We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate and case law.
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.
We are an "emerging growth company", and we cannot be certain if the reduced requirements applicable to emerging growth companies make our securities less attractive to investors.
U.S. tax authorities could treat us as a "passive foreign investment company", which could have adverse U.S. federal income tax consequences to U.S. shareholders.
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.
Our Series A Preferred Shares rank senior to our common shares with respect to dividends, distributions and payments upon liquidation, which could have an adverse effect on the value of our common shares.
We may not have sufficient cash from our operations to enable us to pay dividends on our Series A Preferred Shares following the payment of expenses and the establishment of any reserves.
The Series A Preferred Shares represent perpetual equity interests.
Our Series A Preferred Shares are subordinate to our indebtedness, and your interests could be diluted by the issuance of additional preferred shares, including additional Series A Preferred Shares, and by other transactions.
We may redeem the Series A Preferred Shares, and holders of Series A Preferred Shares may not be able to reinvest the redemption price they receive in a similar security.
Holders of Series A Preferred Shares have extremely limited voting rights.
Our ability to pay dividends on and to redeem our Series A Preferred Shares is limited by the requirements of Marshall Islands law.
Risk RelatedRisks Relating to Our Industry
Charter hire rates for dry bulkin the shipping industry are cyclical and tanker vessels are volatile and have declined significantly since their historic highs and may remain at low levels orvolatile. A decrease in the future, whichcharter rates may adversely affect our earnings, revenuesbusiness, financial condition and our profitability.operating results.
The dry bulk shipping industry is cyclical with attendant volatility
We are exposed to changes in charter hire rates and profitability. The degree of charter hire rate volatility among different types of dry bulk vessels has varied widely, and charter hire rates for dry bulk vessels have declined significantly from historically high levels. For example, in the past, time charter and spot market rates for dry bulk vessels have declined below operating costs of vessels. The Baltic Dry Index, or BDI, an index published by the Baltic Exchange Limited of shipping rates for 20 key dry bulk routes, fell 97% from a peak of 11,793 in May 2008 to a low of 290 in February 2016. While the BDI has since increased to 1960 on March 15, 2021, there can be no assurance that the dry bulk charter market will not decline furtherand containership markets in the future.
The tanker industry is also both cyclical and volatile in terms of charter rates and profitability. Periodic adjustments to the supply of and demand for oil tankers cause the industry to be cyclical in nature. We expect continued volatility in market rates for our tanker vessels in the foreseeable future with a consequent effect on our liquidity as soon as the charters attached to those vessels expire. A worsening of current global economic conditions resulting from the COVID-19 pandemic and other factors may cause tanker charter rates to further decline and thereby adversely affect our ability to charter or re-charterwhich our vessels or to sell them on the expiration or termination of their charters.operate. Fluctuations in charter rates and vessel values result from changes in the supplythese markets may impact our operations and demand for tanker capacity and changes in the supply and demand for oil and oil products. 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 water internationally. Because
The shipping industry in general is cyclical with attendant volatility in charter hire rates and profitability, and in the factors affectingpast, there have been instances where time charter and spot market rates for vessels in the segments we operate have declined below operating costs of vessels. The degree of charter hire rate volatility among different types of vessels has varied widely. Fluctuations in charter rates result from changes in the supply and demand for vessels are outsidevessel capacity and changes in the supply and demand for energy resources, commodities and products.
Deterioration of charter rates resulting from various factors relating to the cyclicality and volatility of our controlbusiness may adversely affect our ability to profitably charter or re-charter our vessels or to sell our vessels on a profitable basis. This could negatively impact our operating results, liquidity and are unpredictable,financial condition.
The conflicts in Ukraine and the Middle East, including maritime incidents in and around the Red Sea, combined with ongoing inflationary pressures and/or supply chain disruptions across most major economies, have negatively impacted certain of the countries in which we operate in and may lead to a global economic slowdown, which might in turn adversely affect demand for our dry bulk vessels. In particular, the conflict in Ukraine and related sanctions measures imposed against Russia has and is disrupting energy production and trade patterns and trade routes, including shipping in the Black Sea and elsewhere, and has impacted the price of certain dry bulk goods, as well as energy and fuel prices. Notably, various jurisdictions have imposed sanctions against Russia directly targeting the maritime transport of goods originating from Russia, such as of oil products and agricultural commodities such as potash. Such measures, and the response of targeted jurisdictions to them, have disrupted trade patterns of certain of the goods which we transport, such as grain, and have correspondingly impacted charter rates for the transport of such goods. As the number of jurisdictions imposing sanctions upon Russia grows and/or the nature timing, directionof sanctions being imposed evolves, the charter rates we are able to obtain could begin to weaken. For further details, 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 degreeadversely affect our reputation. Such failures and other events could adversely affect the market for our common shares.” Similarly, the dry bulk and containership trades experienced major disruptions and increased voyage costs near the end of 2023 due to increasingly frequent armed attacks on vessels in and around the Red Sea. See “—Geopolitical conditions, such as political instability or conflict, terrorist attacks, and international hostilities and global public health threats can affect the seaborne transportation industry, which could adversely affect our business” for a description of the impacts of these attacks.
Demand for dry bulk capacity is affected by supply of and demand for, and changes in charter rates are also unpredictable.the production or manufacturing of, commodities, semi-finished and finished consumer and industrial products, while demand for containership capacity is affected by a range of factors, including demand and supply chain for containerized goods and major products carried by container vessels internationally.
Factors that influence demand for vessel capacity include:
supply of and demand for energy resources, commodities, semi-finished and finished consumer and industrial products and oil and petroleum products;
changes in the exploration or production of energy resources, commodities, semi-finished and finished consumer and industrial products;segments in which we operate include:
the location of regional and global exploration, production and manufacturing facilities;
the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;
the globalization of production and manufacturing;
global and regional economic and political conditions and developments, including armed conflicts and terrorist activities, international trade sanctions, embargoes and strikes;
developments in international trade;
changes in seaborne and other transportation patterns leading to repositioning and distances cargo is transported by sea;
pandemics, such as the COVID-19 outbreak;
environmental and other regulatory developments
with respect to tanker vessel demand, regional availability of refining capacity and inventories, competition from alternative sources of energy and the distance over which oil and oil products are to be moved by sea;
currency exchange rates; and
the weather.
Demand for our vessels is dependent upon economic growth in the world's economies, seasonal and regional 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.
Factors that influence the supply of both dry bulk and tanker vessel capacity include:
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;
speed of vessels being operated;
vessel casualties;
with respect to tanker vessel supply, demand for alternative sources of energy and supply and demand for energy resources and oil and petroleum products; and
number of vessels that are out of service or laid up.
environmental concerns and regulations;
product imbalances (affecting the level of trading activity);
developments in international trade, including refinery additions and closures; and
port or canal congestion.
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, costs of bunkersseaborne 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. These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
Furthermore, a significant decrease in charter rates would cause asset values to decline, and we may have to record an impairment charge in our consolidated financial statements which could adversely affect our financial results. Because the market value of our vessels may fluctuate significantly, we may also incur losses when we sell vessels, which may adversely affect our earnings. If we sell vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel's carrying amount in our financial statements, resulting in a loss and a reduction in earnings.
Global economic conditions may continue to negatively impact the dry bulk and tanker sectors of the shipping industry.
In the current global economy, operating businesses are faced with tightening credit, weak demand for goods and services, and weak international liquidity conditions. There has similarly been a general decline in the willingness by banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been negatively affected by this decline. In particular, lower demand for dry bulk cargoes and crude oil and petroleum products as a result of the COVID-19 pandemic and resulting reduction in economic activity, as well as diminished trade credit available for the delivery of such cargoes have led to decreased demand for dry bulk and tanker vessels, creating downward pressure on charter rates and vessel values. Any further weakening in global economic conditions may have a number of adverse consequences for dry bulk and tanker and other shipping sectors, including, among other things:
low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
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 owners, shipyards and charterers.
The occurrence of one or more of these events could have a material adverse effect on our business, results of operations, cash flows and financial condition.
The Company is exposed to fluctuating prices of oil and decreased demand for oil and petroleum products.
Sustained periods of low oil prices typically result in reduced exploration and extraction because oil companies' capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a material effect on demand for our services, and periods of low demand can cause excess vessel supply and intensify the competition in the industry, which often results in vessels, particularly older and less technologically-advanced vessels, being idle for long periods of time. We cannot predict the future level of demand for our services or future conditions of the oil industry. Any decrease in exploration, development or production expenditures by oil companies could reduce our revenues and materially harm our business, results of operations and cash available for distribution.
The COVID-19 pandemic has in the past negatively impacted demand for oil and petroleum products. A worsening of current global economic conditions resulting from the COVID-19 pandemic and other factors may cause a decrease in demand for oil and petroleum products, which may have a material effect on demand for our services.
The operation of tankers has unique operational risks associated with the transportation of oil.
The operation of oil and petroleum products tankers is inherently risky. An oil spill may cause significant environmental damage. 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. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages. As a result, the unique operational risks associated with transportation of oil could result in significantly more expensive insurance coverage and the associated costs of an oil spill could exceed the insurance coverage available to us. Further, 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.
Additionally, compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.
Seasonal fluctuations in the tanker and dry bulk industry demand could have a material adverse effect on our business, financial condition and results of operations and the amount of available cash with which we can pay dividends.
The tanker sector has historically exhibited seasonal variations in demand and, as a result, in charter rates. This seasonality may result in quarter-to-quarter volatility in our operating results. 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. As a result, our revenues from our tankers may be weaker during the fiscal quarters ending June 30 and September 30, and, conversely, revenues may be stronger in fiscal quarters ending December 31 and March 31.
The market for dry bulk transportation services is typically stronger in the fall months in anticipation of increased consumption of coal in the northern hemisphere during the winter months and the grain export season from North America. Similarly, the market for marine dry bulk transportation services is typically stronger in the spring months in anticipation of the South American grain export season due to increased distance traveled by vessels to their end destination known as ton mile effect, as well as increased coal imports in parts of Asia due to additional electricity demand for cooling during the summer months. Demand for marine dry bulk transportation services is typically weaker at the beginning of the calendar year and during the summer months. In addition, unpredictable weather patterns during these periods tend to disrupt vessel scheduling and supplies of certain commodities.
This seasonality in the tanker and dry bulk industry could have a material adverse effect on our business, financial condition and results of operations.
A shift in consumer demand from oil towards other energy sources or changes to trade patterns for refined oil products may have a material adverse effect on our business.
A shift in the consumer demand from oil and oil products towards other energy resources such as wind energy, solar energy, electricity or water energy would potentially affect 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.
Seaborne trading and distribution patterns, are primarilytypically influenced by the relative advantage of the various sources of production, locations of consumption, pricing differentials and seasonality. Changes toseasonality;
changes in the trade patternsproduction of refined oilenergy products, may have a significant negative or positive impact on the ton-milecommodities, semi-finished and therefore the demand for our product tankers. This could have a material adverse effect on our future performance, resultsfinished consumer and industrial products;
epidemics and financial position.pandemics;
Risks involved with operating ocean-going vessels could affect our business and reputation, which could have a material adverse effect on our results of operations and financial condition.
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
a marine disaster;
terrorism;
environmental accidents;and other regulatory developments;
cargo and property losses and damage;
natural catastrophes;
currency exchange rates; and
business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action
the weather.
For a discussion of factors affecting the supply of vessel capacity, see “—An oversupply of vessel capacity in various countries, labor strikes,the segments in which we operate may prolong or adverse weather conditions.
further depress low charter rates when they occur, which may limit our ability to operate our vessels profitably.” These factors are outside of our control and are unpredictable, and accordingly we may not be able to correctly assess the nature, timing and degree of changes in charter rates. Any of these 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 U.K.'s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.
On June 23, 2016, in a referendum vote commonly referred to as "Brexit," a majority of voters in the U.K. voted to exit the European Union. Since then, the U.K. and the EU have negotiated the terms of a withdrawal agreement, which was approved in October 2019 and ratified in January 2020. The U.K. formally exited the European Union on January 31, 2020, although a transition period remained in place until December 2020 during which the U.K. was subject to the rules and regulations of the EU while continuing to negotiate the parties' relationship going forward, including trade deals. On December 24, 2020, the U.K. government and the EU agreed to a trade deal ("Trade and Cooperation Agreement"), which went into effect on January 1, 2021, replacing the transitional agreements. The Trade and Cooperation Agreement sets out arrangements in certain areas such as trade in goods and in services, digital trade and intellectual property. Negotiations between the U.K. and the EU are expected to continue in relation to other areas which are not covered by the Trade and Cooperation Agreement. The long-term effects of Brexit will depend on the effects of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the U.K. and the EU. It is unclear what long-term economic, financial, trade and legal implications the withdrawal of the U.K. from the European Union would have and how such withdrawal would affect our business. In addition, Brexit may lead other European Union member countries to consider referendums regarding their European Union membership. Any of these events, along with any political, economic and regulatory changes that may occur, could cause political and economic uncertainty and harm our business and financial results.
Brexit contributes to considerable uncertainty concerning the current and future economic environment. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets.
Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material adverse effect on our business, financial condition and results of operations.
The Chinese economy differs from the economies of western countriesoperating results. In particular, a significant decrease in such respects as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, bank regulation, currency and monetary policy, rate of inflation and balance of payments position. Priorcharter rates would cause asset values to 1978, the Chinese economy was a "planned economy". Since 1978, increasing emphasis has been placed on the utilization of market forcesdecline. See “—A decline in the developmentmarket values of our vessels could limit the Chinese economy. Annualamount 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 are exposed to fluctuating demand, supply 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(such as iron ore, coal, grain, soybeans and credit sectoraggregates), containerized goods 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 experimentalconsumer and industrial products, and may be subjectaffected by changes in the demand for such commodities and/or products and the volatility in their prices due to revision, change or abolition based upontheir effects on supply and demand of maritime transportation services.
Our growth significantly depends on continued growth in worldwide and regional demand for the outcome of such experiments. The level of imports toproducts we transport and exports from Chinatheir carriage by sea, 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 changesworld trade growth. If economic growth continues to existing pro-export economic policies.slow down in China, India and other countries in the Asia Pacific region, particularly in sectors of the economy related to the products we transport, 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 leveleconomies of importsthe 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 of any of these countries or elsewhere may reduce demand for dry bulk vessels and/or containerships 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 ongoing inflationary pressures, changing trade patterns, trade routes and/or supply chain disruptions in 2023, in part stemming from the conflict in the Middle East, including recent maritime incidents in and around the Red Sea, and the conflict in Ukraine and related sanctions against Russia and Belarus. 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 exports from Chinaintensify 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.
Geopolitical conditions, such as political instability or conflict, terrorist attacks and international hostilities 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 has been and is likely to continue to be adversely impacted by the effects of geopolitical developments, including political instability or conflict, terrorist attacks or international hostilities.
Currently, the world economy faces a number of challenges, including tensions between the United States and China, new and continuing turmoil and hostilities in Russia, Ukraine, the Middle East (such as recent maritime incidents in and around the Red Sea) and other geographic areas and countries, continuing economic weakness in the European Union and slowing growth in China and the continuing threat of terrorist attacks around the world.
In particular, the armed conflict between Russia and Ukraine and a severe worsening of Russia’s relations with Western economies has disrupted global markets, contributing to shifts in trading patterns and trade routes for products, including dry bulk, that may continue into the future. These changes are due in part to the imposition of sanctions against Russia and Belarus by various governments, 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”, “Worldwide inflationary pressures could negatively impact our results of operations and cash flows” and “—We are exposed to fluctuating demand, supply and prices for commodities (such as iron ore, coal, grain, soybeans and aggregates) and consumer and industrial products, and may be affected by changes in the demand for such commodities and/or products and the volatility in their prices due to their effects on supply and demand of maritime transportation services.”
Geopolitical conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping. An attack on one of our vessels or merely the perception that our vessels are a potential piracy or terrorist target could have a material adverse effect on our business, financial condition and operating results. Notably, since November 2023, vessels in and around the Red Sea have faced an increasing number of attempted hijackings and attacks by drones and projectiles launched from Yemen, which armed Houthi groups have claimed responsibility for. These groups have stated that these attacks are a response to the Israel-Hamas conflict. While initially Israeli and US-linked vessels were thought to be the primary targets of these attacks, vessels from a variety of countries have been the subject of these incidents, including vessels flying the Marshall Islands flag. As a result of these attacks, certain vessels have been set alight and suffered other physical damage, leading to heightened concerns for crew safety and security, as well as trade disruption. An increasing number of companies have rerouted their vessels to avoid passage through affected areas and are now completing their trades via alternative routes, such as through the Cape of Good Hope, incurring greater shipping costs and delays, as well as the costs of security measures. Though governments including the United States and United Kingdom have responded with air strikes against the hostile groups believed to be responsible for these attacks, the continuation or escalation of the conflict may drive the foregoing costs and risks higher. Any physical damage to our vessels or injury or loss of life of any of the individuals onboard our vessels could result in significant reputational damage or operational disruption, the exact magnitude of which cannot be estimated with certainty at this time. There can be no assurance regarding the precise nature, expected duration or likely severity of these maritime incidents. Future hostilities or other political instability in regions where our vessels trade could also negatively affect the shipping industry by resulting rising costs and changing patterns of supply and demand, as well as our trade patterns, trade routes, operations and performance.
Further, if attacks on vessels occur in regions that insurers characterize as “war risk” zones or by the Joint War Committee as “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain, if available at all. As of February 27, 2024, such listed areas included parts of the Southern Red Sea, Gulf of Aden and Black Sea, as well as the coastal waters of Yemen, Israel and Iran, among others. Insurance costs for vessels with links to the United States, United Kingdom or Israel have already increased as a result of attacks in and around the Red Sea, with such vessels reportedly seeing substantial increases in their war risk premium relative to other vessels transiting through the Red Sea, and should these attacks continue or become indiscriminate, we could similarly experience a significant increase in our insurance costs and/or we may not be adequately insured to cover losses from these incidents. See also “—Our business has inherent operational risks, which may not be adequately covered by insurance.” Crew costs, including costs that may be incurred to the extent we employ onboard security guards, could also increase due to acts of piracy or other maritime incidents, including attacks on vessels. Our customers could also suffer significant losses, impairing their ability to make payments to us under our charters. Any of the foregoing factors could have an adverse effect on 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 relating to the Israel-Hamas conflict and recent attacks on vessels in and around the Red Sea which armed Houthi groups have claimed responsibility for, as well as 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 Western Nations, Israel and/or Iran could result in retaliation that could potentially affect the shipping industry. For example, there have been an increased number of attacks on or seizures of 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 and one Marshall Islands-flagged vessel in 2023), and ship owners have reported a heightened level of harassment when transiting through the region. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs. See also “—Acts of piracy or other attacks on ocean-going vessels, including due to geopolitical conflicts, could adversely affect our business.”
Separately, protectionism is on the rise globally. For example, 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 various Eurosceptic parties, which advocate for their countries to leave the European Union and/or adopt protectionist policies. These parties are increasingly popular in various European countries, including major European economic powers such as Germany and France. The withdrawal of the United Kingdom from the European Union has increased the risk of additional trade protectionism and has created supply chain disruptions. China, which is as a key market for dry bulk and containerized cargoes, has similarly seen a rise in protectionist policies. For example, in 2018, China and the United States each began implementing increasingly protective trade measures, including significant tariff increases, in a trade war between these countries. Although there have been signs of thawing China-United states relations, if many of these protectionist measures remain in place a deterioration in relations may occur. U.S. presidential candidate Donald Trump has also threatened to impose tariffs exceeding 60% on Chinese goods if elected president, which could reignite the China-United States trade war.
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. Further, protectionist policies in any country 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.
Worldwide inflationary pressures could negatively impact our results of operations and cash flows.
Over the course of 2023, inflationary pressures across many sectors globally continued to weigh on economic activity, though to a lesser extent than in 2022. While the U.S. consumer price index, an inflation gauge that measures costs across dozens of items fell to 3.1% before seasonal adjustment in December 2023, down from 6.5% in December 2022, inflation has proven stickier in Europe, where inflation rates have generally been slower to fall and remained relatively high throughout 2023. The ongoing effects of inflation on the supply and demand of the products we transport could alter demand for our services and reduced economic activity due to governmental responses to persistent inflation in any of the regions in which we operate could cause a reduction in trade by altering consumer purchasing habits and reducing demand for the commodities and products we carry, and cause a reduction in trade. If inflation fails to abate in 2024, we could experience persistently high operating, voyage and administrative costs. Any of these factors could have an adverse effect on our business, financial condition, cash flows and operating results. For additional information, see “—We are exposed to fluctuating demand, supply and prices for commodities (such as iron ore, coal, grain, soybeans and aggregates) and consumer and industrial products, and may be affected by changes in the demand for such commodities and/or products and the volatility in their prices due to their effects on supply and demand of maritime transportation services.” Inflationary pressures could also adversely impact the amount of interest due under our outstanding credit facilities. See “—All of our outstanding debt is exposed to Secured Overnight Financing Rate (“SOFR”) Risk. If volatility in 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.”
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, their availability and ability to deliver vessels;
port and canal congestion and other logistical disruptions;
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, dry-dock 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 2023, the global dry bulk fleet has grown by 2.9%, and as of February 8, 2024, newbuilding orders had been placed for an aggregate of about 8.5% of the existing global dry bulk fleet, with deliveries expected predominantly during the next two years.
There has been some further activity in the container newbuilding market during 2023 and as a result new contracting has reached high levels vis-à-vis the active fleet. Containership orderbook as a percentage of the active fleet has further grown in 2023, reaching almost 30%, in comparison to 2022 where it stood at 24%, with deliveries equally spread over the next three years. During 2023, the total container fleet grew by 7.8%.
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. In the event of lower economic activity in the regions in which we operate, demand for the products we transport may be outstripped by vessel supply. 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. Various factors may impact economic growth and the availability of credit, including those discussed in “—We are exposed to fluctuating demand, supply and prices for commodities (such as iron ore, coal, grain, soybeans and aggregates) and consumer and industrial products, and may be affected by changes in the demand for such commodities and/or products and the volatility in their prices due to their effects on supply and demand of maritime transportation services” and “—Worldwide inflationary pressures could negatively impact our results of operations and cash flows.”
A decline in economic activity or a deterioration of economic growth and financial conditions 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 since 2021, starting at $415 per metric ton in January 2021 and reaching a high of $1,100 per metric ton in July 2022, before declining to a still elevated price of $617 per metric ton by the end of December 2022. This volatility was in part attributable to the eruption of armed conflict in Ukraine. In 2023, bunker rates demonstrated decreasing volatility as the market adapted to the armed conflict in Ukraine, with the price of VLSFO in Singapore reaching a high of $705 per metric ton in November 2023 which decreased to around $580 per metric ton as of December 15, 2023. In addition, the conflict in the Middle East, including recent maritime incidents in and around the Red Sea, could cause disruptions to the production and supply of oil and therefore fuel, with adverse impacts on the price of VLSFO in 2024. As of February 20, 2024, the price of VLSFO in Singapore was $640 per metric ton but uncertainty regarding its future direction remains. Any increases to bunker prices could have an adverse impact on our operating results and cash flows.
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 charter 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 demand 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 ages of our containerships and dry bulk vessels are 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.
We operate in highly competitive industries and are new entrants to certain of the segments in which we operate, and therefore may face difficulties in establishing and growing our business.
Our vessel owning subsidiaries which comprise our containership segment entered the containership shipping business in late 2022 and the dry bulk shipping business in late 2017. 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 as a containership operator, while incurring high operating costs associated with the operation and upkeep of our vessels. In addition, we compete with various companies that operate larger fleets, including as relates to dry bulk vessels, and may be able to offer more competitive prices and greater availability and diversity of vessels, all while achieving economies of scale in their fleet operating costs. Due in part to the highly fragmented nature of the dry bulk market and the moderately fragmented nature of the containership market, existing or additional competitors with greater resources may enter or grow their positions in the dry bulk and containership sectors through consolidations or acquisitions and could operate more competitive fleets, causing us to lose or be unable to gain market share. Any of these competitors may be able to devote greater financial and other resources to their activities than we can, resulting in a significant competitive threat to us.
