal, consultancy and other costs incurred in connection with the subject listings.Spin-Off.
F-38
Year ended September 30, | Three months ended December 31, | Year ended December 31, | Year ended December 31, | |||||||||||||
| 2018 | 2018 | 2019 | 2020 | |||||||||||||
| Interest on long-term debt | $ | - | $ | - | $ | 47,585 | $ | 668,152 | ||||||||
| Interest on long-term debt – related party (Note 3 (c)) | - | - | 162,500 | 305,000 | ||||||||||||
| Interest on convertible debt – non cash (Note 6) | - | - | - | 57,773 | ||||||||||||
| Amortization and write-off of deferred finance charges | - | - | 6,628 | 599,087 | ||||||||||||
| Amortization and write-off of convertible notes beneficial conversion features | - | - | - | 532,437 | ||||||||||||
| Other finance charges | 3,393 | 519 | 5,450 | 27,128 | ||||||||||||
| Total | $ | 3,393 | $ | 519 | $ | 222,163 | $ | 2,189,577 | ||||||||