Further, we likely possess less operational expertise relative to more experienced competitors and, in general, are more heavily reliant on the knowledge and services of third-party providers for our operations, such as Castor Ships, a company controlled by Petros Panagiotidis, which manages our containerships and co-manages our dry bulk vessels with Pavimar, also a related party controlled by the sister of Petros Panagiotidis, Ismini Panagiotidis. As of the date of this Annual Report, Castor Ships has subcontracted, with our consent, the technical management of our container vessels. Any failure by us or Castor Ships 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.
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;
war and terrorism;
piracy
environmental and other accidents;
cargo and property losses and damage;
business interruptions caused by mechanical failure, human error, armed conflict, war, terrorism, piracy, political action in various countries, labor strikes, or adverse weather conditions; and
work stoppages or other labor problems with crew members serving on our vessels, some of whom are unionized and covered by collective bargaining agreements.
Environmental laws often impose strict liability for remediation of spills and releases of oil, oil products 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.
Acts of piracy or other attacks on ocean-going vessels, including due to geopolitical conflicts, 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. Pirate activity is also intermittent off the coast of Eastern Malaysia. 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, political conflicts have also resultedActs of piracy may result in attacks on vessels, mining of waterways and other effortsdeath or injury to disrupt international shipping. The perception that our vessels are a potential piracypersons or terrorist target could have a material adverse impact on our business, financial condition and results of operations.
Further, if these piracy attacks occur in regions in which our vessels are deployed that insurers characterize as "war risk" zones or by the Joint War Committee as "war and strikes" listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficultdamage to obtain, if available at all.property. In addition, crew costs, including costs that may be incurred to the extent we employof employing 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.our business, financial condition, cash flows and results of operations. See also “—Geopolitical conditions, such as political instability or conflict, terrorist attacks and international hostilities, can affect the seaborne transportation industry, which could adversely affect our business” and “—Our business has inherent operational risks, which may not be adequately covered by insurance.”
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 imposed in relation to the Russian invasion of Ukraine have created significant disruptions in the global economy and in the shipping industry.
During 2023, further 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, 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, detention hijackingcertain jurisdictions, such as Greece and the United States, have temporarily detained vessels suspected of violating sanctions and the European Union has adopted sanctions against certain non-Russian private operators and vessels accused of assisting Russia in circumventing 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 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 altered trade patterns across the shipping industry and existing or future restrictions may continue to affect our current or future charters. To date, we have seen, and expect to continue to see, increased volatility in the region due to these geopolitical events. Prior to the conflict in Ukraine, the Black Sea region was a major export market for grains with Ukraine and Russia exporting a combined 15% of the global seaborne grain trade. 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. The reduction of grain transports out of the Black Sea and cargoes from Russia has, and will continue to, negatively impact the markets in those areas. In addition, while the prices of fuel or energy commodities due to supply shocks from the conflict in Ukraine have demonstrated decreasing volatility as the market adapted, they may become increasingly volatile again due to new developments in the conflict. This could result in an increase or decrease in the price of an act of piracy againstfuel used by our vessels and/or an increase in cost,demand for certain of the commodities we transport, each of which could affect the Company’s operations and liquidity. Due to their effect on the global market for certain of the goods that we transport, current or unavailability of insurance for our vessels,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 regard 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.
Global public health threats can affect the seaborne transportation industry, which could adversely affect our business.
Public health threats or widespread health emergencies, such as the COVID-19 pandemic, influenza and other highly communicable diseases or viruses (or concerns over the possibility of such threats or emergencies) could lead to a significant decrease in demand for the transportation of the products carried by our vessels. In recent years, our business and dry bulk sector have from time to time been impacted by various public health emergencies in various parts of the world in which we operate, most notably the COVID-19 pandemic. While most countries around the world have removed restrictions implemented in response to the COVID-19 pandemic, the emergence of new public health threats or widespread health emergencies, whether globally or in the regions in which we operate, may result in new restrictions, lead to further economic uncertainty and heighten certain of the other risks described in this Annual Report. In particular, 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 dry-dock 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. Any public health threat or widespread health emergency, whether widespread or localized, could create significant disruptions in our business and adversely impact our business, financial condition, cash flows and operating results.
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. 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 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, and the U.S. Coast Guard published non-binding guidance in February 2021, on addressing cyber risks in a vessel’s safety management system. 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) or any failure to adopt or maintain appropriate cybersecurity risk management and governance procedures could cause existing or prospective 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 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.
The risks associated with informational and operational technology incidents have increased in recent years given the increased prevalence of remote work arrangements, and may be further heightened by geopolitical tensions and conflicts, such as the ongoing conflict between Russia and Ukraine.State-sponsored Russian actors have taken and may continue to take retaliatory actions and enact countermeasures against countries and companies that have divested from or curtailed business with Russia as a result of Russia’s invasion of Ukraine and related sanctions imposed on Russia. 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” for further information on these sanctions. This includes 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.
Compliance with rules 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 flag administration 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 of the class, the 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. 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 international laws and regulations and standards (including, but not limited to, environmental standards such as IMO 2020 for the low sulfur fuels and the International Ballast Water Convention for discharging of ballast water), as well as to regional requirements, such as European Union and U.S. laws and regulations for the prevention of water pollution, each of which may adversely affect our business, results of operations, and financial condition. In particular, new short-, medium- and long-term measures developed by the IMO, the European Union and other entities to promote decarbonization and the reduction of GHG emissions may adversely impact our operations and markets.
Our operations are subject to numerous international, regional, 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 profitability, resale value and 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 are negligent or at fault. See “—Risks involved in operating ocean-going vessels could affect our business and reputation.”
In connection with IMO 2020 regulations and requirements relating to fuel sulfur levels, as of the date of this Annual Report, 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 sulfur fuel oil and may become more expensive. The price of VLSFO in Singapore ranged from a low of $554 per metric ton in June 2023 to a peak of around $705 per metric ton in November 2023. As of February 20, 2024, the price of VLSFO in Singapore was around $640 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 onboard systems to treat ballast water and eliminate unwanted organisms. All 16 vessels in our fleet are currently in compliance with this regulation.
Due to concern over climate change, a number of countries, the European Union and the IMO have adopted regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap-and-trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. In addition, although the emissions of GHG from international shipping currently are not subject to the Paris Agreement or the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which required adopting countries to implement national programs to reduce emissions of certain gases. In addition, the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI, has been adopted that restricts air emissions from vessels.
In June 2021, IMO’s Marine Environment Protection Committee (“MEPC”) adopted amendments to the 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 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.
Prior to the implementation of the new regulations under revised Annex VI of MARPOL, official calculations and estimations suggested that merchant vessels built before 2013, including some of our older vessels, may not fully comply with the EEXI requirements. Therefore, to ensure compliance with EEXI requirements many owners/operators may choose to limit engine power, rather than apply energy-saving devices and/or effect certain alterations on existing propeller designs, as the reduction of engine power is a less costly solution than these measures. As of the date of this Annual Report and since January 1, 2023, official calculations had determined that our vessels were in compliance with the EEXI requirements.
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 non-compliant vessels’ commercial utilization and 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 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 condition,position. COP26 also produced the Clydebank Declaration, in which 22 signatory states (including the United States and thisUnited 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. The 2023 United Nations Climate Change Conference (“COP28”) in Dubai called for, among other measures, a swift transition from fossil fuels and deep GHG emission cuts.
Developments in safety and environmental requirements relating to the recycling and demolition of vessels may result in lossescalated and unexpected costs.
The 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of revenues, increased costsShips, 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 decreasedsafety. On November 28, 2019, the Hong Kong Convention was ratified by the required number of countries, and it will be in force on June 26, 2025, as the ratifying states represent 40% of world merchant shipping by gross tonnage after the ratification by Bangladesh and Liberia in June 2023. The Republic of the Marshall Islands recently ratified this Hong Kong Convention in January 2024. 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 our customers, which could impair their ability to make payments to us under our charters.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 that 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 Company maintains such manuals as necessary.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports in areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims which could have an adverse effect on our business, results of operations, cash flows and financial condition.
Political instability, terrorist attacks, international hostilities and global public health threats can affect the seaborne transportation industry, which could adversely affect our business.
We conduct most of our operations outside of the United States, or the U.S., and our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the future may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts.
Currently, the world economy faces a number of challenges, including public health concerns stemming from the ongoing COVID-19 pandemic, trade tensions between the United States and China and between the United States and the European Union, continuing turmoil and hostilities in the Middle East, the Korean Peninsula, North Africa, Venezuela, Iran and other geographic areas and countries, continuing economic weakness in the European Union, geopolitical events such as the withdrawal of the U.K. from the European Union ("Brexit"), continuing threat of terrorist attacks around the world, and slowing growth in China.
The threat of future terrorist attacks around the world, 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, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets and international commerce. Additionally, any escalations between the United States and Iran could result in retaliation from Iran that could potentially affect the shipping industry, through increased attacks on vessels in the Strait of Hormuz (which already experienced an increased number of attacks on and seizures of vessels in 2019 and 2020). These uncertainties could also adversely affect our ability to obtain additional financing or insurance on terms acceptable to us or at all. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
Additionally, in Europe, large sovereign debts and fiscal deficits, low growth prospects and high unemployment rates in a number of countries have contributed to the rise of Eurosceptic parties, which would like their countries to leave the Euro. Brexit further increases the risk of additional trade protectionism. Brexit, or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could in turn adversely impact our business and operations.
Also, China and the US have implemented certain increasingly protective trade measures with continuing trade tensions, including significant tariff increases, between these countries. These trade barriers to protect domestic industries against foreign imports, depress shipping demand. Protectionist developments, 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, results of operations, financial condition and our ability to pay any cash distributions to our shareholders.
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, such as the COVID-19 virus, could lead to a significant decrease of demand for the transportation of dry bulk commodities, crude-oil and other petroleum products. Such events have and may also in the future adversely impact our operations, including timely rotation of our crews, the timing of completion of any outstanding or future newbuilding projects or repair works in drydock as well as the operations of our customers. Delayed rotation of crew may adversely affect the mental and physical health of our crew and the safe operation of our vessels as a consequence.
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks in our operations 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, or to steal data. A successful cyber‐attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration 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 results of operations. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business and results of operations.
In addition, recent action by the IMO's Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might require us to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Major outbreaks of diseases (such as COVID-19) and governmental responses thereto could adversely affect our business.
Since the beginning of calendar year 2020, the outbreak of the COVID-19 pandemic around the world has negatively affected economic conditions, the supply chain, the labor market, the demand for shipping both regionally and globally, has caused delays and uncertainties relating to newbuildings, dry-dockings and other functions of shipyards, and may continue to impact our operations and the operations of our customers and suppliers. 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. If the COVID-19 pandemic continues on a prolonged basis or becomes more severe, the adverse impact on the global economy and the rate environment for dry bulk and tanker vessels may deteriorate further and our operations and cash flows may be negatively impacted. The extent of COVID-19's continuous impact on our financial and operational results, which could be material in the long run, will depend on the length of time that the pandemic continues, the ability to effectively vaccinate a large percentage of the population and whether subsequent waves of the infection happen globally or in certain geographic regions. Uncertainties regarding the economic impact of the ongoing COVID-19 pandemic are likely to result in sustained market volatility, which could impact our business, financial condition and cash flows to a greater extent. Governments are 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 be sufficient to restore or sustain the business and financial condition of companies in the shipping industry. These measures, though contemplated to be temporary in nature, may continue and increase as countries attempt to contain the outbreak or any reoccurrences thereof.
At this stage, it is difficult to determine the full impact of COVID-19 on our business in the long run. Effects of the current 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 and vessels and quarantining and physical distancing);
potential delays in (a) the loading and discharging of cargo on or from our vessels, (b) vessel inspections and related certifications by class societies, customers or government agencies and (c) maintenance, modifications or repairs to, or dry-docking of, our existing vessels due to worker health or other business disruptions;
reduced cash flow and financial condition, including potential liquidity constraints;
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;
potential reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels;
potential decreases in the market values of our vessels and any related impairment charges or breaches relating to vessel-to-loan financial covenants;
potential disruptions, delays or cancellations in the construction of new vessels, which could reduce our future growth opportunities;
difficulty of our crew in embarking and disembarking on our ships due to quarantine restrictions placed on persons and limitations on commercial aviation and other forms of public transportation; although the restrictions have in certain cases delayed crew embarking and disembarking on our ships, they have not functionally affected our ability to sufficiently crew our vessels;
international transportation of personnel could be limited or otherwise disrupted. In particular, our crews generally work on a rotation basis, relying largely on international air transport for crew changes plan fulfillment. Any such disruptions could impact the cost of rotating our crew, and possibly impact our ability to maintain a full crew synthesis on-board all our vessels at any given time. It may also be difficult for our in-house technical teams to travel to shipyards to observe vessel maintenance, and we may need to hire local experts, which local experts may vary in skill and are difficult to supervise remotely for work we ordinarily address in-house; and
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.
The ongoing COVID-19 pandemic and measures to contain its spread have negatively impacted regional and global economies and trade patterns in markets in which we operate, the way we operate our business, and the businesses of our charterers and suppliers. These negative impacts could continue or worsen, even after the pandemic itself diminishes or ends. Companies, including us, have also taken precautions, such as requiring employees to work remotely and imposing travel restrictions, while some other businesses have been required to close entirely. Moreover, we face significant risks to our onshore or offshore personnel and operations due to the COVID-19 pandemic. Our crews face risk of exposure to COVID-19 as a result of travel to ports in which cases of COVID-19 have been reported. Our shore-based personnel likewise face risk of such exposure, as we maintain offices in areas that have been impacted by the spread of COVID-19.
Measures against COVID-19 in a number of countries have restricted crew rotations on our vessels, which may continue or become more severe. As a result, in 2020, we experienced and may continue to experience disruptions to our normal vessel operations caused by deviation time associated with positioning our vessels to countries in which we can undertake a crew rotation in compliance with such measures. Delays in crew rotations have led to issues with crew fatigue and may continue to do so, which may result in delays or other operational issues. We have had and expect to continue to have increased expenses due to incremental fuel consumption and days in which our vessels are unable to earn revenue in order to deviate to certain ports on which we would ordinarily not call during a typical voyage. Although our vessels' deviations / repositioning and/or delays in ports that are or will be open for crew rotations should be considered as the most notable impact, we have incurred and should also continue to expect to incur considerable expenses in relation to health protocols imposed by both departure and arrival countries for the incoming and outgoing of crew members, which should be strictly followed (i.e. repeated PCR tests, quarantine periods up to 21days, governmental special permissions and/or visas, personal protective equipment etc.). Furthermore, reduced flights availability, limitation of selected routes for our flight schedule and imposed health measures by air carrier companies, caused us and may continue to cause us significant increases in the average airfare costs.
The impact of the ongoing COVID-19 pandemic has also resulted in reduced industrial activity in China with temporary closures of factories and other facilities, labor shortages and restrictions on travel. We believe these disruptions along with other seasonal factors, including lower demand for some of the cargoes we carry such as iron ore and coal, have contributed to lower dry bulk rates in 2020.
Organizations across industries, including ours, are rightly focusing on their employees' well-being, whilst making sure that their operations continue undisrupted and at the same time, adapting to the new ways of operating. As such employees are encouraged or even required to operate remotely which significantly increases the risk of cyber security attacks.
While we cannot fully assess the overall impact that the ongoing COVID-19 pandemic will have on our financial condition and results of operations and on the dry bulk and tanker industries in general in the long run, we assess that the dry bulk and tanker charter rates have been reduced significantly as a result of the ongoing COVID-19 pandemic and that the shipping industry in general and our Company specifically are likely to continue to be exposed to volatility in the near to medium term. Indicatively, vessels in our Fleet which came up for charter renewal in the 2020 were employed at comparably less favorable charter rates than those achieved during 2019 and those expected before the ongoing COVID-19 pandemic which had a negative impact on voyage revenues earned in 2020.
Further, containment measures and quarantine restrictions adopted by many countries worldwide have caused significant impact on our ability to embark and disembark crew members and on our seafarers themselves. As a result, since the outbreak of COVID-19 and as of the date of this annual report, we have encountered certain prolonged delays and surrounding complexities in embarking and disembarking crew onto our ships which further resulted in increased operational costs and decreased revenues by reason of off-hires associated with crew rotation and related logistical complications associated with supplying our vessels with spares or other supplies.
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 or other epidemics could have a material adverse effect on our business, results of operations, cash flows, financial condition, value of our vessels, and ability to pay dividends (as and if declared).
If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S. government or other governmental authorities, it could lead to monetary fines or penalties and adversely affect our reputation and the market for our common shares.
While none of our vessels have called on ports located in countries or territories that are the subject of country-wide or territory-wide sanctions or embargoes imposed by the U.S. government or other governmental authorities ("Sanctioned Jurisdictions") in violation of sanctions or embargo laws in 2020, and although we intend to maintain compliance with all applicable sanctions and embargo laws, and we endeavor to take precautions reasonably designed to mitigate such risks, it is possible that, in the future, our vessels may call on ports located in Sanctioned Jurisdictions on charterers' instructions and/or without our consent. If such activities result in a violation of sanctions or embargo laws, we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our ordinary shares could adversely affected.
Sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or expanded over time. Current or future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the governments of the U.S., EU, and/or other international bodies. If we determine that such sanctions require us to terminate existing or future contracts to which we, or our subsidiaries, are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected, or we may suffer reputational harm.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common shares may adversely affect the price at which our common shares trade. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in t countries or territories that we operate in.
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our net cash flows and negatively impact our results of operations.
The hull and machinery of every commercial vessel must be certified as being "in class" by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel's machinery may be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. We expect our vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Most vessels are also required to be dry-docked, or inspected by divers, every two to three years for inspection of its 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 in the future applicable to the Company and its vessels may result in significant and unanticipated expense in the future. 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, results of operations, cash flows and financial condition.
Regulations relating to ballast water discharge may adversely affect our revenues and profitability.
The IMO has 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 will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are to comply with the D-2 standards on or after September 8, 2017.
Currently, our vessels will be required to comply with the regulation at our IOPP renewal survey scheduled for August 8, 2022 for the Magic P, July 15, 2022 for the Magic Moon and June 13, 2022 for the Magic Rainbow. The costs of compliance may be substantial and adversely affect our revenues and profitability. The eight remaining vessels in our Fleet and the vessels that we expect to take delivery of pursuant to our previously entered acquisition transactions are currently in compliance with this regulation.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit ("VGP") program and U.S. National Invasive Species Act ("NISA") are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act ("VIDA"), which was signed into law on December 4, 2018, requires that the EPA develop national standards of performance for approximately 30 discharges, similar to those found in the VGP within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge National Standards of Performance under VIDA. Within two years after the EPA publishes its final Vessel Incidental Discharge National Standards of Performance, the U.S. Coast Guard must develop corresponding implementation, compliance and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs and to the extent we are not able to pass these costs on to our customers may materially and adversely affect our results of operations and/or cash flows.
The IMO 2020 regulations may cause us to incur substantial costs and to procure low-sulfur fuel oil directly on the wholesale market for storage at sea and onward consumption on our vessels.
Effective January 1, 2020, the IMO implemented a new regulation for a 0.50% global sulfur cap on emissions from vessels. Under this new global cap, vessels must use marine fuels with a sulfur content of no more than 0.50% against the former regulations specifying a maximum of 3.50% sulfur in an effort to reduce the emission of sulfur oxide into the atmosphere.
Although the cost of low sulfur marine fuels has remained relatively low in 2020, we may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require, among others, the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Currently, none of our vessels are equipped with scrubbers and, as of January 1, 2020, we have transitioned to burning IMO compliant fuels. We continue to evaluate different options in complying with IMO and other rules and regulations. Low sulfur fuel is more expensive than standard marine fuel containing 3.5% sulfur content and may become more expensive or difficult to obtain as a result of increased demand. Although the cost differential between low sulfur fuel and standard marine fuel in 2020 was less than anticipated, that differential has increased during the first quarter of 2021. If the cost differential between low sulfur fuel and high sulfur fuel is significantly higher than anticipated in the future, or if low sulfur fuel is not available at ports on certain trading routes, it may not be feasible or competitive to operate our vessels on certain trading routes without installing scrubbers or without incurring deviation time to obtain compliant fuel. Scrubbers may not be available to be installed on such vessels at a favorable cost or at all if we seek them at a later date.
Fuel is a significant, if not the largest, expense in our shipping operations when vessels are under voyage charter and is an important factor in negotiating charter rates. Our operations and the performance of our vessels, and as a result our results of operations, cash flows and financial position, may be negatively affected to the extent that compliant sulfur fuel oils are unavailable, of low or inconsistent quality, if de-bunkering facilities are unavailable to permit our vessels to accept compliant fuels when required, or upon occurrence of any of the other foregoing events. Costs of compliance with these and other related regulatory changes may be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial position. As a result, an increase in the price of fuel beyond our expectations may adversely affect our profitability at the time of charter negotiation. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.
While we carry cargo insurance to protect us against certain risks of loss of or damage to the procured commodities, we may not be adequately insured to cover any losses from such operational risks, which could have a material adverse effect on us. Any significant uninsured or under-insured loss or liability could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash.
We are subject to laws and regulations, which can adversely affect our business, results of operations, cash flows and financial condition, and our ability to pay dividends (as and if declared).
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. These regulations include, but are not limited to, the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Air Act, the U.S. Clean Water Act and the U.S. Maritime Transportation Security Act of 2002, or the MTSA, and treaties and conventions of the United Nations International Maritime Organization, or the IMO, including the International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended and generally refer to as MARPOL, the International Convention for the Safety of Life at Sea of 1974, or the SOLAS Convention, and the International Convention on Load Lines of 1966. 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, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations.
Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the U. S. Furthermore, the 2010 explosion of the Deepwater Horizon and the subsequent release of oil into the Gulf of Mexico, or other similar events, may result in further regulation of the shipping and offshore industry, and modifications to statutory liability schemes, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the IMO have adopted regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. In addition, although the emissions of greenhouse gases from international shipping currently are not subject to the Paris Agreement (discussed below in "Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in the Shipping Industry—Greenhouse Gas Regulation"), or the Kyoto Protocol to the United Nations Framework Convention on Climate Change, that 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.
Adverse effects upon the oil industry relating to climate change and greenhouse gas restrictions may also adversely affect demand for our tanker services.
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.Convention (each as defined in “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in the Shipping Industry—International Maritime Organization”). 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.
Developments in safety
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 liabilities, costs or expenses in escalatedour protection and unexpected costs.
The 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships,indemnity insurance where payment by our insurer or the Hong Kong Convention, aims to ensure ships, being recycled once they reachprovision of cover may expose the end of their operational lives, do not pose any unnecessary risksinsurer to the environment, human health and safety. The Hong Kong Convention has yetrisk of being subject to be ratified by the required number of countries to enter into force. 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, whose usea sanction, prohibition or installation 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. The Hong Kong Convention, which is currently open for accession by IMO Member States, will enter into force 24 months after the date on which 15 IMO Member States, representing at least 40% of world merchant shipping by gross tonnage, have ratified or approved accession. As of the date of this annual report, 15 countries have ratified or approved accession of the Hong Kong Convention but the requirement of 40% of world merchant shipping by gross tonnage has not yet been satisfied.
On November 20, 2013, the European Parliament and the Council of the EU adopted the Ship Recycling Regulation, which retains the requirements of the Hong Kong Convention and requires that certain commercial seagoing vessels flying the flag of an EU Member State may be recycled only in facilities included on the European list of permitted ship recycling facilities.
Apart from that, any vessel, including ours, is required to set up and maintain an Inventory of Hazardous Materials ("IHM") from December 31, 2018 for EU flagged new ships and from December 31, 2020 for EU flagged existing ships and Non-EU flagged ships calling at a port or anchorage of an EU member state. Such a system includes information on the hazardous materials with a quantity above the threshold values specified in relevant EU Resolution and are identifiedadverse action. We could incur significant expenses in the ship's structure and equipment. This inventory should be properly maintained and updated, especially after repairs, conversions or unscheduled maintenance on board the ship.
These regulatory developments, when implemented, may lead to cost escalation by shipyards, repair yards and recycling yards. This may then result in a decrease in the residual scrap valueevent of a vessel, and a vesselany such invalidation, which could potentially not cover the cost to comply with latest requirements, which may have an adverse effect on our future performance, resultsbusiness, financial condition and operating results. See “—Our charterers calling on ports located in countries or territories that are the subject of operations, cash flowssanctions 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 financial position.adversely affect our reputation. Such failures and other events could adversely affect the market for our common shares.”
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, if not timely discharged, 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. Any of those occurrences could have a material adverse effect on our business, financial condition and operating results.
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.emergency although governments may elect to requisition vessels in other circumstances. Although we would expect to be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment, if any, would be uncertain. Government requisition of one or more 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 resultsoperating 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. See “—Geopolitical conditions, such as political instability or conflict, terrorist attacks and international hostilities, can affect the seaborne transportation industry, which could adversely affect our business” for further information regarding geopolitical circumstances which have or may impact insurance. 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.
In the event of a casualty to our vessels or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred.
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.
We maintain hull and machinery insurance, protection and indemnity insurance for our vessels, which provides environmental damage and pollution insurance coverage and war risk insurance. We do not maintain, for our vessels, insurance against loss of hire, which covers business interruptions that result from
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. Under the terms of our credit facilities, we are subject to restrictions on the use of any proceeds we may receive from claims under our insurance policies.
We do not carry loss of hire insurance. Loss of hire insurance covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled dry-docking due to damage to the vessel from accidents. Accordingly, any loss of a vessel or any extended period of vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our business, results of operations and financial condition.
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 cannot assure you that we will be adequately insured against all risks or that we will be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future. For example, in the past more stringent environmental regulations have led to increased costs for, and in the future may result in the lack Any of availability of, insurance against risks of environmental damage or pollution. Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability for which we are not insuredthese factors could have a material adverse effect on our financial condition.
20
Risks Relating To Our Company
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, charter terminations and an adverse effect on our business.
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.
Risk Related To Our Company
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 16 vessels as of February 27, 2024, following the contribution of our former tanker vessels to Toro in March 2023 and the disposal of certain other vessels as discussed in “Item 4. Information on the Company—A. History and Development of the Company.”
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.
We are a recently formed company and have a limited performance record, operating history and historical financial statements upon which you can evaluate our operations
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, 2023 and 2022, we have agreedderived 80% and 75%, respectively, of our consolidated operating revenues from three charterers. In particular, for the years ended December 31, 2023 and 2022, we derived 90% and 75%, respectively, of our dry bulk segment operating revenues from three charterers. Further, for the years ended December 31, 2023 and 2022, we derived 100% of our containership segment operating revenues from two and one charterers, respectively. 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.
Our Fleet currently consists of nine dry bulk carriers and two tanker vessels andrevenue we are awaiting delivery of three dry bulk carriers.derived from that counterparty. Any limitation in the availability or operation of these vesselsfactors could have a material adverse effect on our business, results of operations and financial condition.
Our Fleet currently consists of nine dry bulk carriers and two tankers and, upon the completion of our recently announced acquisitions, our Fleet will consist of twelve dry bulk carriers and two tankers. If any of our vessels is unable to generate revenues as a result of off-hire time, early termination of the time charter in effect, delays in the delivery of the recently acquired vessels or failure to secure new charters at charter hire rates as favorable as our average historical rates or at all, our future liquidity,condition, cash flows results of operations, and operating results. For further information, see Note 1 to our consolidated financial condition could be materially adversely affected.statements included elsewhere in this Annual Report.
We may not be able to re-charterexecute our business 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, diversify our fleet and, favorable charterswhere appropriate, renew the vessels of our fleet, and expand our activities subject to the resolution of our Board to focus on certain areas of the shipping industry. See “—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.” These objectives, including the reduction of the average age of our fleet to renew our fleet, have 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;
enlarging our customer base and continuing to meet technical and safety performance standards;
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 “—Past share issuances and future issuances of common shares or other equity securities, 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.
As of February 27, 2024, the average age of our current fleet is 13.7 years. The average age of our dry bulk vessels was 13.0 years, compared to an industry average of 11.7 years and the average age of our containerships was 18.5 years, compared to an industry average of 13.6 years as of the same date. The cost of maintaining a vessel in good operating condition and operating it generally increases with the age of a 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.
The age of our fleet may impede our ability 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 tobreach 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, Chief Financial 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 operations on the prevailing market conditions atdry bulk and containerships business may reduce the time.scope of opportunities we may exploit and have an adverse effect on our business, financial condition and operating results.
If we are
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.”
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, and operating results.
We are dependent upon Castor Ships and Pavimar, which are related party managers of our dry bulk fleet and other third-party sub-managers for the management of our fleet and business, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
The
failuremanagement of our
charterersbusiness, 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
meet their obligations underthe technical co-management of our
charter agreement,dry bulk vessels. Since the first quarter of 2023, Castor Ships has 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 Transactions—B. Related Party Transactions—Management, Commercial and Administrative Services” for further information on
whichour 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
dependwould achieve for our
revenues,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 cause us to suffer losses or otherwise adversely affect our business.revenues and profitability and we may have difficulty meeting our working capital and debt obligations.
We expect
Our operational success and ability to employexecute our vessels under short-term, medium growth strategy will depend significantly upon the satisfactory and continued performance of these services by our managers and/or long-term charter agreementssub-managers, as well as in the spot voyage market. The ability and willingness of each 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 that are beyond our control and may include, among other things, general economic conditions, the conditionreputations. Any 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 fail to pay 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. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses whichforegoing factors could have a materialan adverse effect on our and their reputations and on our business, financial condition resultsand 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.
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 20, 2023, we received a notification from Nasdaq indicating that because the closing bid price of operationsthe Company’s common shares was below the minimum $1.00 per share bid price requirement (the “Minimum Bid Price Requirement”) for continued listing on the Nasdaq Capital Market for 30 consecutive business days and cash flows, as well aswere provided with 180 calendar days to regain compliance with it. On October 18, 2023, we received a notification letter from Nasdaq granting the Company an additional 180-day extension, until April 15, 2024, to regain compliance with the Minimum Bid Price Requirement (the “Second Compliance Period”). We can cure this deficiency if the closing bid price of our common shares is $1.00 per share or higher for at least ten consecutive business days during the cure period. We intend to regain compliance with the Minimum Bid Price Requirement within the Second Compliance Period and are considering all available options, including a reverse stock split, for which we have received shareholder approval. For more information, see “Item 4. Information on the Company— A. History and Development of the Company—Nasdaq Listing Standards Compliance.”
We previously received a notification from the Nasdaq on April 14, 2020 regarding our noncompliance with the minimum bid price requirement, after which we completed a 1-for-10 reverse stock split of our common shares on May 28, 2021. We regained compliance with the Minimum Bid Price Requirement shortly thereafter. Because the board authorization pursuant to which the May 2021 reverse stock split was effected authorizes multiple reverse stock splits at a ratio within an approved range, we could pursue additional reverse stock splits in the future.
From February 1, 2024 to February 27, 2024, our closing bid price ranged between a high of $0.51 and low of $0.39 per share. If we are unable to regain compliance with the Minimum Bid Price Requirement, trading of our common shares will be subject to delisting. If a delisting of our common shares, or even a suspension of trading in our common shares, were to occur, there would be significantly less liquidity in the delisted or suspended common shares. In addition, our ability to pay dividends, if any,raise additional capital through equity or debt financing would be greatly impaired. A suspension or delisting may also breach the terms of certain of our material contracts. There can be no assurance that we will regain compliance with the Minimum Bid Price Requirements of Nasdaq or maintain compliance in the future.future if regained.
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, 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.
Additionally, it is an event of default under one or more of our existing facilitiesvessels if among other things, (i) the registration of vessels under the laws and flag of the relevant flag state is cancelled or terminated without the prior written consent of the lender, (ii) there has been a change of control directly or indirectly in our subsidiaries or us,us; and
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 exceptions, 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 and which could impair our ability to comply with the terms of such facilities, 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. Financial and operating covenants in our facilities could also constrain our ability to acquire vessels. 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.Secured Overnight Financing Rate (“SOFR”) Risk. If volatility in SOFR occurs, the interest on our indebtedness could be higher than prevailing market interest rates and our profitability, earnings and cash flows may be materially and adversely affected.
We are exposed to the risk of interest rate variations, principally in relation to the SOFR, a secured rate published by the Federal Reserve Bank of New York. SOFR or any other replacement rate may be volatile. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in SOFR, if this volatility were to occur, it would affect the amount of interest payable on our debt. Our outstanding indebtedness is exposed to SOFR risk at annual rates ranging from 3.10% to 3.87% over SOFR.
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. However, SOFR may rise following interest rate increases effected by the United States Federal Reserve (the “U.S. Federal Reserve”), including in response to persistent inflation, and rose markedly to 5.39% on December 1, 2023, its highest level since replacing LIBOR in April 2018. Inflation is generally expected to continue trending downwards in the London Interbank Offered Rate or LIBOR,United States but is subject to various uncertainties and we may enter into derivative contracts, which can resultother factors discussed in higher than market interest rates and charges against“—Worldwide inflationary pressures could negatively impact our income. If volatility in LIBOR occurs, it could affect our profitability, earningsresults of operations and cash flow.
LIBOR isflows.” Further, as a secured rate backed by government securities, SOFR may be less likely to correlate with the subjectfunding costs of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressuresfinancial institutions. As a result, parties may cause LIBORseek to be eliminated oradjust spreads relative to perform differently thanSOFR in underlying contractual arrangements. We have agreed to certain increases in the past. The consequences of these developments cannot be entirely predicted but could include an increase in the cost of our variable rate indebtedness and obligations. The amount outstandingspreads we pay under our senior securedexisting 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 (asas described further in "Item“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Borrowing Activities") Activities” and Note 8 to our consolidated financial statements included elsewhere in this Annual Report. Therefore, the use of SOFR-based rates has and may continue to 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 enterbehave in a similar manner or have other disadvantages or advantages in relation to our indebtedness.
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. SOFR rates have risen throughout 2022 and 2023 and may rise further in the future will generally be, unless a replacement rate is introduced, advanced at a floating rate based on LIBOR, which has been volatile in prior years and can affect the amount of interest payable on our debt, and in turn, could have an adverse effect on our earnings and cash flow. In addition, in recent years, LIBOR has been at relatively low levels, and may rise in the future asif the current low interest rate environment comes to an end. Ourinflation rates increase. However, our financial condition could be materially adversely affected by rate changes 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.
LIBOR has historically been volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of the disruptions in the international credit markets. Because the interest rates borne by our variable interest-bearing outstanding indebtedness fluctuate with changes in LIBOR, if this volatility were to occur, it would affect the amount of interest payable on our variable interest debt, which in turn, could have an adverse effect on our profitability, earnings and cash flow.
Furthermore, the calculation of interest in most financing agreements in our industry has been based on published LIBOR rates. Due in part to uncertainty relating to the LIBOR calculation process in recent years, it is planned that LIBOR will be phased out in the future. As a result, 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 their cost-of-funds rate. As such, our lending costs could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.
In addition, the banks currently reporting information used to set LIBOR will likely stop such reporting after 2021, when their commitment to reporting information ends. However, on November 30, 2020 the administrator of LIBOR, ICE Benchmark Administration ("IBA"), announced that it would consult on ceasing to determine one-week and two-month U.S. dollar LIBOR with effect from December 31, 2021 deadline but ceasing to determine the remaining U.S. dollar LIBOR tenors on June 30, 2023. This announcement coincided with an announcement by the International Swaps and Derivatives Association ("ISDA") that the IBA announcement was not a triggering event which would set the spread to be used in its derivative contracts as part of the risk-free rate determination process. The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has proposed an alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate, or "SOFR". The impact of such a transition from LIBOR to SOFR could be significant for us.
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. No assurance can however be given thatConversely, the use of these derivative instruments, if any, may not effectively protect us from adverse interest rate movements. The use of interest rate derivatives may result in substantial losses and may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. Interest rate derivatives may also be impacted by the transition from LIBOR to SOFR or other alternative rates. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. Such risk may
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.
Our vessels operate under a mix of period time charters and trip time charters and any decrease in trip charter rates or indexes in the future may adversely affect our earnings.
Our vessels have historically operated mostly under period time charters but may, from period to period, be placed on the trip time charter market, exposing us to fluctuations in trip market charter rates. Further, we may employ any additional vessels that we acquire in the trip time charter market.
Although the number of vessels in our Fleet that participate in the trip time charter market vary from time to time, we anticipate that some portion of our Fleet will participate in this market. As a result, our financial performance may be significantly affected by conditions in the trip time charter market and only our vessels that may operate under fixed-rate period time charters may, during the period such vessels operate under such period time charters, provide a fixed source of revenue to us.
Historically, the cargo markets have been volatile as a result of the many conditions and factors that can affect the price, supply of and demand for dry bulk and tanker vessel capacity. The weak global economic trends may further reduce demand for transportation of dry bulk cargoes and for energy consumption and the demand for the carriage of oil products in our tanker vessels over longer distances, which may materially affect our revenues, profitability and cash flows. The trip charter market may fluctuate significantly based upon supply of and demand of vessels and cargoes. The successful operation of our vessels in the competitive trip charter market depends upon, among other things, obtaining profitable trip charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The trip charter market is very volatile, and, in the past, there have been periods when trip charter rates have declined below the operating cost of vessels. If future trip charter rates decline, then we may be unable to operate our vessels which may trade in the trip market profitably, or meet our debt and other working capital obligations. Furthermore, as charter rates for trip charters are fixed for a single voyage, which may last up to several weeks, during periods in which trip charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
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.
The Company has relied on financial support from Mr. Panagiotidis through related party loans, which may not be available to the Company in the future.
From time to time, we have obtained loans from ourOur Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis, may provide loans to meet vessel purchase obligations of the Company. Theseus. However, we cannot guarantee that such loans may notwill be available to the Company in the future.or that they will be available to us on favorable terms. Even if we are able to borrow money from such parties,Mr. Panagiotidis, such borrowing could create a conflict of interest of managementmanagement. See also “—Our Chairman, Chief Executive Officer and Chief Financial Officer, who may be deemed to the extent they also act as lenders to the Company.own, directly or indirectly, 100% of our Series B Preferred Shares, has control over us.” Any of these factors could have a material adverse effect on our business, financial condition and operating results.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us 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.
The
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 you that our Board will declare dividends.
Our Board will continue to assess ourdo not have a declared dividend policy and our Board may in the future determine to pay dividends. never declare cash dividends on our common shares.
The declaration and payment of dividends, if any, will always be subject to the discretion of our Board, restrictions contained in our debtcurrent or future agreements or debt agreements that we may enter into in the future and the requirements of Marshall Islands law. TheWe do not have a declared dividend policy and if the Board determines to declare cash dividends on our common shares, 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 growthbusiness 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.
25
The rights of the holders of our Series D Preferred Shares rank senior to the obligations to holders of our common shares. This means that, unless accumulated dividends have been paid or set aside for payment on all of our outstanding Series D Preferred Shares for all past completed dividend periods, no distributions may be declared or paid on our common shares subject to limited exceptions.
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 growthbusiness 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.
We are dependent upon Castor Ships and Pavimar, which are related parties, for the management of our Fleet and business.
The management of our business, including, but not limited, the commercial and technical management of our Fleet as well as administrative, financial and other business functions, is carried out by Castor Ships S.A. ("Castor Ships"), which is a company controlled by our Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis, and Pavimar S.A. ("Pavimar"), which is a company controlled by Ismini Panagiotidis, the sister of our Chairman, Chief Executive Officer and Chief Financial Officer. The loss of Castor Ships' and/or Pavimar's services or their failure to perform their obligations to us could materially and adversely affect our results of operations and financial condition.
In addition, our ability to enter into new charters 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 damage to their reputations or relationships, it may harm our ability to renew existing charters upon their expiration, obtain new charters or maintain satisfactory relationships with suppliers and other third parties.
Our business will be harmed if Castor Ships or Pavimar fail to perform these services satisfactorily, if they cancel their agreements with us or if they stop providing these services to us. Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory performance of these services by Castor Ships and Pavimar and their reputations.
We may have difficulty managing our planned growth properly.
We are a recent company formed for the purpose of acquiring, owning, chartering and operating oceangoing cargo vessels. One of our principal strategies is to continue to grow by expanding our operations and adding to our Fleet. As our business grows, we intend to acquire additional dry bulk, tanker and other vessels and expand our activities. Our future growth will primarily depend upon a number of factors, some of which may not be within our control. These factors include our ability to:
identify suitable vessels, including newbuilding slots at reputable shipyards and/or shipping companies for acquisitions at attractive prices;
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;
hire, train and retain qualified personnel and crew to manage and operate our growing business and Fleet;
enhance our customer base; and
improve our operating, financial and accounting systems and controls.
In addition, competition from other companies, many of which have significantly greater financial resources than we do, 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 business, financial condition and results of operations. The number of employees that perform services for us and our current operating and financial systems may not be adequate as we implement our plan to expand the size of our Fleet, and we may not be able to effectively hire more employees or adequately improve those systems. 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. If any such events occur, our financial condition may be adversely affected.
Growing any business by acquisition(s) presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. The expansion of our Fleet may impose significant additional responsibilities on our management and the management and staff of our commercial and technical managers, and may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.
As we expand our business, we may be unable to improve our operating and financial systems and to recruit suitable employees and crew for our vessels.
Our or our managers' current operating and financial systems may not be adequate as we continue to implement our plan to expand the size of our Fleet and our attempts to improve those systems may be ineffective. In addition, if we further expand our Fleet, we will need to recruit suitable additional seafarers and shore-side administrative and management personnel. We cannot guarantee that we will be able to hire suitable employees as we expand our Fleet. If we encounter business or financial difficulties, we may not be able to adequately staff our vessels or our shore-side personnel. If we are unable to grow our financial and operating systems or to recruit suitable employees as we expand our Fleet, our financial performance may be adversely affected and, among other things, the amount of cash available for distribution as dividends to our shareholders may be reduced.
Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.
We may incur some of our operating expenses and general and administrative expenses in currencies other than the U.S. dollar. This difference could lead to fluctuations in vessel operating expenses, which would affect our financial results. Expenses incurred in foreign currencies increase when the value of the U.S. dollar falls, which would reduce our profitability. Our operating results could suffer as a result.
We operate secondhand vessels, and, as a result, we may incur increased operating costs which could adversely affect our earnings. Furthermore, as our vessels age, the risks associated with our vessels could adversely affect our ability to obtain profitable charters.
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.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. We currently own a fleet with an average age of 14.3 years and, upon completion of our recently announced acquisitions, we will own a fleet with an average age of 13.5 years. As our vessels age typically, it will become less fuel-efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations 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. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of its useful life.
Technological innovation and quality and efficiency requirements from our customers could reduce our charter hire income and the value of our vessels.
Our customers have a high and increasing focus on quality and compliance standards with their suppliers across the entire supply chain, including the shipping and transportation segment. Our continued compliance with these standards and quality requirements is vital for our operations. The charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel's efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, operate in extreme climates, utilize related docking facilities and pass through canals and straits. The length of a vessel's physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. We face competition from companies with more modern vessels with more fuel efficient designs than our vessels, or eco vessels, and if new dry bulk vessels and tanker vessels are built that are more efficient or more flexible or have longer physical lives than 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 initial charters expire and the resale value of our vessels could significantly decrease. This could have an adverse effect on our results of operations, cash flows, financial condition and ability tonever pay dividends.
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 “—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.” 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 financial condition.operating results.
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 and are permitted to rely on home country practice in respect of certain corporate governance and other requirements, which may mean that our corporate governance practices differ from those of certain of our listed U.S. competitors.
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 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.
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, which 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 and do rely on exceptions from certain corporate governance requirements of the Nasdaq Capital Market. Refer to “Item 16G. Corporate Governance” for further details on such exceptions.
As a result, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
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, we
We cannot predict with certainty the outcome or effect of any claim or other litigation or arbitration matter, including the one active claim described above, and the ultimate outcome of any litigation or arbitration 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.” Although the Marshall Islands was removed from the EU blacklist in October 2023, the effect of these developments, including whether the European Union will again add the Marshall Islands to the EU blacklist, any legislation that the Marshall Islands may enact with a view toward not again being added to (or being removed from) the EU blacklist, how the European Union may react to such legislation, and how counterparties will react to these developments, 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.
Investors are encouraged to consult their own tax advisors concerning the overall tax consequences of the ownership of the common shares arising in an investor's particular situation under U.S. federal, state, local or foreign law.
We are dependent on our management and their ability to hire and retain key personnel 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 continue to devote such portion of his business time and attention to our business as is appropriate and will also continue to 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.
Difficulty Any difficulty in hiring and retaining key personnel generally could also adversely affect our results of operations. We do not maintain "key man"“key man” life insurance on any of our officers.
29Risks Relating to our Preferred Shares
Our Series D Preferred Shares rank senior to our common shares with respect to dividends, distributions and payments upon liquidation and are convertible into our common shares, which could have an adverse effect on the value of our common shares.
Dividends on the Series D Preferred Shares accrue and are cumulative from their issue date and are payable quarterly on each distribution payment date declared by the Board, out of funds legally available for such purpose. See “Item 10. Additional Information—A. Memorandum and Articles of Association—Description of Series D Preferred Shares” for a full description of the dividend rate and periods of the Series D Preferred Shares.
The rights of the holders of our Series D Preferred Shares rank senior to the obligations to holders of our common shares. This means that, unless accumulated dividends have been paid or set aside for payment on all of our outstanding Series D Preferred Shares for all past completed dividend periods, no distributions may be declared or paid on our common shares subject to limited exceptions. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common shares until we have paid to holders of our Series D Preferred Shares a liquidation preference equal to $1,000 per share plus accumulated and unpaid dividends.
In addition, our Series D Preferred Shares are convertible, in whole or in part, at their holder’s option, to common shares at any time and from time to time from and after the first anniversary of their issue date. The conversion of our Series D Preferred Shares could result in significant dilution to our shareholders at the time of conversion. See also “—Risks Relating to our Common Shares—Past share issuances and future issuances of common shares or other equity securities, 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.”
Accordingly, the existence of the Series D Preferred Shares and the ability of a holder to convert the Series D Preferred Shares into common shares on or after the first anniversary of their issue date could have a material adverse effect on the value of our common shares. See “Item 10. Additional Information—B. Memorandum and Articles of Incorporation—Description of the Series D Preferred Shares” for a more detailed description of the Series D Preferred Shares.
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.
Our stock price has recently been volatile and may continue be volatile in the future. For example, the reported closing sale price of our common shares on the Nasdaq Capital Market was $0.12 per share on November 2, 2020 and $1.73 per share on February 11, 2021. In addition, on January 28, 2021, the intra-day sale price of our common shares reported on the Nasdaq Capital Market fluctuated between a low of $0.50 per share and a high of $0.90 per share.
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 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 $2.40 per share on April 19, 2022. On December 30, 2022, the closing price of our common shares was $1.12 per share. During 2023, the market price of our common shares on the Nasdaq Capital Market has fluctuated from an intra-day low of $0.285 per share on November 13, 2023 to an intra-day high of $1.45 per share on March 6, 2023. On December 29, 2023, the closing price of our common shares was $0.425 per share. Further, 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. Additionally, this volatility has periodically resulted in us not being in compliance with the Nasdaq Capital Market’s $1.00 per share minimum bid minimum. See “—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” for further information.
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 as 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.
These factors, manyThe sale of which are outside of our control, may negatively impact the market pricesignificant volumes of our common shares, regardless of our operating performance. For example, recent increases are significantly inconsistent with any improvements in actual or expected business prospects, operating performance, financial condition or other traditional measures of value, including our loss per share of $0.03 for the year ended December 31, 2020. Since the price of our common shares has recently been volatile and may continue to be volatileperception in the future, investors in our common shares could incur substantial losses.
Further, investorsmarket that this will occur, may purchase our common shares to hedge existing exposure or to speculatedecrease their market price and have an adverse impact on the price of our common shares. Speculation on the price of our common shares may involve long and short exposures. To the extent an aggregate short exposure in our common shares becomes significant, investors with short exposure may have to pay a premium to purchase shares for delivery to share lenders at times if and when the price of our common shares increases significantly, particularly over a short period of time. Those purchases may in turn, dramatically increase the price of our common shares. This is often referred to as a "short squeeze". A short squeeze could lead to volatile price movements in our common shares that are not directly correlated to our business, prospects, operating performance, financial condition or other traditional measures of value for the Company or our common shares.including due to Nasdaq minimum bid price requirements.
In addition, some
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.
Nasdaq may delist our common shares from its exchange which could limit your ability to make transactions in our securities and subject us to additional trading restrictions.
We received written notification from Nasdaq, dated April 14, 2020, indicating that because the closing bid price of the Company's common shares for 30 consecutive business days, from February 27, 2020 to April 13, 2020, was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq Capital Market, the Company is 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.
On December 30, 2020, we announced that we received a notification letter from Nasdaq granting us an additional 180-day extension, or until June 28, 2021, to regain compliance with the minimum bid price requirement. We can cure this deficiency if the closing bid price of our common shares is $1.00 per share or higher for the requisite amount of time during the Second Compliance Period. Nasdaq may exercise its discretion to extend such requisite amount of time to better evaluate the registrant's ability to sustain long-term compliance with the minimum bid price requirement. We are evaluating all our options to regain compliance with the minimum bid price requirement within the Second Compliance Period, including a reverse stock split. During this time, our common shares will continue to be listed and traded on the Nasdaq Capital Market.
If we are unable to regain compliance with the minimum bid price requirement within the Second Compliance Period, our common shares may be suspended or delisted at the discretion of Nasdaq. 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 with the minimum bid price requirement and, if we regain compliance, there can be no assurance that we will maintain compliance in the future.
RecentPast share issuances and future issuances of common shares or other equity securities, or the issuance of additional shares in the futurepotential for such issuances, may impact the price of our common shares and could impair our ability to regain compliance with Nasdaq's minimum bid price requirement.raise capital through subsequent equity offerings. Shareholders may experience significant dilution as a result of any such issuances.
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 707,157,93696,623,876 issued and outstanding common shares as of March 26, 2021.December 31, 2023. Upon the exercise of our outstanding warrants, the Company may issue up to an additional 1,394,94010,393,114 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. Moreover, the Series D Preferred Shares issued on August 7, 2023 are convertible, in whole or in part, at their holder’s option, to common shares at any time and from time to time from and after the first anniversary of their issue date. Subject to certain adjustments, the conversion price for any conversion of the Series D Preferred Shares shall be the lower of (i) $0.70 and (ii) the 5 day value weighted average price immediately preceding the conversion, subject to a minimum conversion price of $0.30 per common share. The number of common shares to be issued to a converting holder shall be equal to the quotient of (i) the aggregate stated amount of the Series D Preferred Shares converted plus Accrued Dividends (but excluding any dividends declared but not yet paid) thereon on the date on which the conversion notice is delivered divided by (ii) the Conversion Price. If converted by Toro, Toro will have registration rights in relation to the common shares issued upon conversion. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Issuance of Series D Preferred Shares and Dividends to Toro.” The issuance of additional common shares upon conversion of the Series D Preferred Shares could result in significant dilution to our shareholders at the time of conversion.
Our business 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.
We have a continuing ATM program in effect, under which we may sell up to $10.0 million of our common shares.
Subject to certain limitations in the Equity Distribution Agreement (as defined in "Item 5. Operating and Financial Review and Prospects—A. Liquidity and Capital Resources—Equity Issuances") and compliance with applicable law, we have the discretion to deliver placement notices to Maxim Group LLC, or Maxim, as our exclusive sales agent at any time throughout the term of the Equity Distribution Agreement, which started on June 28, 2019 and may be terminated by either party at any time. The number of shares that are sold by Maxim after delivering a placement notice will fluctuate based on the market price of the common shares during the sales period and limits we set with Maxim. Although we are initially eligible to sell common shares with an initial aggregate sales price of up to $10.0 million, should we be eligible and desire to offer additional common shares pursuant to the Equity Distribution Agreement with Maxim, we will file an additional prospectus supplement to register such additional common shares and the related preferred shares purchase rights. Therefore, investors will have no advance insight into the number of shares we are actually offering under the Equity Distribution Agreement. As of the date of this annual report, we have sold 618,112 common shares having raised approximate gross proceeds of approximately $2.6 million pursuant to the Equity Distribution Agreement.
We issued 918,112, 127,894,264 and 575,945,560 common shares during 2019, 2020 and 2021, respectively, through various transactions. Shareholders may experience significant dilution as a result of our offerings.
We have already issued and sold large quantities of our common shares pursuant to previous public and private offerings of our equity and equity-linked securities. We also have 480,000 Series A Preferred Shares outstanding and 12,000 Series B Preferred Shares outstanding. In addition, in the future we may file a replacement shelf registration statement covering the sale of some or all of our authorized common shares and other securities. We have additional outstanding warrants that may obligate us to issue up to an additional 1,394,940 common shares, in aggregate, upon the exercise of these warrants in full.
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 would have the following effects:
our existing shareholders' proportionate ownership interest in us will decrease;
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; and
the market price of our common shares could decline.
Future issuances or sales, or the potential for future issuances or sales, of our common shares may cause the trading price of our securities to decline and could impair our ability to raise capital through subsequent equity offerings.
We have issued a significant number of our common shares and we may do so in the future. Shares to be issued in future equity offerings could cause the market price of our common shares to decline, and could have an adverse effect on our earnings per share. In addition, future sales of our common shares or other securities in the public markets, or the perception that these sales may occur, could cause the market price of our common shares to decline, and could materially impair our ability to raise capital through the sale of additional securities.
The market price of our common shares could decline due to sales, or the announcements of proposed sales, of a large number of common shares in the market, including sales of common shares by our large shareholders, or the perception that these sales could occur. These sales or the perception that these sales could occur could also depress the market price of our common shares and impair our ability to raise capital through the sale of additional equity securities or make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate. We cannot predict the effect that future sales of common shares or other equity-related securities would have on the market price of our common shares.
Our Articles of Incorporation authorizes our Board to, among other things, issue additional shares of common or preferred shares or securities convertible or exchangeable into equity securities, without shareholder approval. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional shares of common or preferred shares or convertible securities could be substantially dilutive to our shareholders. Moreover, toTo the extent that we issue restricted stock units, stock appreciation rights, options or warrants to purchase our common shares in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution. Holders of shares of our common shares have no preemptive rights that entitle such holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
Our issuance of additional common shares or other equity securities of equal or senior rank, or the perception that such issuances may occur, could have the following effects:
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.law would.
33The Marshall Islands has no established bankruptcy act, and as a result, any bankruptcy action involving us would have to be initiated outside the Marshall Islands, and our shareholders may find it difficult or impossible to pursue their claims in such other jurisdictions.
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.
Anti-takeover
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;
prohibiting any owner of 15% or more of our voting stock from engaging in a business combination with us within three years after the owner acquired such ownership, except under certain conditions;
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.
These
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 Information— 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 92.5% 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. Major Shareholders and Related Party Transactions—B. Related Party Transactions — Related Party Transactions” and Note 4 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,be the ultimate beneficial owner of 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 92.5% 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.
Mr. Panagiotidis also controls Toro as he is the ultimate beneficial owner of over a majority of Toro’s outstanding common shares as of February 27, 2024 and of 40,000 Series B Preferred Shares, each carrying 100,000 votes, of Toro. The interests of Mr. Panagiotidis may be different from your interests.
We arehave ceased to qualify as 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.will incur increased costs as a result.
We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act").
As an emerging growtha public company, we arehave incurred and will continue to incur significant legal, accounting and other expenses that we did not required to complyincur as a private company, including costs associated with among other things, the auditor attestationpublic company reporting requirements corporate governance requirements, including requirements of the Sarbanes-Oxley Act. InvestorsAct of 2002, as amended (the “Sarbanes-Oxley Act”), as well as rules and regulations implemented by the SEC and the Nasdaq Capital Market.
We ceased to be an “emerging growth company” on December 31, 2023. Accordingly, we are no longer eligible for reduced disclosure requirements and exemptions available to EGCs and, among other things, will formally become subject to new accounting pronouncement effective dates for non-EGCs. While we have determined that we are neither an accelerated filer nor a large accelerated filer (as such terms are defined under U.S. federal securities laws) and therefore not required to obtain an attestation report from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, we nevertheless expect to incur additional legal, accounting, financial and other costs associated with being a public company that is not an EGC, including mandatory adoption of new accounting pronouncements. We may also incur costs associated with compliance with the requirements of additional disclosure requirements, including Section 404(b) of the Sarbanes-Oxley Act in the event that we determine that we have become an accelerated filer or large accelerated filer.
Further, investors may find our securities less attractive because
we relyof our reliance on
this provision. If investors find ourthe foregoing exemption from Section 404(b) of the Sarbanes-Oxley Act, as well as any other exemptions available to us under U.S. federal securities
less attractive as a result, there may belaws. This could contribute to 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 if 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 reportAnnual 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.
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 2022, 2023 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 2022 and 2023 taxable year, we anticipate that U.S. source income taxes of approximately $388,669 and $177,794 would be recognized for the 2020 taxable year is not expected toyears ended December 31, 2022, and 2023, respectively, and we have included a material negative effect onprovision for this amount in our business and cash flows, however, we cannot guaranteeannual consolidated financial statements. However, there can be no assurance that itsuch taxes will not do sobe materially higher or lower in any future taxable years.
Risks Relating to Our Series A Preferred Shares
Our Series A Preferred Shares rank senior to our common shares with respect to dividends, distributions and payments upon liquidation, which could have an adverse effect on the value of our common shares.
The rights of the holders of our Series A Preferred Shares rank senior to the obligations to holders of our common shares. Upon our liquidation, the holders of Series A Preferred Shares will be entitled to receive a liquidation preference of $30.00 per share, plus all accrued but unpaid dividends, prior and in preference to any distribution to the holders of any other class of our equity securities, including our common shares. The Series A Preferred Shareholders agreed to waive all dividend payment obligations on the Series A Preferred Shares during the period from July 1, 2019 until December 31, 2021. The existence of the Series A Preferred Shares could have an adverse effect on the value of our common shares.
We may not have sufficient cash from our operations to enable us to pay dividends on our Series A Preferred Shares following the payment of expenses and the establishment of any reserves.
Starting on January 1, 2022, the Series A Preferred Shareholders will be entitled to semi-annual dividends on our Series A Preferred Shares only from funds legally available for such purpose when, as and if declared by our Board. We may not have sufficient cash available to pay our dividends semi-annually. The amount of dividends we can pay on our Series A Preferred Shares depends upon the amount of cash we generate from and use in our operations, which may fluctuate.
The amount of cash we have available for dividends on our Series A Preferred Shares will not depend solely on our profitability. The actual amount of cash we have available to pay dividends on our Series A Preferred Shares depends on many other factors, including the following:
changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;
restrictions under any current or future credit facilities or any future debt securities on our ability to pay dividends if an event of default has occurred and is continuing or if the payment of the dividend would result in an event of default, or under certain facilities if it would result in the breach of certain financial covenants;
the amount of any cash reserves established by our Board; and
restrictions under Marshall Islands law, which generally prohibit 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.
The Series A Preferred Shares represent perpetual equity interests.
The Series A Preferred Shares represent perpetual equity interests in us and, unlike our indebtedness, do not give rise to a claim for payment of a principal amount at a particular date. As a result, holders of the Series A Preferred Shares may be required to bear the financial risks of an investment in the Series A Preferred Shares for an indefinite period of time. In addition, the Series A Preferred Shares will rank junior to all of our indebtedness and other liabilities, and to any other senior securities we may issue in the future with respect to assets available to satisfy claims against us.
Our Series A Preferred Shares are subordinate to our indebtedness, and your interests could be diluted by the issuance of additional preferred shares, including additional Series A Preferred Shares, and by other transactions.
Our Series A Preferred Shares are subordinated to all indebtedness. Therefore, our ability to pay dividends on, redeem or pay the liquidation preference on our Series A Preferred Shares in liquidation or otherwise may be subject to prior payments due to the holders of our indebtedness. Our future indebtedness may include restrictions on, our ability to pay dividends on or redeem preferred shares. Our Articles of Incorporation currently authorize the issuance of up to 50,000,000 preferred shares, par value $0.001 per share. Of these preferred shares, 480,000 shares have been designated Series A Preferred Shares. The issuance of additional Series A Preferred Shares would dilute the interests of holders of our Series A Preferred Shares, and any current or future indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series A Preferred Shares. The Series A Preferred Shares do not contain any provisions affording the holders of our Series A Preferred Shares protection in the event of a highly-leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, which might adversely affect the holders of our Series A Preferred Shares, so long as the rights of our Series A Preferred Shares are not directly materially and adversely affected.
We may redeem the Series A Preferred Shares, and holders of Series A Preferred Shares may not be able to reinvest the redemption price they receive in a similar security.
We may, at our option, redeem Series A Preferred Shares, in whole or in part, at any time or from time to time. We may have an incentive to redeem Series A Preferred Shares voluntarily if market conditions allow us to issue other preferred shares or debt securities at a rate that is lower than the dividend on the Series A Preferred Shares. If we redeem Series A Preferred Shares, then from and after the redemption date, dividends will cease to accrue on the Series A Preferred Shares, the Series A Preferred Shares shall no longer be deemed outstanding and all of the rights of the holders of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption. If we redeem the Series A Preferred Shares for any reason, the Series A Preferred Shareholders may not be able to reinvest the redemption price they receive in a similar security.
Holders of Series A Preferred Shares have extremely limited voting rights.
The voting rights of the Series A Preferred Shares are extremely limited. Our common shares and Series B Preferred Shares are the only outstanding classes or series of our shares carrying full voting rights. Holders of Series A Preferred Shares have no voting rights other than the ability to approve any amendments to our Articles of Incorporation that adversely alters the preferences, powers or rights of the Series A Preferred Shares.
Our ability to pay dividends on and to redeem our Series A Preferred Shares is limited by the requirements of Marshall Islands law.
Marshall Islands law provides that we may pay dividends on and redeem 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 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.
| ITEM 4. | INFORMATION ON THE COMPANY |
| A. | History and Development of the CompanyHISTORY AND DEVELOPMENT OF THE COMPANY |
We are
Business
Castor Maritime Inc. is 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 of December 31, 2023, our fleet consisted of 15 dry bulk carriers with a combined carrying capacity of 1.3 million dwt, consisting of one Capesize, five Kamsarmax and nine Panamax dry bulk vessels with an average age of 13.3 years, as well as
crude oil and refined petroleum products. As of March 26, 2021, our Fleet consisted of 9 dry bulk carriers and 2 tankerstwo 2,700 TEU containerships with an aggregate cargo
carrying capacity of
1.00.1 million dwt and an average age of
14.318.3 years.
UponOn January 16, 2024, we completed the
successful consummationpreviously announced sale of the M/V Magic Moon by delivering the vessel to its new owners and on January 19, 2024, entered into two separate agreements with entities beneficially owned by a family member of our
recent vessel acquisitions,Chairman, Chief Executive Officer and Chief Financial Officer for the sale of the M/V Magic Horizon and M/V Magic Nova for a gross sale price of $15.8 million and $16.1 million, respectively. On February 15, 2024, we also entered into an agreement with an entity beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer for the sale of the M/V Magic Nebula for a gross sale price of $16.2 million. Each of the M/V Magic Horizon and M/V Magic Nova is expected to be delivered to its respective new owner in the first quarter of 2024, while the M/V Magic Nebula is expected to be delivered to its new owner in the second quarter of 2024. Therefore, as
further discussed under B. Business Overview—Fleet Development,of February 27, 2024, our
Fleet will consistfleet consisted of
14
vessels,dry bulk carriers with a combined carrying capacity of 1.2 million dwt with an average age of 13.0 years, inclusive of the M/V Magic Horizon, M/V Magic Nova and M/V Magic Nebula, M/V Magic Venus (which the Company agreed to sell to an entity beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer on December 21, 2023) and M/V Magic Orion (which the Company agreed to sell to an unaffiliated third-party on December 7, 2023), and two 2,700 TEU containerships with an aggregate
cargo 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
13.518.5 years.
Our commercial strategy primarily focuses on deploying our Fleet under a mix of period time charters and trip time charters according to our assessment of market conditions, adjusting the mix of these charters to take advantage of the relatively stable cash flows and high utilization rates associated with period time charters or to profit from attractive trip charter rates during periods of strong charter market conditions.
Our principal executive office is at 223 Christodoulou Chatzipavlou Street, Hawaii Royal Gardens, 3036 Limassol, Cyprus. Our telephone number at that address is + 357+357 25 357 767. 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.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.”
The Spin-Off
On March 7, 2023, we effected the Spin-Off, whereby eight tanker-owning subsidiaries (each owning one tanker vessel) and Elektra Co. were contributed to a former wholly owned-subsidiary, Toro, in exchange for (i) the issuance to the Company of 9,461,009 common shares of Toro, (ii) the issuance to the Company of 140,000 Toro Series A Preferred Shares and (iii) the issuance to Pelagos, a controlled affiliate of Mr. Petros Panagiotidis, of 40,000 Series B Preferred Shares of Toro, par value $0.001 per share, against payment of the par value of such shares. On such same day, 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. From March 7, 2023, we and Toro have operated as independent publicly traded companies each listed on the Nasdaq Capital Market.
Pursuant to a Contribution and Spin-Off Distribution Agreement entered into with Toro in connection with the Spin-Off, Toro replaced us as guarantor with effect from March 7, 2023 under an $18.0 million term loan facility entered into by Alpha Bank S.A. (“Alpha Bank”) and two of our former tanker-owning subsidiaries on April 27, 2021. The Contribution and Spin-Off Distribution Agreement also provided for the settlement or extinguishment of certain liabilities and other obligations between us and Toro.
On November 15, 2022, our independent, disinterested directors, 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. This does not, however, preclude us from pursuing other opportunities and we entered the containership shipping industry in the fourth quarter of 2022 with the purchase of two containership vessels.
Similarly, in connection with the Spin-Off, Toro’s board of directors resolved, among other things, to focus its efforts on the tanker shipping industry. This does not, however, preclude Toro from pursuing other opportunities, and it subsequently entered into the LPG carrier industry.
The terms of the Spin-Off were negotiated and approved by a special committee of independent disinterested directors.
Equity and Financing Transactions
On August 7, 2023, we agreed to issue 50,000 Series D Preferred Shares to Toro for aggregate consideration of $50.0 million in cash. This transaction and its terms were approved by the independent members of the board of directors of each of Castor and Toro at the recommendation of their respective special committees comprised of independent and disinterested directors, which negotiated the transaction and its terms. Please see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” and “Item 10. Additional Information—B. Memorandum and Articles of Association”for more detailed description of this transaction and the Series D Preferred Shares. During 2023, we paid $0.5 million in dividends to Toro in connection with the Series D Preferred Shares.
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.”
For more information about our borrowing activities, 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.
Vessel Capital Expenditures
As of February 27, 2024, our fleet consisted of 14 dry bulk carriers, and two containership vessels, as during 2023 and up to the date of this Annual Report we sold six dry bulk vessels and we divested all of our tankers as a result of the Spin-Off. For further information on vessel acquisitions / disposal and the series of financing transactions that enabled our vessel acquisitions, see “—B. Business Overview—Fleet Development” below and Notes 7 and 8 to our consolidated financial statements included in this Annual Report.
During the years ended December 31, 2021, 2022 and 2023, we made capital expenditures of approximately $0.6 million, $2.6 million and $0.1 million, respectively, primarily relating to the installation of ballast water treatment system (“BWTS”) on our vessels.
Nasdaq Listing Standards Compliance
On April 14, 2020,20, 2023, we received writtena 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 belowwe were not in compliance with the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq weCapital Market (the “Minimum Bid Price Requirement”) and were not in complianceprovided with Nasdaq Listing Rule 5550(a)(2). We were also informed by the Nasdaq that due to the COVID-19 crisis, temporary relief has been granted related to minimum listing bid price requirements and our compliance period would be suspended until June 30, 2020. Pursuant to the Nasdaq Listing Rule 5810(c)(3)(A), the applicable initial grace period180 calendar days to regain compliance was 180 days, or December 28, 2020, which included the temporary COVID-19 relief period.
with it. On
December 30, 2020, we announced thatOctober 18, 2023, we received a notification letter from
the Nasdaq granting
usthe Company an additional
180-day extension,
or until
June 28, 2021,April 15, 2024, to regain compliance with
Nasdaq's minimum bid price requirementMinimum Bid Price Requirement (the
"Second“Second Compliance
Period"Period”). We can cure this deficiency if the closing bid price of our common shares is $1.00 per share or higher for
the requisite period of timeat least ten consecutive business days during the
Second Compliance Period. Nasdaq may exercise its discretioncure period. We intend to
extend such requisite amount of time to better evaluate the registrant's ability to sustain long-termregain compliance with the
minimum bid price requirement. We are evaluating all our options to regain complianceMinimum Bid Price Requirement within the Second Compliance Period
and are considering all available options, including a reverse stock
split.split, for which we have received shareholder approval. During
this time,the Second Compliance Period, our common shares will continue to be listed and
tradedtrade on the Nasdaq Capital
Market.Market and our business operations are not affected by receipt of the notification. If we do not regain compliance within the Second Compliance Period, our common shares will be subject to delisting by Nasdaq.
During the years ended December 31, 2021, 2022 and 2023, we operated (i) dry bulk vessels that engaged in the worldwide transportation of commodities such as iron ore, coal, soybeans, etc., (ii) from the fourth quarter of 2022, containerships that are engaged in the transportation of containerized cargoes and, (iii) from the first quarter of 2021 until the completion of the Spin-Off, Aframax/LR2 tanker vessels that were engaged in the worldwide transportation of crude oil and (iv) from the second quarter of 2021 until the completion of the Spin-Off, Handysize tanker vessels that carried refined petroleum products.
Equity transactions
ForWith effect from the second quarter of 2023 and as a descriptionresult of the contribution of our recent equity transactions, please see "Item 5. Operatingformer Aframax/LR2 and Financial ReviewHandysize segments to Toro, we determined that we operated in two reportable segments: (i) the dry bulk segment and Prospects – B. Liquidity(ii) the containership segment. These reportable segments reflect our internal organization and Capital Resources – Equity Issuances".the way our chief operating decision maker reviews and analyzes operating results and allocates capital within the Company. Further, the transport of dry bulk cargoes and containerized cargoes has different characteristics and the nature of trade, trading routes, charterers and cargo handling of differ in important respects. We do not disclose geographic information relating to our segments because when we charter a vessel to a charterer, the charterer is free, subject to certain exemptions, to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable.
Our Fleet Development
During the year ended December 31, 2023, our dry bulk vessels and Vessel Capital Expenditures
As of the date of this annual report, 8 of the 11 vessels in 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.containerships operated exclusively under time charter contracts. 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.
In connection with our Fleet expansion, we conducted a series of vessel acquisitions and financing transactions, which are further discussed below under in "B. Business Overview—Fleet Development".
Financing Transactions
On January 23, 2020, we, through one of our ship-owning subsidiaries, entered into $4.5 million secured term loan facility with Chailease International Financial Services Co. Ltd., or the Chailease Financial Services Facility. The loan was drawn down on January 31, 2020, has a tenor of five years from the drawdown date and bears interest at a margin plus LIBOR.
On January 27, 2020, we entered into a securities purchase agreement with YAII PN, LTD, or the Investor, pursuant to which we agreed to sell and the Investor agreed to purchase up to three convertible debentures (individually, a "Convertible Debenture" and collectively, the "$5.0 Million Convertible Debentures") for a maximum aggregate price of $5.0 million. During the period from January 28, 2020 up to June 9, 2020, the Investor had converted the full $5.0 million principal amount and $0.1 million of interest under the $5.0 Million Convertible Debentures for 8,042,078 common shares.
On January 22, 2021, we, through2023, two of our ship-owning subsidiaries, entered intodry bulk vessels were chartered in 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, three of our dry bulk vessels were employed under index-linked period charters converted to a $15.3 million senior secured term loan facility with Hamburg Commercial AG, or the $15.3 Million Term Loan Facility, secured by the M/V Magic Horizonfixed rate and the M/V Magic Nova. our two containerships were under fixed rate period charter contracts.
The $15.3 Million Term Loan Facility has a tenor of four years from the drawdown date and bears interest at a margin plus LIBOR. The loan was drawn down in full on January 27, 2021. The Company intends to use the net proceeds from the $15.3 Million Term Loan Facility to support the Company's growth plans and for general corporate purposes.
For morefollowing tables summarize key information about our financing agreementsfleet in each segment as of February 27, 2024:
Dry Bulk Segment
| Vessel Name | Capacity (dwt) | Year Built | Country of Construction | Type of Employment (1) | Gross Charter Rate ($/day) | Estimated Redelivery Date |
| Earliest | Latest |
M/V Magic Orion (3) | 180,200 | 2006 | Japan | TC period | 101% of BCI5TC (2) | Jan-24(2) | Apr-24 |
M/V Magic Venus(3) | 83,416 | 2010 | Japan | TC period | $11,300 per day (4) | Apr-24 | Jul-24 |
| M/V Magic Thunder | 83,375 | 2011 | Japan | TC period | $11,500 (5) | Sep-24 | -(13) |
| M/V Magic Perseus | 82,158 | 2013 | Japan | TC period | $13,850 (6) | Sep-24 | -(13) |
| M/V Magic Starlight | 81,048 | 2015 | China | TC period | $10,725 (7) | Jun-24 | -(14) |
M/V Magic Nebula (3) | 80,281 | 2010 | Korea | TC trip | $14,000 | Apr-24 | May-24 |
M/V Magic Nova(3) | 78,833 | 2010 | Japan | TC period | 101% of BPI4TC (8) | Apr-24 | -(14) |
| M/V Magic Mars | 76,822 | 2014 | Korea | TC period | $12,648 (9) | May-24 | -(14) |
M/V Magic Horizon(3) | 76,619 | 2010 | Japan | TC period | 103% of BPI4TC | Mar-24 | -(15) |
| M/V Magic P | 76,453 | 2004 | Japan | TC period | $11,904 (10) | May-24 | -(14) |
| M/V Magic Vela | 75,003 | 2011 | China | TC period | 95% of BPI4TC | May-24 | Aug-24 |
| M/V Magic Eclipse | 74,940 | 2011 | Japan | TC period | 100% of BPI4TC | Mar-24 | Jun-24 |
| M/V Magic Pluto | 74,940 | 2013 | Japan | TC period | $14,050 (11) | Sep-24 | -(13) |
| M/V Magic Callisto | 74,930 | 2012 | Japan | TC period | $12,524 (12) | Apr-24 | Jul-24 |
| (1) | TC stands for time charter. |
| (2) | The benchmark vessel used in the calculation of the average of the Baltic Capesize Index 5TC routes (“BCI5TC”) is a non-scrubber fitted 180,000mt dwt vessel (Capesize) with specific age, speed – consumption, and design characteristics. Based on the terms of charter, the estimated earliest redelivery date for the M/V Magic Orion was January 2024. |
| (3) | We agreed to sell the M/V Magic Orion, M/V Magic Venus, M/V Magic Nova, M/V Magic Horizon and M/V Magic Nebula on December 7, 2023, December 21, 2023, January 19, 2024, January 19, 2024 and February 15, 2024 respectively. The vessels are still employed under their existing charter parties and are each expected to be delivered to their new owners during the first quarter of 2024, apart from the M/V Magic Nebula which is expected to be delivered to its new owner during the second quarter of 2024. |
| (4) | The vessel’s daily gross charter rate is equal to 100% of Baltic Panamax Index 5TC routes (“BPI5TC”). The benchmark vessel used in the calculation of the average of the BPI5TC is a non-scrubber fitted 82,000mt dwt vessel (Kamsarmax) with specific age, speed–consumption, and design characteristics. In accordance with the prevailing charter party, on November 13, 2023, we converted the index-linked rate to fixed from January 1, 2024 until March 31, 2024 at a rate of $11,300 per day. Upon completion of this period, the rate will be converted back to index‑linked. |
| (5) | The vessel’s daily gross charter rate is equal to 97% of BPI5TC. In accordance with the prevailing charter party, on November 17, 2023, we converted the index-linked rate to fixed from January 1, 2024 until March 31, 2024 at a rate of $11,500 per day. Upon completion of this period, in accordance with the prevailing charter party, on January 19, 2024, we converted the index-linked rate to fixed from April 1, 2024 until June 30, 2024 at a rate of $16,200 per day. Thereafter, the rate will be converted back to index-linked. |
| (6) | The vessel’s daily gross charter rate is equal to 100% of BPI5TC. In accordance with the prevailing charter party, on November 29, 2023, we converted the index-linked rate to fixed from January 1, 2024 until March 31, 2024, at a rate of $13,850 per day. Upon completion of this period, in accordance with the prevailing charter party, on January 17, 2024, we converted the index-linked rate to fixed from April 1, 2024 until June 30, 2024 at a rate of $16,300 per day. Thereafter, the rate will be converted back to index-linked. |
| (7) | The vessel’s daily gross charter rate is equal to 98% of BPI5TC. In accordance with the prevailing charter party, on November 10, 2023, we converted the index-linked rate to fixed from January 1, 2024, until March 31, 2024, at a rate of $10,725 per day. Upon completion of this period, in accordance with the prevailing charter party, on January 12, 2024, we converted the index-linked rate to fixed from April 1, 2024 until June 30, 2024 at a rate of $14,600 per day. Thereafter, the rate will be converted back to index-linked. |
| (8) | The benchmark vessel used in the calculation of the average of the Baltic Panamax Index 4TC routes (“BPI4TC”) is a non-scrubber fitted 74,000mt dwt vessel (Panamax) with specific age, speed – consumption, and design characteristics. |
| (9) | The vessel’s daily gross charter rate is equal to 102% of BPI4TC. In accordance with the prevailing charter party, on November 30, 2023, we converted the index-linked rate to fixed from January 1, 2024, until March 31, 2024, at a rate of $12,648 per day. Upon completion of this period, in accordance with the prevailing charter party, on January 16, 2024, we converted the index-linked rate to fixed from April 1, 2024 until June 30, 2024 at a rate of $14,750 per day. Thereafter, the rate will be converted back to index-linked. |
| (10) | The vessel’s daily gross charter rate is equal to 96% of BPI4TC. In accordance with the prevailing charter party, on November 30, 2023, we converted the index-linked rate to fixed from January 1, 2024, until March 31, 2024, at a rate of $11,904 per day. In accordance with the prevailing charter party, on February 6, 2024, we converted the index-linked rate to fixed from April 1, 2024 until September 30, 2024 at a rate of $15,150 per day. Upon completion of these periods, the rate will be converted back to index‑linked rate. |
| (11) | The vessel’s daily gross charter rate is equal to 100% of BPI4TC. In accordance with the prevailing charter party, on November 30, 2023, we converted the index-linked rate to fixed from January 1, 2024 until March 31, 2024 at a rate of $14,050 per day. Upon completion of this period, the rate will be converted back to index‑linked rate. |
| (12) | The vessel’s daily gross charter rate is equal to 101% of BPI4TC. In accordance with the prevailing charter party, on November 30, 2023, we converted the index-linked rate to fixed from January 1, 2024 until March 31, 2024 at a rate of $12,524 per day. Upon completion of this period, the rate will be converted back to index‑linked rate. |
| (13) | The earliest redelivery under the prevailing charter party is 9 months after delivery. Thereafter, both we and the charterers have the option to terminate the charter by providing 3 months written notice to the other party. |
| (14) | The earliest redelivery under the prevailing charter party is 7 months after delivery. Thereafter, both we and the charterers have the option to terminate the charter by providing 3 months written notice to the other party. |
| (15) | The earliest redelivery under the prevailing charter party is 8 months after delivery. Thereafter, both we and the charterers have the option to terminate the charter by providing 3 months written notice to the other party. |
Containership Segment
| Vessel Name | | Capacity (dwt) | | | Year Built | | Country of Construction | Type of employment | | Gross Charter Rate ($/day) | | Estimated Earliest Charter Expiration | Estimated Latest Charter Expiration |
| Containership Segment | | | | | | | | | | | | | |
| M/V Ariana A | | | 38,117 | | | | 2005 | | Germany | TC period | | $ | 16,000 | | May-24 | Jun-24 |
| M/V Gabriela A | | | 38,121 | | | | 2005 | | Germany | TC period | | $ | 26,350 | | Feb-24 | May-24 |
Fleet Development
Vessel Acquisitions
During the years ended December 31, 2021 and 2022, we have entered intoimplemented our strategic fleet growth plan by acquiring the vessels listed below:
| Dry Bulk Carriers |
| Vessel Name | Vessel Type | | DWT | | | Year Built | | Country of Construction | | Purchase Price (in million) | | Delivery Date |
| 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 Handysize tanker segments were contributed to Toro Corp. in connection with the expansionSpin-Off.
All the above-mentioned acquisitions were financed using a mix of cash from operations and the net cash proceeds from our Fleetequity and for other general corporate purposes, please see "Itemfinancing transactions, as further discussed under “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Borrowing Activities".Resources.”
Vessel Disposals
During the year ended December 31, 2023, we sold a number of our older vessels to unaffiliated third-parties as listed below:
| Dry Bulk Carriers |
| 2023 Disposals |
| Vessel Name | Vessel Type | | | DWT | | | | Year Built | | Country of Construction | | Sale Price (in million) | | Delivery Date |
| Magic Phoenix | Panamax | | | 76,636 | | | | 2008 | | Japan | | $ | 14.0 | | 27/11/2023 |
| Magic Argo | Kamsarmax | | | 82,338 | | | | 2009 | | Japan | | $ | 15.75 | | 14/12/2023 |
| Magic Twilight | Kamsarmax | | | 80,283 | | | | 2010 | | S. Korea | | $ | 17.5 | | 20/07/2023 |
| Magic Rainbow | Panamax | | | 73,593 | | | | 2007 | | China | | $ | 12.6 | | 18/04/2023 |
| Magic Sun | Panamax | | | 75,311 | | | | 2001 | | S. Korea
| | $ | 6.55 | | 14/11/2023 |
Our Fleet
The following table summarizes key information about our Fleet (delivered only vessels) as of March 26, 2021:
| 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 |
Fleet Development
On July 25, 2019,In addition, on December 7, 2023, we through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2001 Korean- built Panamax dry bulk carrier, orwith an unaffiliated third-party for the sale of the M/V Magic Sun, from an unaffiliated third party Orion for a purchasegross sale price of $6.7 million. The M/V Magic Sun was delivered to us$17.4 million and on September 5, 2019. The acquisition of the M/V Magic Sun was financed with both cash on hand and the proceeds from a $5.0 million unsecured term loan agreement entered into between the Company and an entity controlled by Petros Panagiotidis, as further described under "Item 5 – Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Our Borrowing Activities".
On October 14, 2019,December 21, 2023, we
through one of our wholly-owned subsidiaries, entered into an agreement
to purchase a 2005 Japanese-built Panamax dry bulk carrier, or the M/V Magic Moon, from a third party in whichwith an entity beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer
had an interest,for the sale of the M/V Magic Venus for a
purchase price of
$10.2$17.5 million.
The Further, on January 16, 2024, we completed the previously announced sale of the M/V Magic Moon was by delivering the vessel to its new owners and on January 19, 2024, entered into two separate agreements with entities beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer for the sale of the M/V Magic Horizon and M/V Magic Nova for a gross sale price of $15.8 million and $16.1 million, respectively. On February 15, 2024, we also entered into an agreement with an entity beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer for the sale of the M/V Magic Nebula for a gross sale price of $16.2 million. Each of these vessels is expected to be delivered to us on October 20, 2019. The acquisitionits new owner in the first quarter of 2024, apart from the M/V Magic Moon was financed with a combinationNebula which is expected to be delivered to its new owner during the second quarter of cash on hand, the net cash proceeds from sales under our ATM Program and the proceeds from a $7.5 million interest free unsecured bridge loan, which was provided to the Company by an entity controlled by Petros Panagiotidis, as further described under "Item 2024. See “Item 7. Major Shareholders and Related Party Transactions – —B. Related Party Transactions – Loans – $7.5 Million Shareholder Bridge Loan".On June 30, 2020, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2007 Chinese- built Panamax dry bulk carrier, or the M/V Magic Rainbow, from an unaffiliated third party for a purchase price of $7.85 million. The M/V Magic Rainbow was delivered to us on August 8, 2020. The acquisition of the M/V Magic Rainbow was financed in whole with the proceeds from our debt—Vessel Disposals and equity financings concluded in 2020.Acquisitions.”
On July 28, 2020, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2010 Japanese- built Panamax dry bulk carrier, or the M/V Magic Horizon, from an unaffiliated third party for a purchase price of $12.75 million. The M/V Magic Horizon was delivered to us on October 9, 2020. The acquisition of the M/V Magic Horizon was financed in whole with the proceeds from our debt and equity financings concluded in 2020.
On September 28, 2020, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2010 Japanese-built Panamax dry bulk carrier, or the M/V Magic Nova, from an unaffiliated third party for a purchase price of $13.86 million. The M/V Magic Nova was delivered to us on October 15, 2020. The acquisition of the M/V Magic Nova was financed in whole with the proceeds from our debt and equity financings concluded in 2020.
On January 20, 2021, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2006 Japanese-built Capesize dry bulk carrier, or the M/V Magic Orion, from an unaffiliated third party for a purchase price of $17.5 million. The M/V Magic Orion was delivered to us on March 17, 2021. The acquisition of the M/V Magic Orion was financed in whole with cash on hand.
On January 28, 2021, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2010 Japanese-built Kamsarmax dry bulk carrier, or the M/V Magic Venus, from an unaffiliated third party for a purchase price of $15.85 million. The M/V Magic Venus was delivered to us on March 2, 2021. The acquisition of the M/V Magic Venus was financed in whole with cash on hand.
On February 2, 2021, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2009 Japanese-built Kamsarmax dry bulk carrier, or the M/V Magic Argo, from an unaffiliated third party for a purchase price of $14.5 million. The M/V Magic Argo was delivered to us on March 18, 2021. The acquisition of the M/V Magic Argo was financed in whole with cash on hand.
On February 5, 2021, we, through two of our wholly-owned subsidiaries, entered into agreements to purchase two 2005 Korean-built Aframax LR2 tankers for an aggregate purchase price of $27.2 million from an unaffiliated third-party seller. Both vessels have attached time charter contracts with a reputable charterer with an estimated remaining term of about one year, each of which shall provide the Company with a minimum gross daily hire of $15,000 and have a 50% profit sharing arrangement over such level based on a predetermined formula. The charterer has the option to extend the duration of each contract for an additional one-year term. The M/T Wonder Polaris and the M/T Wonder Sirius were delivered to us on March 11, 2021 and March 22, 2021, respectively. The acquisition of both vessels was financed in whole with cash on hand.
On February 18, 2021, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2010 Japanese-built Kamsarmax dry bulk carrier, from an unaffiliated third party for a purchase price of $14.8 million. The acquisition is expected to be consummated by taking delivery of the vessel sometime in the beginning of the second quarter of this year, is expected to be financed in whole with cash on hand and is subject to the satisfaction of certain customary closing conditions.
On March 9, 2021, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2010 Korean-built Kamsarmax dry bulk carrier from an unaffiliated third party for a purchase price of $15.5 million. The acquisition is expected to be consummated by taking delivery of the vessel within the second quarter of this year, is expected to be financed in whole with cash on hand and is subject to the satisfaction of certain customary closing conditions.
On March 11, 2021, we, through one of our wholly-owned subsidiaries, entered into an agreement to purchase a 2011 Japanese-built Kamsarmax dry bulk carrier from an unaffiliated third party for a purchase price of $16.9 million. The acquisition is expected to be consummated by taking delivery of the vessel sometime between the second and third quarter of this year, is expected to be financed in whole with cash on hand and is subject to the satisfaction of certain customary closing conditions.
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 period time charter markets in order to secure optimal employment in the dry bulk and tanker shipping markets. As of March 26, 2021, three ofmarkets in which our vessels were charteredactively participate and 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 time charter market. Tripor index-linked charter rates during periods of strong charter market conditions.
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. We have also recently engaged in time charter contracts with a minimum period, with owners/charterers option to terminate the charter with three months’ written notice to the other party thereafter. 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 ranging from one month to twelve months and in isolated cases on longer terms depending on market conditions. Time charter agreements may have extension options that range over certain time periods, which haveare usually periods of months. 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 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 us to convert the index-linked rate to a fixed rate for a minimum period of three months and up to the maximum duration of the charter contract, according to the average of the Freight Forward Agreement 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 on spot time charter trips. Our two containership vessels are currently employed under period time charter contracts.
For further information on our charters and charter terms, please refer to “Management’s Discussion and Analysis of Financial Condition and Operating Results—Hire Rates and the Cyclical Nature of the Industry” and Note 1 to our Aframax LR2 tanker which we have purchased with time charter attached, a profit sharing arrangement over and above that fixed charter rate level. In the future, we may opportunistically look to employ more of our vessels under trip time charter contracts, should the marker outlook become more attractive.consolidated financial statements included elsewhere in this Annual Report.
Management of our Business
Our vessels are technically managed by Pavimar, a company controlled by Ismini Panagiotidis, the sister of our Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis. Under the technical management agreements, our ship-owning subsidiaries pay a $600 daily fee to Pavimar for the provision of a wide range of shipping services such as crew management, technical management, operational employment management, insurance 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 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.
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 per
containership and dry bulk vessel and until March 7, 2023, paid $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.
42
The Ship Management Fees and Flat Management Fee were adjusted under the terms of the Amended and Restated Master Management Agreement and as of July 1, 2023, the Ship Management Fee increased from $925 per vessel to $986 per containership and dry bulk vessel and the Flat Management Fee increased from $0.75 million to $0.8 million.
The three Kamsarmax As of February 27, 2024, Castor Ships co-managed our dry bulk vessels that we have agreed to purchase and which we expect to take delivery of in the near term, will be technically and commercially managed bywith Pavimar and had subcontracted the technical management of our two containerships to a third-party ship-management company. Castor Ships upon their deliverypays, at its own expense, such third-party technical management company a fee for the services it has subcontracted to us.it, without burdening the Company with any additional cost, while Pavimar is paid directly from the dry bulk vessel owning subsidiaries its previously agreed proportionate daily management fee of $600 per vessel for its co-management services, with the residual amount of $386 of the agreed daily ship management fee paid to Castor Ships.
For further information, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” and Notes 1 and 4 to our consolidated financial statements included elsewhere in this Annual Report.
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, regional, 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, orcertificates and 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, European Union, 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, tanker, containers, LPG and LNG carriers, among other vessels, and is broken intoincludes six Annexes, each of which regulates a different source of pollution. Annex I relates to operational or accidental 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; new1997. 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 pollutionemissions from vessels. Effective May 2005, Annex VI sets limits on sulfur dioxide, nitrogen oxide and nitrogen oxideother 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 emission control areas to be established with more stringent controlslimits 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,dioxide, 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 designationsour vessels were built prior to 2016, they are not affected by Tier III requirements from an operational perspective. While our vessels are currently in compliance with Tier I or similar future designations,II NOx standards, we may be requiredacquire additional vessels that are not in compliance with such regulations or become subject to additional trading restrictions applicable to our existing vessels, 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,ships. The 2023 IMO GHG Strategy seeks a reduction in carbon intensity of international shipping as an average across international shipping, by at least 40% by 2030. Related measures are 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.
Additionally, This may require us to incur additional operating or other costs for those vessels built after January 1, 2013. Further, MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. These amendments introduce requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon intensity of international shipping. The requirements include (1) a technical requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index ("EEXI"), and (2) operational carbon intensity reduction requirements, based on a new operational carbon intensity indicator ("CII"). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship types and categories. With respect to the CII, the draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual operational CII achieved against a determined required annual operational CII. Additionally, MEPC 75 proposedapproved draft amendments requiring that, on or before January 1, 2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP would needneeds to include certain mandatory content. MEPC 75
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 carbon intensity 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 E for three consecutive years would have to submit a corrective action plan to show how the required index (D 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) entered 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 for 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, followed by 70% of emissions in 2025 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 the 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 of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers ("GBS Standards").
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 are exempt. 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.
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'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-boardonboard 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.
Once mid-ocean exchange ballast water treatment requirements become mandatory under As of December 31, 2022 and 2023, we had made $2.6 million and $0.1 million in capital expenditures relating to the BWM Convention, the costinstallation of compliance could increase for ocean carriers and may have a material effectBWTS on our operations. However, manyvessels. For further information on these installations, see “A. History and Development of the Company—Fleet Development and Vessel Capital Expenditures.”
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.
We have obtained Anti‑foulingAnti-fouling System Certificates for all of our vessels that are subject to the Anti‑foulingAnti-fouling Convention.
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 confirmAnnual Report, our vessels arewere ISM Code certified through Pavimar, that technically operatesthe technical operator of our dry bulk vessels, and the third-party managers for containership 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;damages but 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). TheseHowever, 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. TheseHowever, 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. President Trump had proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling.operations. In 2023 the BSSE issued a final Well Control Rule which revises or rescinds certain modifications that were made in the 2019 rule. The effects of these proposals and changes are currently unknown, and recently, current U.S. Presidentunknown. On January 27, 2021, the Biden signedadministration issued an executive order temporarily blocking new leases for oil and gas drilling in federal waters. On April 18, 2022 the Bureau of Land Management resumed oil and gas leasing on a much reduced basis and, in September 2023, a record low of just three offshore lease sales over the next five years were unveiled. However, leasing for oil and gas drilling in federal waters remains a contentious political issue, with certain states and Republicans in U.S. Congress pushing for increased leasing. 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 results of operations.operating 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. Though the EPA issued a notice of proposed rulemaking in October 2020 and a supplemental notice of proposed rulemaking in October 2023 (whose comment period closed on December 18, 2023), as of December 31, 2023, the EPA has not promulgated a final rule on new discharge standards and the USCG has not developed implementation, compliance and enforcement regulations. 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 PARIPermit Authorization and Record of Inspection 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 additional 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.
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California Air Resources Board (CARB) regulation
The California Air Resources Board regulation for reducing emissions from diesel auxiliary engines on ships while at-berth is applicable for container vessels from January 1, 2023. Effective January 1, 2025, every dry bulk carrier and oil tanker vessel approaching California ports must be also equipped with shore power supply.
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, butwith certain exceptions apply tofor 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 in 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 forthcomingOn July 14, 2021, the EU Commission proposed legislation to amend the EU ETS to include shipping emissions which was phased in beginning in 2023. In January 2024, EU ETS was extended to cover CO2 emissions from all large ships (of 5,000 gross tonnage and are expected to be proposed by 2021.
International Labour Organization
The International Labour Organization (the "ILO") is a specialized agencyabove) entering EU ports, regardless of the UN that has adopted the Maritime Labor Convention 2006 ("MLC 2006"). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between ports, in another country. We believe that our vessels are in substantial compliance with and are certified as per MLC 2006.they fly.
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,greenhouse gas emissions 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 announced that the United States intends to withdrawadministration withdrew 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, includingincluding: (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 ordersought 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 released rules rollingrolled back standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S. Presidentthe Biden recentlyadministration 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.
International Labor Organization
The International Labor Organization is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 (“MLC 2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between ports, in another country. Our vessels are certified as per MLC 2006 and, we believe, in substantial compliance with the MLC 2006.
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-boardonboard 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-boardonboard 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 Arabianoff the coast of Nigeria in the Gulf of Guinea. Furthermore, costs of vessel security measures have been affected by the geopolitical conflicts in the Middle East and maritime incidents in and around the Red Sea, area.including off the coast of Yemen in the Gulf of Aden where vessels have faced an increased number of armed attacks targeting Israeli and US-linked ships, as well as Marshall Islands’ flagged vessels. 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, Det Norske Veritas, 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'sA vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be dry-docked every 30 to 36 months for inspection of the underwater parts of the vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, dry-docking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and 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. Each of our vessels is insured up to what we believe to be at least its fair market value, after meeting certain deductibles. We generally do not maintain insurance againstand do not expect to obtain loss of hire which coversinsurance (or any other kind of business interruptions that result ininterruption insurance) covering the loss of userevenue during off-hire periods, other than due to war risks, for any 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
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.competitive, in part due to the fact that ownership of dry bulk is highly fragmented and ownership of containership vessels is moderately fragmented. The process of obtaining new employment for our Fleetfleet generally involves intensive screening, and competitive bidding, and often extends for several months. Although we believe that at the present time no single company has a dominant position in the markets in which we operate, that could change and we may face substantial competition for charters from a number of established companies who may have greater resources, capabilities or experience.
We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as based on customer relationships 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. Ownership of dry bulk and tanker vessels is highly fragmented.demand for such products.
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
Based on the Company’s historical data and industry trends, we expect demand for vessel capacity has historically exhibitedour dry bulk vessels and containerships to continue to exhibit seasonal variations and, as a result, fluctuations in charter rates. This seasonalityand freight rates to fluctuate. These 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. | Organizational StructureORGANIZATIONAL STRUCTURE |
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.Annual Report.
| D. | Property, Plants and EquipmentPROPERTY, PLANTS AND EQUIPMENT |
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 |
Introduction
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.
In September 2019, we changed our fiscal year end from September 30 to December 31. This change in our fiscal year end resulted in a three-month transition period from October 1, 2018 to December 31, 2018.
For a discussion of our results for the year ended December 31, 20192022, compared to the year ended December 31, 2018,2021, please see "Item 5 – Operating and Financial Review and Prospects – “—A. Operating Results – Year ended December 31, 20192022 as compared to year ended December 31, 2018" 2021” contained in our annual report on Form 20-F for the year ended December 31, 2019,2022, filed with the Securities and Exchange CommissionSEC on March 31, 2020.8, 2023.
The Company's
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 could be materiallyon February 22, 2023. As a result, as of and adversely affected byfrom March 7, 2023, our business is comprised of two reportable segments, Dry bulk and Containerships. For more information, please see Item 4. Information on the risks, or the public perceptionCompany—A. History and Development of the risks relatedCompany”, “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” and Notes 1 and 3 to our consolidated financial statements included elsewhere in this Annual Report. Results of operations and cash flows of the COVID-19 pandemic. Aframax/LR2 and Handysize tanker segments and assets and liabilities that were part of the Spin-Off are reported as discontinued operations for all periods presented.
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, cash flows, financial position, events or conditions 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. | Operating ResultsOPERATING RESULTS |
Business Overview and Fleet Information
During the fourth quarter of 2022, we established our containership operations through the acquisition of two containerships. As a result, as of December 31, 2023, we operated in two reportable segments: (i) the dry bulk segment and (ii) the containership segment. 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 containerized products, which are carried by containerships. Furthermore, the nature of trade, as well as the trading routes, charterers and cargo handling, is different in the containership segment and the dry bulk segment.
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 dry bulk and tanker shipping industries;segments in which we operate; |
| ‒- | The cyclical nature of the shipping industry in general and its impact on charter rates and vessel values; |
| ‒ | Utilization rates of our Fleet; |
| ‒- | The employment and operation of our Fleet; |
| ‒ | Managementsuccessful implementation of the financial, general and administrative elements involved in the conduct of ourCompany’s business and ownership of our Fleet; |
| ‒ | The age, condition and specifications of our vessels; |
| ‒ | The performance of our charterers' obligations under their charter agreements; |
| ‒ | Our ability to maintain solid working relationships with our existing charterers andstrategy, including our ability to increase the number ofobtain equity and debt financing at acceptable and attractive terms to fund future capital expenditures and/or to implement our charterers through the development of new working relationships;business strategy; |
| ‒- | The effectiveglobal economic growth outlook and efficient management of our Fleet by Castor Ships and Pavimar;trends, such as price inflation and/or volatility; |
| ‒- | Economic, regulatory, political and governmental conditions that affect shipping and the dry bulk and tanker industries;container segments, including international conflict or war (or threatened war), such as between Russia and Ukraine and in the Middle East, and acts of piracy or maritime aggression, such as recent maritime incidents involving vessels in and around the Red Sea; |
| ‒- | Dry-dockingThe employment and special survey days, both expected and unexpected;operation of our fleet including the utilization rates of our vessels; |
| ‒- | Our ability to successfully employ our vessels at economically attractive rates and our strategic decisions regarding the employment mix of our Fleet in the voyage market as well as period and trip time charter markets,fleet as our charters expire or are otherwise terminated; |
| ‒- | PerformanceManagement of the financial, operating, general and administrative elements involved in the conduct of our counterparties,business and ownership of our fleet, including the effective and efficient technical management of our charterersfleet by our head and sub-managers, and their suppliers; |
| - | The number of customers who use our services and the performance of their obligations under their agreements, including their ability to make chartertimely payments to us; |
| ‒- | Our ability to obtain equitymaintain solid working relationships with our existing customers and debt financing at acceptable and attractive termsour ability to fund future capital expenditures;increase the number of our charterers through the development of new working relationships; |
| ‒- | The reputation and safety record of our 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; |
| - | Management of our financial resources, including banking relationships and of the relationships with our various stakeholders;
|
| ‒- | Our access to capital required to acquire additional ships and/or to implement our business strategy;Major outbreaks of diseases and governmental responses thereto; and
|
| ‒- | The levelperformance of dividends on all classesthe listed equity securities in which the Company currently has investments, which is subject to market risk and price volatility, and may adversely affect our results due to the realization of our shares, if any.losses upon disposition of these investments or the recognition of significant unrealized losses during their holding period. |
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 the Cyclical Nature of the Industry
One of the factors that impacts our profitability is the hire rates at which we are able to fix our vessels. The shipping industry is cyclical with attendant volatility in charter hire rates and, as a result, profitability. The dry bulk and 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 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
57
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, 2020,2023, 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. Incontracts (such as ballast positioning compensation, holds cleaning compensation, etc.). For further details on these arrangements, refer to “Item 4. Information on the future,Company—A. Business Overview—Chartering of our revenues may also consist of amounts earned under voyage charter contracts, where charterers pay a fixed amount per ton of cargo carried. Fleet.”
Our future gross revenues may be affected by our commercial strategy including the proportiondecisions regarding the mix of voyagedifferent vessel types in our fleet and the employment mix of our 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 relatingcharters. See Note 14 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 Daily TCE rateRate 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 Daily TCE Rate is not a measure of financial performance under U.S. GAAP (i.e., it is a non-GAAP measure). Refer to “—Important Measures and Definitions for Analyzing Results of Operations” for its description and a reconciliation to its most directly comparable GAAP measure, total vessel revenue.
56
The BDI average for the years ended December 31, 2019 and 2020 was 1,352 points and 1,066 points, respectively; notably though, the charter rate volatility exhibited within this period due to the Covid-19 pandemic was significant and negatively affected our revenues. In particular, theDry Bulk Industry
The Baltic Dry Index (BDI) closed(“BDI”) is a shipping freight-cost index used as a benchmark in the dry bulk industry. The BDI as at 411December 23, 2022, and December 22, 2023 was 1,515 points and 2,094 points, respectively, and the BDI recorded an annual high of 3,346 points on December 4, 2023 and a low of 530 points on February 10, 202016, 2023. As of February 27, 2024, the BDI stood at 1,899 points. China ending its “zero COVID” policy during 2023 did not result in increased demand of raw materials. In addition, port congestion eased at the majority of ports around the world and slowly recovered by year end. Following the increased flow of newbuilding vessels that entered the market during the early 2010's, the oversupply of capacity had a negative impact on the market as demand fordocking repairs and crew changes resumed to pre-pandemic levels. The global dry bulk commodities transfer was not able to absorb the flow of the vessels entering the market. Thecargo fleet deadweight carrying capacity for 20202023 increased by approximately 3.7%3%, which is significantlya lower fromrate of increase relative to the double digitsubstantial increases observed during the early 2000's2000s and from 2009 to 2012, while increase in demandmid-2010s. Global seaborne trade of dry bulk commodities is expected to increaseincreased by approximately 1 to 2%4%. The volatility in charter rates in the dry bulk market affects the value of dry bulk vessels, which follows the trends of dry bulk charter rates, and earnings on our charters, and similarly affects our earnings, cash flows and liquidity.
The tanker industry hasContainership Industry
Container shipping markets continued declining in 2023, particularly during the second half of 2023 following exceptional highs in 2022. Freight and charter rates remain weak on the back of an 8% increase in the deadweight carrying capacity of the world container fleet during 2023, which was effectively double the 4% increase experienced in 2022. Freight and charter rates were also varied significantly, with Aframax LR2 tanker spot rates peakingnegatively impacted in April 2020, according2023 due to BIMCO, before falling significantly in 2020severe pressure on the global box trade as a result of the global pandemic.weak macroeconomic outlook and elevated inflation rates, as well as the easing of port congestion and logistical disruptions. On the other hand, demand for seaborne container trade in 2023 saw a slight increase from 2022, increasing by 1.6% to 8,625 in billion-tonne miles in 2023 from 8,537 in billion tonne miles in 2022. The container freight markets have slightly strengthened since late December 2023 due to the rerouting of vessels away from the Red Sea and Gulf of Aden, which had a major impact as vessels that were trading on East-West routes are now completing their trades via longer alternative routes (through the Cape of Good Hope). This caused the average haul of container trade to rise by an estimated 9% since mid-December 2023.
Employment and operation of our Fleetfleet
A factor that impacts
The profitable employment of our
profitabilityfleet is
highly dependent on the levels of demand and supply in the shipping industries in which we operate, our commercial strategy including the decisions regarding the employment
mix of our fleet, as well as our managers’ ability to leverage our relationships with existing or potential customers. Our customer base is currently and
historically has been concentrated to a small number of charterers, in part due to the fact that we are a new entrant to the containership shipping industry. In particular, for the years ended December 31, 2023 and 2022, we derived 90% and 75%, respectively, of our dry bulk segment operating revenues from three charterers. Further, for the years ended December 31, 2023 and 2022, we derived 100% of our containership segment operating revenues from two and one charterers, respectively. See Note 1 to the consolidated financial statements included elsewhere in this Annual Report for further information regarding our charterer concentration.
The effective operation of our Fleet whichfleet 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 shoreon-shore 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 thesethe foregoing 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
We believe that important concepts and measures for analyzing trends in
Our management uses the following metrics to evaluate our operating results, including the operating results of operations includeour segments, and to allocate capital accordingly:
Total vessel revenues. Total vessel revenues are currently generated solely from time charters, though vessels have and may be employed under voyage charters in the following:
Ownership days. Ownership daysfuture. Vessels operating on fixed time charters for a certain period provide more predictable cash flows over that period. Total vessel revenues are the total number of calendar days in a period during which we owned our vessels. 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 after subtracting off-hire days associated with major scheduled repairs, vessel upgrades and dry-dockings or special or intermediate surveys and major unscheduled repair and positioning days (which do not include ballast voyage days for which compensation has been received by the Company). 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.
Fleet utilization. We calculate Fleet utilization by dividing the Available days during a periodaffected by the number of Ownership days during that period. Fleet utilization is used to measure a company's ability to efficiently find suitable employment for its vessels in our fleet, hire rates and minimize the number of days a vessel operates which, in turn, are affected by several factors, including the amount of time that itswe spend positioning our vessels, are off-hirethe amount of time that our vessels spend in dry dock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, and levels of supply and demand in the seaborne transportation market.
For a breakdown of vessel revenues for reasonsthe year ended December 31, 2023, please refer to Notes 3 and 14 to our consolidated financial statements included elsewhere in this Annual Report. For a description of time charters, refer to “Item 4. Information on the Company—B. Business Overview—Chartering of Our Fleet.”
Voyage expenses. Our voyage expenses primarily consist of 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 from time to time, such as majorfor bunkers, when positioning or repositioning vessels before or after the period of a time charter, during periods of commercial waiting time or while off-hire during dry docking or due to other unforeseen circumstances. 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 vessel upgrades, dry-dockings or special or intermediate surveysand maintenance, the cost of insurance, tonnage taxes, the cost of spares and consumable stores, lubricating oils costs, communication expenses, and other unforeseen events.expenses. Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic dry-docking. Our ability to control our vessels’ operating expenses also affects our financial results.
Management fees. Management fees include fees paid to related parties providing certain ship management services to our fleet as provided in the Ship Management Agreements.
Off-hire. The period a vessel in 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 Fleetvessels for inspection, repairs and maintenance and any modifications required 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.
Daily vessel operating expenses. The
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 unscheduled off-hire days 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 the Operating Days during a period by the number of Available Days during that period. Fleet operatingUtilization is used to measure a company’s ability to efficiently find suitable employment for its vessels.
Daily Time Charter Equivalent (“TCE”) Rate. The Daily Time Charter Equivalent Rate (“Daily TCE Rate”) is a measure of the average daily revenue performance of a vessel. The Daily TCE Rate is not a measure of financial performance under U.S. GAAP (i.e., it is a non-GAAP measure) and should 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 total revenues (time charter and/or voyage charter revenues, and/or pool revenues, net of charterers’ commissions), less voyage expenses, by the Ownership days for the relevantnumber of Available Days during that period.
Daily company administration expenses. Daily company administration expenses include administration expenses such as audit fees, legal fees, directors' insurance and remuneration, listing fees and other miscellaneous administration expenses, essential for the conduct of our business, and are calculated by dividing company administration expenses by the Ownership days for the relevant period.
Daily management fees. Daily management fees are calculated by dividing management fees by the Ownership days for the relevant time period and represent the fees payable to Castor Ships and Pavimar for managing our Fleet.
Time charter. A Under a time charter, is a contract for the use of a vessel for a specific period of time during which 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 or other charter, during periods of commercial waiting time or while off-hire during dry-docking or due to other unforeseen circumstances. Under voyage charters, the majority of voyage expenses are generally borne by us whereas for vessels in a pool, such expenses are borne by the pool operator. The Daily TCE Rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance and, management believes that the Daily TCE Rate provides meaningful information to our investors since it compares daily net earnings generated by our vessels irrespective of the mix of charter types (i.e., time charter, voyage expenses, including port charges, bunker expensescharter or other) under which our vessels are employed between the periods while it further assists our management in making decisions regarding the deployment and canal charges. The vessel owner pays the vessel operating expenses, which include crew costs, provisions, deckuse of our vessels and engine stores and spares, lubricants, insurance, maintenance and repairs. The vessel owner is also responsible for each vessel's dry-docking and intermediate and special survey costs. Time charter rates are usually fixed during the termin evaluating our financial performance. Our calculation of the charter. Prevailing time charter rates do fluctuate on a seasonal and year-to-year basis andDaily TCE Rates may not be substantially higher or lower from a prior time charter agreement when the subject vessel is seekingcomparable to renew the time charter agreement with the existing charterer or enter into a new time charter agreement with another charterer. Fluctuations in time charter rates are influencedthat reported by changes in spot charter rates.
Time charter equivalent ("TCE") Rate. Our method of calculating TCE rate is determined by dividing vessel revenues (time charter and/or voyage revenues, net of charterers' commissions and voyage expenses) by the Available days in the relevant period. Please see please see "Item 3. Key Information— A. Selected Financial Data" on the use by the Company of this Non-GAAP measure.
The following table presents the operational metrics that management uses to assess our financial condition and results of operations:
| | | 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 | |
_______________________
(1) For this definition see "Item 3. Key information—A. Selected Financial Data".
Results of Operations
Year ended December 31, 2020 as compared to year ended December 31, 2019
| (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 | | | | | | | | | |
Vessel revenues, net – Vessel revenues, net of charterers' commissions, increased by $6,519,920, or 109.3%, from $5,967,772 in the year ended December 31, 2019, to $12,487,692 in the corresponding period of 2020. This increase was exclusively driven by the addition of the M/V Magic Rainbow, the M/V Magic Horizon and the M/V Magic Nova to our Fleet in the third and fourth quarters of 2020, respectively, which correspondingly increased our Fleet Available days from 545 in the year ended December 31, 2019, to 1,219 in the year ended December 31, 2020, partly counterbalanced by the weaker charter hire rates achieved in certain charter renewals in the current year mostly for the M/V Magic P and the M/V Magic Sun as compared to last year, which we predominantly attribute to the negative impact of the ongoing COVID-19 pandemic. The average daily TCE of our Fleet for the year ended December 31, 2020 was $9,765, or 6.7% lower than the $10,471 earned during the same period ended December 31, 2019, mainly as a result of the weaker charter market rates achieved for certain prolonged periods in 2020 to the majority part of our fleet, but mostly those achieved during the year for the M/V Magic P and M/V Magic Sun, as previously discussed. TCE rate is a non-GAAP measure. Please refer to "Item 3. Key Information— A. Selected Financial Data"other companies. See below for a reconciliation of theDaily TCE rate to VesselTotal vessel revenues, net, the most directly comparable U.S. GAAP measure.
Voyage Expenses – Voyage
Daily vessel operating expenses. Daily vessel operating expenses consist primarily of brokerage commissions (including commissions from related parties, if any), port expenses, and gain/loss on bunkers. Gain/loss on bunkers may arise where the costare a measure of the bunker fuel soldaverage daily expenses of a vessel and are calculated by dividing vessel operating expenses for the relevant period by the Ownership Days for such period.
EBITDA. EBITDA is not a measure of financial performance under U.S. GAAP, does not represent and should not be considered as an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. We define EBITDA as earnings before interest and finance costs (if any), net of interest income, taxes (when incurred), depreciation and amortization of deferred dry-docking costs. EBITDA is used as a supplemental financial measure by management and external users of financial statements to assess our operating performance. We believe that EBITDA assists our management by providing useful information that increases the new charterer exceeds/falls shortcomparability of our operating performance from period to period and against the operating performance of other companies in our industry that provide EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, depreciation and amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. We believe that including EBITDA as a measure of operating performance benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our ongoing financial and operational strength. EBITDA as presented below may not be comparable to similarly titled measures of other companies. See below for a reconciliation of EBITDA to Net Income/(Loss), the most directly comparable U.S. GAAP measure.
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 cost ofCompany on a consolidated basis and per operating segment for 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 yearsyear ended December 31, 20192023, and 2020, was primarily attributabletheir comparative information (where applicable), and our consolidated EBITDA to (i) higher chargesthe most directly comparable GAAP measures for chartering brokerage commissions, consistent with our higherthe periods presented (amounts in U.S. dollars, except for share data, utilization and days).
Reconciliation of Daily TCE Rate to Total vessel revenues — Consolidated (continuing operations)
| | | Year Ended December 31, | |
| | | 2022 | | | 2023 | |
| Total vessel revenues | | $ | 150,216,130 | | | $ | 97,515,511 | |
| Voyage expenses - including commissions to related party | | | (3,721,277 | ) | | | (5,052,228 | ) |
| TCE revenues | | $ | 146,494,853 | | | $ | 92,463,283 | |
| Available Days | | | 7,175 | | | | 7,483 | |
| Daily TCE Rate | | $ | 20,417 | | | $ | 12,356 | |
Reconciliation of Daily TCE Rate to Total vessel revenues — Dry Bulk Segment
| | | Year Ended December 31, | |
| | | 2022 | | | 2023 | |
| Total vessel revenues | | $ | 148,930,997 | | | $ | 82,996,018 | |
| Voyage expenses - including commissions to related party | | | (3,649,944 | ) | | | (4,425,879 | ) |
| TCE revenues | | $ | 145,281,053 | | | $ | 78,570,139 | |
| Available Days | | | 7,105 | | | | 6,777 | |
| Daily TCE Rate | | $ | 20,448 | | | $ | 11,594 | |
Reconciliation of Daily TCE Rate to Total vessel revenues — Containership Segment
| | | Year Ended December 31, | |
| | | 2022 | | | 2023 | |
| Total vessel revenues | | $ | 1,285,133 | | | $ | 14,519,493 | |
| Voyage expenses - including commissions to related party | | | (71,333 | ) | | | (626,349 | ) |
| TCE revenues | | $ | 1,213,800 | | | $ | 13,893,144 | |
| Available Days | | | 70 | | | | 706 | |
| Daily TCE Rate | | $ | 17,340 | | | $ | 19,679 | |
Operational Metrics — Consolidated (continuing operations)
| | | Year Ended December 31, | |
| | | 2022 | | | 2023 | |
| Daily vessel operating expenses | | $ | 5,601 | | | $ | 5,583 | |
| Ownership Days | | | 7,367 | | | | 7,507 | |
| Available Days | | | 7,175 | | | | 7,483 | |
| Operating Days | | | 7,125 | | | | 7,433 | |
| Fleet Utilization | | | 99 | % | | | 99 | % |
| Daily TCE Rate | | $ | 20,417 | | | $ | 12,356 | |
| EBITDA | | $ | 91,790,822 | | | $ | 51,607,538 | |
Operational Metrics — Dry Bulk Segment
| | | Year Ended December 31, | |
| | | 2022 | | | 2023 | |
| Daily vessel operating expenses | | $ | 5,577 | | | $ | 5,441 | |
| Ownership Days | | | 7,297 | | | | 6,777 | |
| Available Days | | | 7,105 | | | | 6,777 | |
| Operating Days | | | 7,056 | | | | 6,727 | |
| Fleet Utilization | | | 99 | % | | | 99 | % |
| Daily TCE Rate | | $ | 20,448 | | | $ | 11,594 | |
Operational Metrics — Containership Segment
| | | Year Ended December 31, | |
| | | 2022 | | | 2023 | |
| Daily vessel operating expenses | | $ | 8,024 | | | $ | 6,900 | |
| Ownership Days | | | 70 | | | | 730 | |
| Available Days | | | 70 | | | | 706 | |
| Operating Days | | | 69 | | | | 706 | |
| Fleet Utilization | | | 99 | % | | | 99 | % |
| Daily TCE Rate | | $ | 17,340 | | | $ | 19,679 | |
Reconciliation of EBITDA to Net Income — Consolidated (continuing operations)
| | | Year Ended December 31, | |
| | | 2022 | | | 2023 | |
| Net Income | | $ | 66,540,925 | | | $ | 21,303,156 | |
| Depreciation and amortization | | | 18,535,237 | | | | 22,076,831 | |
Interest and finance costs, net (1) | | | 6,325,991 | | | | 8,049,757 | |
| Income taxes | | | 388,669 | | | | 177,794 | |
| EBITDA | | $ | 91,790,822 | | | $ | 51,607,538 | |
| (1) | Includes interest and finance costs and interest income, if any. |
Consolidated Results of Operations
Following the completion of the Spin-Off, the historical results of operations and (ii) $222,753the financial position of bunkerToro Corp. and the Aframax/LR2 and Handysize segments for periods prior to the Spin-Off are presented as discontinued operations. For information on our discontinued operations, see Note 3 to our consolidated financial statements included elsewhere in this Annual Report.
Yearended December 31, 2023, as compared to the year ended December 31, 2022
| (In U.S. Dollars, except for number of share data) | | Year ended December 31, 2022 | | | Year ended December 31, 2023 | | | Change- amount | | | Change % | |
| Total vessel revenues | | $ | 150,216,130 | | | $ | 97,515,511 | | | $ | 52,700,619 | | | | 35.1 | % |
| Expenses: | | | | | | | | | | | | | | | | |
| Voyage expenses (including commissions to related party) | | | (3,721,277 | ) | | | (5,052,228 | ) | | | 1,330,951 | | | | 35.8 | % |
| Vessel operating expenses | | | (41,259,554 | ) | | | (41,913,628 | ) | | | 654,074 | | | | 1.6 | % |
| Management fees to related parties | | | (6,562,400 | ) | | | (7,167,397 | ) | | | 604,997 | | | | 9.2 | % |
| Depreciation and amortization | | | (18,535,237 | ) | | | (22,076,831 | ) | | | 3,541,594 | | | | 19.1 | % |
| General and administrative expenses (including costs from related party) | | | (7,043,937 | ) | | | (5,681,371 | ) | | | 1,362,566 | | | | 19.3 | % |
| Net gain on sale of vessels | | | — | | | | 6,383,858 | | | | 6,383,858 | | | | 100 | % |
| Operating income | | $ | 73,093,725 | | | $ | 22,007,914 | | | $ | 51,085,811 | | | | 69.9 | % |
| Interest and finance costs, net | | | (6,325,991 | ) | | | (8,049,757 | ) | | | 1,723,766 | | | | 27.2 | % |
Other income (1) | | | 161,860 | | | | 7,522,793 | | | | 7,360,933 | | | | 4547.7 | % |
| Income taxes | | | (388,669 | ) | | | (177,794 | ) | | | 210,875 | | | | 54.3 | % |
| Net income and comprehensive income from continuing operations, net of taxes | | $ | 66,540,925 | | | $ | 21,303,156 | | | $ | 45,237,769 | | | | 68.0 | % |
| Net income and comprehensive income from discontinued operations, net of taxes | | $ | 52,019,765 | | | $ | 17,339,332 | | | $ | 34,680,433 | | | | 66.7 | % |
| Net income and comprehensive income | | $ | 118,560,690 | | | $ | 38,642,488 | | | $ | 79,918,202 | | | | 67.4 | % |
(1) Includes aggregated amounts for foreign exchange losses we incurred/ (gains), unrealized gains from equity securities and other income, as applicable in each period.
Total vessel revenues – Total vessel revenues decreased to $97.5 million in the year ended December 31, 2020, versus $127,9002023 from $150.2 million in the same period of bunker losses2022. This decrease was largely driven by the drop in prevailing charter rates of our dry bulk vessels. During the year ended December 31, 2023, our fleet earned on average a Daily TCE Rate of $12,356, compared to an average Daily TCE Rate of $20,417 earned during the same period in 2022. The decrease has been partly offset by the net increase in our Available Days from 7,175 days in the year ended December 31, 2019, mostly as a result of bunkers consumed during port stay, repositioning and/or deviation periods. The voyage expenses of our fleet, though, on a daily basis, were commensurate with the growth of our fleet since last year.
Vessel Operating Expenses – Vessel operating expenses increased by 165.7%, or $4,644,448,2022, to $7,447,439 during7,483 days in the year ended December 31, 2020, from $2,802,991 during2023, following the acquisition of the two containerships that were delivered to the Company in November 2022 as partly offset by the sale to unaffiliated third-parties of the (i) M/V Magic Rainbow on April 18, 2023, (ii) M/V Magic Twilight on July 20, 2023, (iii) M/V Magic Sun on November 14, 2023, (iv) M/V Magic Phoenix on November 27, 2023 and (v) M/V Magic Argo on December 14, 2023.
Voyage expenses – Voyage expenses increased by $1.3 million, to $5.0 million in the year ended December 31, 2019. On a daily basis, our2023, from $3.7 million in the corresponding period of 2022. This increase in voyage expenses is mainly associated with the decrease of gain on bunkers by $3.8 million and partly offset by: (i) decreased bunkers consumption and (ii) decreased brokerage commission expenses, corresponding to the decrease in vessel revenues discussed above.
Vessel operating expenses increased– The increase in operating expenses by $0.6 million to $41.9 million in the year ended December 31, 2023, from $5,041$41.3 million in 2019 to $5,301the same period of 2022 mainly reflects the increase in 2020. This increase was largely associated with (i) elevated crew costs for the vast majorityOwnership Days of our fleet resultingto 7,507 days in the year ended December 31, 2023, from difficulties and delays7,367 days in embarking and disembarking crew on our vessels amid the ongoing COVID-19 pandemic and, (ii) increasedsame period in 2022, partially offset by a decrease in repairs, spares and repair maintenance costs for certain of our vessels.
Management fees – Management fees in the M/V Magic Rainbow.
Management Fees – During the yearsyear ended December 31, 2019 and 2020, we incurred $212,300 and $930,5002023 amounted to $7.2 million, whereas, in the same period of 2022, management fees totaled $6.6 million. This increase in management fees respectively, oris due to (i) an average daily management feeincrease in the total number of $382 and $662, respectively. From January 1, 2020,Ownership Days following the daily management feeacquisition of the two containerships in late 2022, as offset by the sale of the dry bulk vessels then comprising our fleet was $500mentioned above and (ii) the adjustment of management fees under the terms of the Amended and Restated Master Management Agreement effected on July 1, 2023, from $925 per day and on September 1, 2020, we and Pavimar agreed to adjust the daily technical management fee of our fleet from $500vessel per day to $600$986 per vessel per day. In addition, effective September 1, 2020,On July 28, 2022, we payentered into an amended and restated master management agreement with Castor Ships, a daily commercialwith effect from July 1, 2022, (the “Amended and Restated Master Management Agreement”). Our vessel-owning subsidiaries each also entered into new ship management fee of $250. These are the main attributes to the increase in dailyagreements with Castor Ships. For further details on our management fees in 2020 as compared with the prior year, whereas, the gross increase is also attributed to the growth of our fleet and the resultant increase in our fleet's Ownership Days from 556 in 2019 to 1,405 in 2020.
General and Administrative Expenses
• | Company administration expenses
|
During the years ended December 31, 2019 and 2020, we incurred Company administration expenses of $378,777 and $1,130,953, respectively. Daily company administration expenses for each of the years ended December 31, 2019 and 2020 were $681 and $804, respectively. The $123 increase in daily administration expenses mainly stemmed from additional legal, investor relations, listing and directors' insurance fees, commensurate with the growth of our business, as well as the quarterly $0.3 million flat fee we pay Castor Ships effective September 1, 2020, in exchange for the management and administration of our business, further discussed under "Itemarrangements, see “Item 7. Major Shareholders and Related Party Transactions – —B. Related Party Transactions".Transactions—Management, Commercial and Administrative Services.”
• | Public registration costs
|
Public registration costs decreased by $132,091 or 100.0%, from $132,091 for year ended December 31, 2019 to $0 for the year ended December 31, 2020. Public registration costs relate to the costs incurred by 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 Capital 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. After the end of the first quarter of 2019, we did not incur nor do we expect to incur costs of similar nature.
Depreciation and Amortizationamortization – 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 forto $19.9 million in the year ended December 31, 2020 due to an2023 from $16.6 million in the same period of 2022. The increase by $3.3 million reflects the increase of $4.6 million in vessels' depreciation from $556,101 in 2019 to $1,750,434 in 2020expense as a result of the increase in the Ownership Days of our Ownership days whichfleet following the acquisition of the two containerships and was partlymainly offset by a lower dry-dockdecrease of $1.3 million in depreciation expense of the dry bulk vessels following the sale of dry bulk vessels discussed above. Dry-dock and special survey amortization charge of $154,529charges amounted to $2.2 million for the year ended December 31, 2020 versus2023, compared to a relevant charge of $341,070$2.0 million in the respective period of 2019. Dry-dock days did not significantly vary2022. This variation in dry-dock amortization charges primarily resulted from the increase in the yearsnumber of dry docks that our dry bulk vessels underwent throughout the year ended December 31, 20192022, which resulted in an increase in aggregate amortization days to 2,361 days in the year ended December 31, 2023, from 2,022 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 – The decrease in General and administrative expenses by $1.3 million, to $5.7 million in the year ended December 31, 2023, from $7.0 million in the same period of 2022 mainly reflects the decrease in professional fees by $2.1 million, which primarily related to the Spin-Off, partially offset by the increase in our administrative fees under the Amended and Restated Master Management Agreement by $1.0 million.
Net gain on sale of vessels - On April 18, 2023, we concluded the sale of the M/V Magic Rainbow which we sold, pursuant to an approximate costagreement dated March 13, 2023, for cash consideration of $1,100$12.6 million. The sale resulted in 2019, which explainsnet proceeds to the above noted variationCompany of $12.0 million and the Company recorded a net gain on the sale of $3.2 million. On July 20, 2023, we concluded the sale of the M/V Magic Twilight, sold pursuant to an agreement dated June 2, 2023 for cash consideration of $17.5 million. The sale resulted in net proceeds to the Company of $16.7 million and the Company recorded a large extent.net gain on the sale of $3.2 million. On November 14, 2023, we concluded the sale of the M/V Magic Sun, sold pursuant to an agreement dated October 6, 2023 for cash consideration of $6.55 million. The sale resulted in net proceeds to the Company of $6.3 million and the Company recorded a net gain on the sale of $0.7 million. On November 27, 2023, we concluded the sale of the M/V Magic Phoenix, sold pursuant to an agreement dated October 16, 2023 for cash consideration of $14.0 million. The sale resulted in net proceeds to the Company of $13.3 million and the Company recorded a net loss on the sale of $3.3 million. On December 14, 2023, we concluded the sale of the M/V Magic Argo, sold pursuant to an agreement dated September 22, 2023 for cash consideration of $15.75 million. The sale resulted in net proceeds to the Company of $15.3 million and the Company recorded a net gain on the sale of $2.6 million. Please also refer to Note 7 to our audited consolidated financial statements included elsewhere in this Annual Report.
Interest and finance costs, net – The increase by $1,964,027$1.7 million to $8.0 million in net interest and finance costs in the year ended December 31, 2020,2023, as compared with $6.3 million in the previoussame period of 2022, is mainly due to an increase in the weighted average interest rate on our debt from 5.1% in the year isended December 31, 2022, to 8.5% in the result ofyear ended December 31, 2023, partly offset by (i) an increase in interest we earned from time deposits due to increased interest rates and (ii) the level ofdrop in our weighted outstandingaverage indebtedness from approximately $3.5$130.4 million in 2019the year ended December 31, 2022 to approximately $20.2$116.2 million in 2020 (partly set-off, however,the year ended December 31, 2023.
Other income – Other income in the year ended December 31, 2023 amounted to $7.5 million and mainly includes (i) an unrealized gain of $5.1 million from revaluing our investments in listed equity securities at period end market rates, (ii) dividend income on equity securities of $1.3 million and (iii) dividend income of $1.2 million from our investment in the Toro Series A Preferred Shares. We did not hold any investment in equity securities during the year ended December 31, 2022.
Net income from discontinued operations – Net income from discontinued operations decreased by $34.7 million to $17.3 million in the lower level of 5.0% of weighted average interest during 2020period from January 1 through March 7, 2023, as compared to 5.8%$52.0 million in the year ended December 31, 2022. For an analysis of the amounts recorded in respect of discontinued operations in the period from January 1 through March 7, 2023, and in the year ended December 31, 2022, please also refer to Note 3 to our consolidated financial statements included elsewhere in this Annual Report.
Segment Results of Operations
Year ended December 31, 2023, as compared to the year ended December 31, 2022 —Dry Bulk Segment
| (in U.S. Dollars) | | Year ended December 31, 2022 | | | Year ended December 31, 2023 | | | Change- amount | | | Change % | |
| Total vessel revenues | | | 148,930,997 | | | | 82,996,018 | | | | 65,934,979 | | | | 44.3 | % |
| Expenses: | | | | | | | | | | | | | | | | |
| Voyage expenses (including commissions to related party) | | | (3,649,944 | ) | | | (4,425,879 | ) | | | 775,935 | | | | 21.3 | % |
| Vessel operating expenses | | | (40,697,898 | ) | | | (36,876,772 | ) | | | 3,821,126 | | | | 9.4 | % |
| Management fees to related parties | | | (6,481,000 | ) | | | (6,469,699 | ) | | | 11,301 | | | | 0.2 | % |
| Depreciation and amortization | | | (18,039,966 | ) | | | (16,689,989 | ) | | | 1,349,977 | | | | 7.5 | % |
| Net gain on sale of vessels | | | — | | | | 6,383,858 | | | | 6,383,858 | | | | 100.0 | % |
Segment operating income(1) | | | 80,062,189 | | | | 24,917,537 | | | | 55,144,652 | | | | 68.9 | % |
| (1) | Does not include corporate general and administrative expenses. See the discussion under “Consolidated Results of Operations” above. |
Total vessel revenues –Total vessel revenues for our dry bulk fleet decreased to $83.0 million in the year ended December 31, 2023 from $148.9 million in the same period of 2022. This decrease was largely driven by the weaker charter hire rates that our dry bulk fleet earned in the year ended December 31, 2023 as compared with those earned during 2019)the same period of 2022. This decrease during the year ended December 31, 2023 was due in part to our dry bulk fleet earning an average Daily TCE Rate of $11,594 during the year ended December 31, 2023, compared to an average Daily TCE Rate of $20,448 earned during the same period in 2022. The drop in revenues was also the result of the decrease in our Available Days from 7,105 days in the year ended December 31, 2022 to 6,777 days in the year ended December 31, 2023 following the sales of the (i) M/V Magic Rainbow on April 18, 2023, (ii) M/V Magic Twilight on July 20, 2023, (iii) M/V Magic Sun on November 14, 2023, (iv) M/V Magic Phoenix on November 27, 2023 and (v) M/V Magic Argo on December 14, 2023.
Voyage expenses – Voyage expenses increased to $4.4 million in the year ended December 31, 2023 from $3.7 million in the corresponding period of 2022. This increase in voyage expenses is mainly associated with the decrease of gain on bunkers partly counterbalanced by the (i) decreased bunkers consumption and (ii) decreased brokerage commission expenses, corresponding to the decrease in vessel revenues discussed above.
Vessel operating expenses – The decrease in operating expenses for our dry bulk fleet by $3.8 million, to $36.9 million in the year ended December 31, 2023, from $40.7 million in the same period of 2022, mainly reflects the decrease in repairs, spares and maintenance costs for certain of our dry bulk vessels and the decrease in Ownership Days due to the sale of the vessels mentioned above.
Management fees – Management fees for our dry bulk fleet amounted to $6.5 million in both the years ended December 31, 2023, and 2022, reflecting the adjustment of management fees under the terms of the Amended and Restated Master Management Agreement effective July 1, 2023, as offset by decreased Ownership Days due to the sale of the vessels mentioned above.
Depreciation and amortization – Depreciation expenses for our dry bulk fleet in the year ended December 31, 2023 and 2022 amounted to $14.8 million and $16.1 million, respectively. The decrease reflects (i) the decrease in the Ownership Days of our dry bulk segment days to 6,777 days in the year ended December 31, 2023, from 7,297 days in the same period in 2022, due to the sales of vessels described above and (ii) the non-cash recurringeffect of classifying the M/V Magic Moon, M/V Magic Venus and M/V Magic Orion as “held for sale”, as depreciation was not recorded during the period in which these vessels were classified as held for sale. Dry-dock and special survey amortization charges decreased to $1.9 million in the year ended December 31, 2023 from $2.0 million in the same period of 2022.
Net gain on sale of vessels – Refer to discussion under ‘Consolidated Results of Operations-Net gain on sale of vessels’ above for details on the sale of the M/V Magic Rainbow, M/V Magic Twilight, M/V Magic Sun, M/V Magic Phoenix and M/V Magic Argo.
Year ended December 31, 2023, as compared to period ended December 31, 2022— Containership Segment
| | | Period ended December 31, 2022 | | | Year ended December 31, 2023 | | | Change - amount | | | Change % | |
| Total vessel revenues | | | 1,285,133 | | | | 14,519,493 | | | | 13,234,360 | | | | 1,029.8 | % |
| Expenses: | | | | | | | | | | | | | | | | |
| Voyage expenses (including commissions to related party) | | | (71,333 | ) | | | (626,349 | ) | | | 555,016 | | | | 778.1 | % |
| Vessel operating expenses | | | (561,656 | ) | | | (5,036,856 | ) | | | 4,475,200 | | | | 796.8 | % |
| Management fees to related parties | | | (81,400 | ) | | | (697,698 | ) | | | 616,298 | | | | 757.1 | % |
| Depreciation and amortization | | | (495,271 | ) | | | (5,386,842 | ) | | | 4,891,571 | | | | 987.7 | % |
| Segment operating income | | | 75,473 | | | | 2,771,748 | | | | 2,696,275 | | | | 3,572.5 | % |
Total vessel revenues – Total vessel revenues for our containership segment amounted to $14.5 million in the year ended December 31, 2023, as compared to $1.3 million in the same period of 2022. This increase is mainly due to the increase in the Available Days of our containership segment to 706 days in the year ended December 31, 2023, from 70 days in the corresponding period in 2022, reflecting the acquisition of the M/V Ariana A and M/V Gabriela A on November 23, 2022 and November 30, 2022, respectively. During the year ended December 31, 2023, these two containerships earned an average Daily TCE Rate of $19,679 compared to an average Daily TCE Rate of $17,340 earned in the same period of 2022. During the period in which we owned them, both of our containerships were engaged in period time charters.
Voyage expenses – Voyage expenses for our containership segment increased to $0.6 million in connection withthe year ended December 31, 2023, from $0.1 million in the same period of 2022. This increase was mainly due to the increase in Ownership Days due to owning the containership vessels during the full fiscal year as opposed to part of the fiscal year. During the years ended December 31, 2023 and 2022, voyage expenses mainly comprised brokerage commissions.
Vessel operating expenses – Operating expenses for our existing credit facilitiescontainership segment increased to $5.0 million in the year ended December 31, 2023, from $0.6 million in the same period of 2022 as a result of the increase in Ownership Days of our containerships. During the years ended December 31, 2023 and 2022, operating expenses mainly comprised crew wages, spares, repairs and maintenance costs and lubricants’ consumption costs.
Management fees – Management fees for our containership segment increased to $0.7 million in the year ended December 31, 2023, from $0.1 million in the same period of 2022 as a result of the increase in Ownership Days and the non-cash acceleratedadjustment in management fees that was effected on July 1, 2023 pursuant to the terms of the Amended and Restated Master Management Agreement.
Depreciation and amortization – Depreciation expenses relatedfor our containership segment increased to deferred financing costs and to a beneficial conversion feature recognized$5.1 million in connection with our fully repaid, as ofthe year ended December 31, 2020, $5.0 Million Convertible Debentures aggregating2023, up from $0.5 million in the same period in 2022 as a result of the aforementioned increase in Ownership Days. Dry-dock amortization charges in the year ended December 31, 2023 and the same period of 2022 amounted to an amount$0.3 million and $0, respectively. The increase by $0.3 million relates to the M/V Ariana A,which underwent its dry-dock and special survey from middle of $1,131,524.
Recent Accounting Pronouncements
ReferApril 2023 up to "Note 2. Significant Accounting Policies" to our Consolidated Financial Statements included in this annual report.
Inflation
Inflation has not had a material effect on our expenses given recent economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating costs.
Currency Fluctuations
Refer to risk factor "Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results". Currency fluctuations have not had a material effect on our expenses.
Impact of Governmental Economic, Fiscal, Monetary or Political Policies
Refer to risk factor "Political instability, terrorist attacks, international hostilities and global public health threats can affect the seaborne transportation industry, which could adversely affect our business".
Implicationsof Being anthe Loss of Emerging Growth Company Status
We had less than $1.07 billion in revenue during our last fiscal year, which means that
On December 31, 2023, we areceased to be an "emerging“emerging growth company"company” (“EGC”) as defined in the Jumpstart Ourour Business Startups Act or JOBS Act. An emerging growth company may take advantage of specified2012. As such, we are no longer eligible for reduced disclosure requirements and exemptions available to EGCs and, among other things, will formally become subject to new accounting pronouncement effective dates for non-EGCs. However, we have determined that we are neither an accelerated filer nor a large accelerated filer (as such terms are defined under U.S. federal securities laws) and are therefore not required to obtain an attestation report from our independent registered public company reporting requirements that are otherwise applicable generally to public companies. These provisions include:
exemption from the auditor attestation requirement of management's assessment ofaccounting firm on the effectiveness of our internal control over financial reporting despite our loss of EGC status. We are nevertheless required to continue to comply with other SOX requirements regarding the emerging growth company'sestablishment and maintenance of adequate internal controls over financial reporting pursuantand the annual assessment by management of the effectiveness of such controls.
As a result of our loss of EGC status, we expect to incur additional legal, accounting, financial and other costs associated with being a public company that is not an EGC, including mandatory adoption of new accounting pronouncements. We may also incur costs associated with compliance with the requirements of additional disclosure requirements, including Section 404(b) of Sarbanes-Oxley; and exemption from compliancethe Sarbanes-Oxley Act in the event that we determine that we have become an accelerated filer or large accelerated filer, including in connection with
any new requirements adopted bySection 404(b) of the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the auditSarbanes-Oxley Act. Compliance with these provisions will likely incrementally increase our legal and financial statements.We may choose to take advantage ofcompliance costs and make some or all of these reduced reporting requirements. We may take advantage of these provisions until the end 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 earlieractivities more time that we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than $1.07 billion in "total annual gross revenues" during our most recently completed fiscal year, if we become a "large accelerated filer" with a public float of more than $700 million, as of the last business day of our most recently completed second fiscal quarter or as of any date on which we have issued more than $1 billion in non-convertible debt over the three-year period prior to such date. For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different from information provided by other public companies.
In addition, Section 107 of the JOBS Act 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.consuming and costly. See
“Item 3. "KeyKey Information—D. Risk Factors—Risks Relating to Our Common Shares—We arehave ceased to qualify as 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 shares less attractive to investors". As of October 1, 2018, we irrevocably elected to opt out of such extended transition period.incur increased costs as a result.”
| B. | Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES |
We operate in a capital-intensive industry, and we expect to finance the purchase of additional vessels and other capital expenditures through a combination of proceeds from equity offerings, borrowings fromin 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 additional vessels or businesses and maintaining cash reserves to hedge 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, 2020,2023, our principal sourcessource of funds were the net proceedswas cash from (i) the issuanceoperations. We have also issued equity as a source 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 debtfinancing, as discussed below under "Our“—Equity Transactions” and, in the past, we raised net proceeds from the secured debt that we incurred, as discussed below under “—Our Borrowing Activities".Activities.” As of December 31, 20202023 and December 31, 2019,2022, we had cash and cash equivalents of $8.9$111.4 million and $4.6$100.6 million (which excludes $0.5$9.5 million and $9.2 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, 2020,2023, we had a working capital surplus of $2.7$213.7 million as compared to a working capital surplus of $3.2$114.9 million as of December 31, 2019. 2022.
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,Annual Report, will be sufficient to fund the operations of our Fleet,fleet, meet our normal working capital and capital expenditures requirements and service the principal and interest on our debt.existing debt for that period and for the foreseeable future.
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 the incurrence of additional indebtedness, 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 business 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
We
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 financing and equity issuances. As of December 31, 2020,2023 and February 27, 2024, we had nodid not have any commitments for capital expenditures related to vessel acquisitions. As of the date of this annual report, remaining capital expenditure requirements relating to our recent vessel acquisitions amount to 26.7 million, all due within 2021. We expect to cover such capital expenditures with cash from operations and cash on hand.
In November 2018, we entered into a contract to purchase and install BWMS on our then owned dry bulk carriers, as further amended in October 2019 and December 2020, to reflect our subsequent vessel acquisitions. We completed the BWMS installation on the M/V Magic Sun during the vessel's scheduled dry-docking which took place in the fourth quarter of 2020, whereas, the BWMS system installations on the M/V Magic P and the M/V Magic Moon were granted extensions from the third quarter of 2020 to the third quarter of 2022. It is estimated that the aggregate contractual obligations related to all 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. We also expect to cover such cash flow needs with cash from operations and cash on hand.
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).contract. Such events could have a material adverse effect on our business, financial condition, and results of operations.operating results.
Equity IssuancesTransactions
On June 28, 2019, we entered into an equity distribution agreement, or the Equity Distribution Agreement, with Maxim acting as a sales agent, under which we may, from time to time, offer and sell shares of our common stock through an at-the-market, or ATM, program having an aggregate offering price of up to $10,000,000. As of December 31, 2020, we had raised gross and net proceeds (after deducting sales commissions and other fees and expenses) under the ATM of $2.6 million and $2.3 million, respectively, by issuing and selling 618,112 common shares. The net proceeds received under the ATM were used to partly finance the acquisition of the M/V Magic Moon. We have not incurred any further sales under the ATM program since September 2019.
On October 10, 2019, we reached an agreement with all of the holders of our Series A Preferred Shares to waive all due and overdue dividends and to adopt and to Amend and Restate the Statement of Designations of our Series A Preferred Shares, or the Series A Agreement. Pursuant to the Series A Agreement, on October 17, 2019, we issued 300,000 common shares to the holders of the Series A Preferred Shares in exchange for the waiver of approximately $4.3 million worth of dividends accumulated on the Series A Preferred Shares, for the period since their original issuance to June 30, 2019.
On January 27, 2020, we entered into a securities purchase agreement with YAII PN, LTD, pursuant to which we agreed to sell and the Investor agreed to purchase up to three convertible debentures for a maximum aggregate price of $5.0 million, further discussed below under "Our Borrowing Activities". During the period from January 2020 up until June 2020, the Investor had converted the full $5.0 million principal amount and $0.1 million of interest under the $5.0 Million Convertible Debentures for 8,042,078 common shares.
On June 23, 2020, we entered into an agreement with Maxim Group LLC (“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 havehad 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 and in accordance with the terms of the Class A Warrants, the exercise price of the Class A Warrants was reduced to $2.53. Refer to “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of the Class A Warrants” for further information.
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 havehad 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 and in accordance with the terms of the Private Placement Warrants, the exercise price of the Private Placement Warrants was reduced to $2.53. On October 6, 2023, we repurchased, in privately negotiated transactions with certain of these unaffiliated third-party warrantholders, 67,864 Private Placement Warrants for $0.105 per repurchased warrant, or an aggregate purchase price of $7,126. Following the repurchase, as of December 31, 2023, no Private Placement Warrants remain outstanding.
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 havehad 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 and in accordance with the terms of the April 7 Warrants, the exercise price of the April 7 Warrants was reduced to $5.53. Refer to “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of the April 7 Warrants” for further information.
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 up to the expiry date, 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 under the ATM Program.
On May 23, 2023, the Company, entered into an equity distribution agreement for an at-the-market offering, with Maxim, under which the Company may sell an aggregate offering price of up to $30.0 million of its common shares with Maxim acting as a sales agent over a minimum period of 12 months (the “New ATM Program”). No warrants, derivatives, or other share classes were associated with this transaction. As of December 31, 2023, the Company had received gross proceeds of $0.9 million under the New ATM Program by issuing 2,013,788 common shares. The net proceeds under the New ATM Program as of the same date, after deducting sales commissions and other transaction fees and expenses (advisory and legal fees), amounted to $0.6 million.
On August 7, 2023, we agreed to issue 50,000 Series D Preferred Shares to Toro for aggregate consideration of $50.0 million in cash. Please see “Item 10. Additional Information—B. Memorandum and Articles of Association”for more detailed description of the Series D Preferred Shares. During 2023, in connection with the Series D Preferred Shares, we paid $0.5 million of dividends to Toro. For more information, refer to “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of Series D Preferred Shares” and Note 10 of the consolidated financial statements included elsewhere in this Annual Report.
On October 6, 2023, we repurchased, in privately negotiated transactions with unaffiliated third-party warrantholders, 8,900,000 April 7 Warrants and 67,864 Private Placement Warrants for $0.105 per repurchased warrant, or an aggregate purchase price of $0.9 million. Following the repurchase, (i) 10,330,770 April 7 Warrants with an exercise price of $5.53, (ii) no Private Placement Warrants and (iii) 62,344 Class A warrants issued on June 26, 2020 with an exercise price of $2.53, remained outstanding, each exercisable for one common share of Castor.
Our Borrowing Activities
As of December 31, 2020,2023, we had $18.5$86.6 million of gross indebtedness outstanding under our debt agreements, comprising of which $7.2$69.8 million maturesof indebtedness related to our dry bulk segment, and $16.8 million of indebtedness related to our containership segment. Of this total figure, $20.5 million mature in the twelve-month period ending December 31, 2021.2024. Our contractualborrowing commitments, as of December 31, 2020, primarily relate2023, relating to debt and interest repayments of $20.0 million under our credit facilities amounted to $104.6 million, of which approximately $7.8$27.5 million mature in less than one year. The calculation of interest payments was made assuming interest rates based on the SOFR specific to our variable rate credit facilities as of December 31, 2023, and our applicable margin rate.
As of December 31, 2020,2023 and December 31, 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 August 30, 2019, we entered into a $5.0 million unsecured term loan with Thalassa Investment Co. S.A., or Thalassa, an entity affiliated with Petros Panagiotidis, or the $5.0 Million Term Loan Facility. The proceeds from the $5.0 Million Term Loan Facility were used to partly finance the acquisition of the M/V Magic Sun. The entire loan amount was drawn down on September 3, 2019. The $5.0 Million Term Loan Facility bears a fixed interest rate at 6.0% per annum and had an original bullet repayment on March 3, 2021, a date which was eighteen (18) months after the drawdown date. On March 2, 2021, the maturity of the $5.0 Million Term Loan Facility was extended for an additional six-month term on similar terms with those of the original loan agreement. The $5.0 Million Term Loan Facility may be prepaid in whole or in part at any time prior to its maturity, at our option. The $5.0 Million Term Loan Facility contains event of default provisions and covenants customary for unsecured facilities of this type, including, but not limited to, failure to pay, bankruptcy and insolvency, material litigation, change of business, as further set forth in the provisions of the $5.0 Million Term Loan Facility. The $5.0 Million Term Loan Facility does not impose any financial covenant requirements or other minimum liquidity restrictions on us.
Alpha Bank Facility - $11.0 Million Senior Secured Credit 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 wereBank. 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
instalmentsinstallments of $400,000 each, plus a balloon
instalmentinstallment of $3.0 million payable at maturity, on December 2, 2024.
On February 14, 2024, we entered into a first supplemental agreement with Alpha Bank, pursuant to which, with effect from April 3, 2023, SOFR replaced LIBOR as the reference rate under this facility and the margin was increased by a percentage of 0.045%, which was the equivalent of the positive difference as of April 3, 2023 between USD LIBOR and SOFR for the first rollover period commencing April 3, 2023 selected upon application of SOFR methodology. Such percentage will apply over the tenor of the loan going forward regardless of future rollover periods.
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 M/V Magic Moon and the M/V 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 facility.
On January 16, 2024, Alpha Bank Facility.entered into a deed of partial release, with respect to the M/V Magic Moon, releasing and discharging the underlying borrower and all securities created over the M/V Magic Moon in full after the settlement of the outstanding balance of $2.4 million.
Chailease Financial Services
$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.International”) 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. On June 21, 2023, the Company entered into an amendment agreement to its $4.5 million senior secured term loan facility with Chailease International and with effect from July 31, 2023, the interest rate was replaced by a replacement interest rate, comprised of Term SOFR, a credit spread adjustment of 0.11448% and the margin.
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 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.
$5.0 Million Convertible Debentures
On January 27, 2020, weNovember 14, 2023, Chailease International entered into a securities purchase agreementdeed of release, with the Investor, pursuant to which, on January 27, 2020, February 10, 2020 and February 19, 2020, we issued and soldrespect to the Investor three convertible debenturesM/V Magic Sun, releasing and discharging the underlying borrower and all securities created over the M/V Magic Sun in original principal amountsfull after the settlement of $2.0 million, $1.5 million and $1.5 million each, respectively. The $5.0 Million Convertible Debentures originally matured 12 months from their issuance dates and bore fixed interest at 6% per annum.the outstanding balance of $2.25 million. As of June 9, 2020, the Investor had converted the aggregate $5.0 million of principal and $0.1 million of interest due under the $5.0 Million Convertible Debentures for 8,042,078 common shares.December 31, 2023, this loan facility has been fully repaid.
$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. On July 3, 2023, the Company entered into an amendment agreement to this facility providing that, with effect from July 3, 2023, the LIBOR-based interest rate was replaced by a replacement interest rate, i.e. Term SOFR, and the margin.
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, 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 installment and bears interest at a 3.10% margin over LIBOR per annum. On July 3, 2023, the Company entered into an amendment agreement to its $40.75 million senior secured term loan facility with Hamburg Commercial Bank AG. With effect from July 3, 2023, the interest rate was replaced by a replacement interest rate, i.e. Term SOFR, and the margin.
The above facility contains a standard security package including first preferred mortgages on the vessels owned by the borrowers (the "Dry-dock Reserve Accounts"M/V Magic Thunder, M/V Magic Nebula, and M/V Magic Eclipse), 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.
On July 20, 2023, Hamburg Commercial Bank AG entered into a deed of partial release, with respect to the M/V Magic Twilight, releasing and discharging the underlying borrower and all securities created over the M/V Magic Twilight in full after the settlement of the outstanding balance of $7.91 million pertaining to M/V Magic Twilight’s tranche. The facility’s repayment schedule was adjusted accordingly.
$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 (“Chailease Singapore”). 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 installment and bears interest at a 4.00% margin LIBOR over annum.On May 23, 2023, the Company entered into an amendment agreement to this facility providing that, with effect from April 24, 2023, the LIBOR-based interest rate was replaced by a replacement interest rate, comprised of Term SOFR 1M, a credit spread adjustment of 0.11448% and the margin.
The above facility contains a standard security package including a first preferred mortgage on the vessels owned by the borrowers (the M/V Magic Rainbow and the M/V 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.
On April 18, 2023, Chailease Singapore entered into a deed of partial release with respect to the M/V Magic Rainbow, releasing and discharging the underlying borrower and all securities created over the M/V Magic Rainbow in full after the settlement of the outstanding balance of $6.95 million pertaining to M/V Magic Rainbow’s tranche. The facility’s repayment schedule was adjusted accordingly.
On November 27, 2023, Chailease Singapore entered into a deed of release, with respect to the M/V Magic Phoenix, releasing and discharging the underlying borrower and all securities created over the M/V Magic Phoenix in full after the settlement of the outstanding facility balance of $8.6 million. As of December 31, 2023, this facility has been repaid in full.
$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 installment 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 M/V Magic Starlight, the M/V Magic Mars,the M/V Magic Pluto,the M/V Magic Perseus, and the M/V 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.
Containership Segment Credit Facilities
$22.5 Million Term Loan Facility also requires maintenance
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. 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
minimum security cover ratio beingterm of five years from the
aggregatedrawdown 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 installments (installments 1 to 9 in the amount of
(i)$250,000, installments 10 to 12 in the
fair market valueamount 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 M/V Ariana A and the M/V 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 this type of facility and a certain minimum liquidity restriction requiring the borrowers to maintain a certain cash collateral vessels, (ii)deposit in an account held by the value of the Liquidity Accounts, (iii) the value of the Dry-dock Reserve Accounts and (iv) any additional security provided, over the aggregate principal amount outstanding of the loan.lender.
The Company intends to use the net proceeds from the $15.3 Million Term Loan Facility to support the Company's growth plans and for general corporate purposes.
Cash Flows
The following table summarizes our net cash flows fromprovided by/(used in) operating, investing, and financing activities and our cash, cash equivalents and restricted cash 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 | |
2023:
| | | For the year ended, | |
| (in U.S. Dollars) | | December 31, 2022 | | | December 31, 2023 | |
| Net cash provided by operating activities from continuing operations | | $ | 95,675,549 | | | $ | 22,183,365 | |
| Net cash used in investing activities from continuing operations | | | (75,525,774 | ) | | | (8,968,304 | ) |
| Net cash provided by/(used in) financing activities from continuing operations | | | 51,954,994 | | | | (2,141,740 | ) |
| Net cash provided by operating activities from discontinued operations | | | 28,077,502 | | | | 20,409,041 | |
| Net cash provided by/(used in) investing activities from discontinued operations | | | 11,788,681 | | | | (153,861 | ) |
| Net cash used in financing activities from discontinued operations | | | (3,050,000 | ) | | | (62,734,774 | ) |
| Cash, cash equivalents and restricted cash at beginning of period | | | 43,386,468 | | | | 152,307,420 | |
| Cash, cash equivalents and restricted cash at end of period | | $ | 152,307,420 | | | $ | 120,901,147 | |
Operating Activities: Activities (from continuing operations):
For the year ended December 31, 2020,2023, net cash used inprovided by operating activities of continuing operations amounted to $2.3$22.2 million, consisting of net income afterof $21.3 million, non-cash itemsadjustments related to depreciation and amortization of $1.1$22.1 million, lessaggregate gain on sales of the M/V Magic Rainbow, M/V Magic Twilight, M/V Magic Sun, M/V Magic Phoenix and M/V Magic Argo of $6.4 million, amortization of deferred finance charges of $0.9 million, amortization of fair value of acquired charters of $2.2 million, unrealized gain of $5.1 million from revaluing our investments in listed equity securities at period end market rates, payments related to dry-docking costs of $2.4 million and a decreasenet increase of $10.4 million in working capital, which is mainly derived from (i) decrease in accounts payable by $3.4$3.3 million, (ii) decrease in accrued liabilities by $1.9 million and (iii) increase in ‘Due from/to related parties’ by $4.5 million.
For the year ended December 31, 2019,2022, net cash provided by operating activities amounted to $2.3$95.7 million, consisting of net income afterof $66.5 million, non-cash itemsadjustments related to depreciation and amortization of $2.0$18.5 million, plus an increaseamortization of deferred finance charges of $0.7 million, amortization of fair value of acquired charters of $0.4 million, payments related to dry-docking costs of $3.2 million and a net decrease of $12.7 million in working capital, of $0.3 million. The major driver of thewhich mainly derived from (i) increase in accounts payable by $3.3 million, (ii) increase in accrued liabilities by $1.4 million and (iii) decrease in ‘Due from/to related parties’ by $7.6 million.
The $73.5 million decrease 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 impacted2023, as compared with the same period of 2022, reflects mainly the decrease in net income after non-cash items which was largely driven by (i) increased cash outflows related to dry-docking capitalized expensesthe deterioration of the charter rates earned by $1.3 millionthe dry vessels 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 duringour fleet.
Investing Activities (from continuing operations):
For the fiscal year ended December 31, 2020 as compared with the fiscal year ended December 31, 2019.
Investing Activities: Net2023, net cash used in investing activities
amounted to $9.0 million mainly reflecting the net cash outflows of $72.0 million associated with the purchase and sale of equity securities and $0.6 million used for other capital expenditures relating to our fleet, offset by the net proceeds from the sale of the M/V Magic Rainbow, M/V Magic Twilight, M/V Magic Sun, M/V Magic Phoenix and M/V Magic Argo of $63.6 million. Please also refer to Notes 9 and 7 to our audited consolidated financial statements included elsewhere in this Annual Report.
On June 30, 2023, we filed a Schedule 13G reporting that we beneficially own 1,391,500 shares of common stock of Eagle Bulk Shipping Inc. (“Eagle”), representing 14.99% of the fiscalissued and outstanding shares of common stock of Eagle as of June 23, 2023. Please refer to Note 9 to our audited consolidated financial statements included elsewhere in this Annual Report, for further information regarding our investment and to “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for a discussion of equity price risk associated with this investment.
For the year ended December 31, 20202022, net cash used in investing activities amounting to $75.5 million mainly reflects the cash outflows associated with (i) theour vessel acquisitions, of the M/V Magic Rainbow, the M/V Magic Horizon and the M/V Magic Nova as discussed in more detail in the thirddiscussion of consolidated and fourth quarters of 2020 and (ii) the BWMS installationssegmental operating results in our annual report on the M/V Magic P and the M/V Magic Sun. 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 from financing activities of $42.2 millionForm 20-F for the year ended December 31, 2020 consisted2022, filed with the SEC on March 8, 2023.
Financing Activities (from continuing operations):
For the year ended December 31, 2023, net cash used in financing activities amounted to $2.1 million, mainly relating to (i) $49.9 million of net proceeds following the issuance of Series D Preferred Shares to Toro, (ii) $2.7 million cash reimbursement from Toro relating to the Spin-Off expenses incurred by us on Toro’s behalf during 2022 and up to the completion of the Spin-Off and (iii) $0.6 million of net proceeds under our at-the-market common share offering program dated May 23, 2023, as offset by (i) the net cash proceeds received pursuant to the June Equity Offering and the July Equity Offering amounting to $35.3$53.9 million (ii) proceeds of $9.5 million in the period from the $5.0 Million Convertible Debentures and the Chailease Financial Services Facility, (iii)scheduled principal scheduled repayments under our existing secured credit facilities amountingand early prepayments due to $2.0sale of vessels, (ii) the $0.9 million of warrants repurchase and (iii) $0.5 million of dividends paid relating to Series D Preferred Shares. Please also refer to Notes 4, 8 and 10 to our audited consolidated financial statements included elsewhere in this Annual Report for a more detailed discussion.
For the year ended December 31, 2022, net cash provided by financing activities amounted to $51.9 million and (iv) paymentrelates 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 8 to our consolidated financial statements included elsewhere in this Annual Report), as mainly offset by (i) $24.5 million of deferred finance costsperiod scheduled principal repayments under our existing secured credit facilities and (ii) $0.1 million of expenses paid in connection with the closing of our debt agreements in an aggregate amount of $0.6 million.ATM Program.
| C. | Research and Development, Patents and Licenses, Etc.RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. |
Not applicable.
| D. | Trend InformationTREND INFORMATION |
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 vesselscontainerships are primarily a function of the underlying balance between vessel supply and demand. For a discussion regarding the market performance, please see "Item 5. Operating and Financial Review and Prospects—“—A. Operating Results—Hire Rates and Cyclical Nature of the Industry".Industry.”
While global trade is likely to continue to grow, we expect the overcapacity in the shipping market to come to a stop and, therefore, no longer exert the considerable pressure that it did on charter rates in recent years.
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,
Furthermore, 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 the COVID-19 pandemic. The Company isconflict 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, such as grain, shifts in the trading patterns and transit routes for such products which may continue into the future. In addition, since November 2023, vessels in and around the Red Sea have faced an increasing number of attempted hijackings and attacks by drones and projectiles launched from Yemen, which armed Houthi groups have claimed responsibility for. Refer to “Item 3. Key Information—D. Risk Factors—Geopolitical conditions, such as political instability or conflict, terrorist attacks and international hostilities can affect the seaborne transportation industry, which could adversely affect our business” for further details.
We are currently unable to reasonably predict with reasonable certainty the estimated length or severitypotential effects of the COVID-19 pandemicongoing conflict in Ukraine or the Middle East, including due to the attacks on vessels described above, on our future business, financial condition, cash flows or operating results and these events could have a material adverse effect on any of the foregoing.
Furthermore, many economies worldwide have experienced inflationary pressures during 2023 and as of the date of this Annual Report. For further information, see “Item 3. Key Information—D. Risk Factors—We are exposed to fluctuating demand, supply and prices for commodities (such as iron ore, coal, grain, soybeans and aggregates) and consumer and industrial products, and may be affected by changes in the demand for such commodities and/or products and the volatility in their prices due to their effects on supply and demand of maritime transportation services.” Such inflationary pressures and disruptions could adversely impact our operating costs and demand and supply for products we transport. It remains to be seen whether inflationary pressures will continue, and to what degree. Interventions in the economy by central banks in response to inflationary pressures may slow down economic activity, reducing demand for products we carry, and cause a reduction in trade. As a result, the volumes of products we deliver and/or charter rates for our vessels may be affected. These factors could have an adverse effect on our business, financial condition, cash flows and operating results.
| E. | Off Balance Sheet ArrangementsCRITICAL ACCOUNTING ESTIMATES |
As
Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of December 31, 2020, we did notestimation uncertainty and have any off-balance sheet arrangements.
F. | Tabular Disclosure of Contractual Obligations |
The following table sets forthhad or are reasonably likely to have a material impact on our contractual obligations and their maturity dates asfinancial condition or results of December 31, 2020:
| | | | | | 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 | | | $ | - | |
__________________________
(1) | Our variable rate long-term debt outstanding as of December 31, 2020 bears variable interest at a margin over LIBOR. The calculation of interest payments has been made assuming interest rates based on the LIBOR specific to our variable rate credit facilities as of December 31, 2020, and our applicable margin rate. |
(2) | For further discussion on our contractual relationship with our managers, please see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions". |
(3) | Our calculation of the contractual obligations related to BWMS purchases as of December 31, 2020 excludes installation costs and other unforeseen costs that we might incur as part of the systems' installation and has been made on the basis of a Euro/US Dollar exchange rate of €1.0000/$1.2271 as of December 31, 2020. For further discussion regarding the respective commitments, please see section Capital Expenditures above. |
Please see "Cautionary Statement Regarding Forward Looking Statements" at the beginning of this annual report.
Critical Accounting Estimates
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. Summary of Significant Accounting Policies"Note 2to our consolidated financial statements included elsewhere in this Annual Report.
Investment in related party
As discussed in Note 4 of our
Consolidated Financial Statements.consolidated financial statements included herein, as part of the Spin-Off Castor received 140,000 Toro Series A Preferred Shares. The Company is the holder of all of the issued and outstanding Toro Series A Preferred Shares. Our investment in related party does not have a readily determinable fair value and, upon acquisition, we elected the measurement alternative to value these securities. Accordingly, the equity securities are carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments of the same issuer. The fair value of our
dry bulk vesselsinvestment in the Toro Series A Preferred Shares at their
cost (which includesissuance were determined through Level 3 of the
contract price plus any direct expenses incurred upon acquisition,fair value hierarchy as defined in FASB guidance for Fair Value Measurements (ASC 820), as they are derived by using significant unobservable inputs. Determining the fair value of the investment in equity securities requires management to make judgments about the valuation methodologies, including
improvements, delivery expensesthe unobservable inputs and other
expenditures to prepareassumptions and estimates, which are significant in the
vessel for its initial voyage) less accumulated depreciation. 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. Depreciation is calculated on a straight-line basis over the vessels' remaining economic useful life, estimated to be 25 years from the date of initial delivery from the shipyard, after considering the estimated residual value. Residualfair value
is estimated by taking an estimated steel scrap rate times the weightmeasurement of the
ship noted in lightweight ton. Residual values are periodically reviewed and revised, if needed, to recognize changes in conditions, new regulations or for other reasons. Changes ininvestment. For the
useful life of a vessel or in its residual value affect the depreciable amountestimation of the
vessels and affect the depreciation expense in the periodfair values of the
revisioninvestment in this equity instrument we used the Black & Scholes and
the discounted cash flow model, as applicable, and we also used significant unobservable inputs which are sensitive in
future periods. Our vessels, being secondhand vessels, are depreciated from the date of their acquisition through their remaining estimated useful life. The assumptions inherent in the calculation of vessels' depreciation are based on currentnature and
historical market trends. We do not expect these assumptionssubject to
change in the near future unless market trends will indicate otherwise. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the dateuncertainty, such
regulations become effective.as expected volatility.
Vessel Lives and Impairment
The carrying value of each of our vessels represents its original cost (contract price plus any direct expenses incurred upon acquisition, including improvements, delivery expenses and other expenditures to prepare the vessel for its intended use) at the time of delivery or purchase less accumulated depreciation. 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.
The Company reviews for impairment on 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) the carrying value of each of our vessels as of December 31, 2020 and 2019 and (ii) which of those vessels we believe had a charter-free market value below its carrying value. We believe that the aggregate carrying value of the vessels indicated with an asterisk below exceeded their aggregate basic charter-free market value by approximately $0.8 million as of December 31, 2020. This aggregate difference represents the approximate analysis of the amount by which we believe we would have to reduce our net loss 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.
Our estimates of basic market value assume that the vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified in class without notations of any kind. Our estimates are based on the estimated market values for the vessels received from a third-party independent shipbroker approved by our financing providers. Vessel values are highly volatile. Accordingly, as such, our estimates may not be indicative of the current or future basic market value of the vessels or prices that could be achieved if the vessels were to be sold.
| 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 | |
______________________
The table below specifies the carrying value of our vessels as of December 31, 2023 and 2022 and identifies using an “*” vessels that had a charter-free market value below their carrying value.
As of December 31, 2023, the aggregate carrying value, including, where applicable, the value of related intangible assets, of the M/V Magic Callisto, M/V Ariana A and M/V Gabriela A was $23.7 million more than their fair market value, 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 income as of December 31, 2023 if we sold all of such vessels 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 as at December 31, 2023. As of December 31, 2022, four of our vessels had a charter-free market value below their carrying value. As of December 31, 2022, the aggregate carrying value, including, where applicable, the value of related intangible assets of these four vessels was $22.9 million more than their fair market value, based on broker quotes.
| Vessels | Date acquired | | Carrying value as of December 31, 2023 (in millions of United States dollars) | | | Carrying value as of December 31, 2022 (in millions of United States dollars) | |
| M/V Magic P | 02/21/2017 | | $ | 6.2 | | | $ | 6.6 | |
| M/V Magic Sun | 09/05/2019 | | $ | - | | | $ | 5.9 | |
| M/V Magic Moon | 10/20/2019 | | $ | 8.8 | | | $ | 9.0 | |
| M/V Magic Rainbow | 08/08/2020 | | $ | - | | | $ | 8.3 | |
| M/V Magic Horizon | 10/09/2020 | | $ | 10.9 | | | $ | 11.6 | |
| M/V Magic Nova | 10/15/2020 | | $ | 11.8 | | | $ | 12.4 | |
| M/V Magic Venus | 03/02/2021 | | $ | 14.0 | | | $ | 14.7 | |
| M/V Magic Orion | 03/17/2021 | | $ | 15.4 | | | $ | 16.3 | |
| M/V Magic Argo | 03/18/2021 | | $ | - | | | $ | 13.3 | |
| M/V Magic Twilight | 04/09/2021 | | $ | - | | | $ | 13.8 | |
| M/V Magic Thunder | 04/13/2021 | | $ | 14.9 | | | $ | 15.7 | |
| M/V Magic Vela | 05/12/2021 | | $ | 13.4 | | | $ | 14.1 | |
| M/V Magic Nebula | 05/20/2021 | | $ | 13.8 | | | $ | 14.6 | |
| M/V Magic Starlight | 05/23/2021 | | $ | 21.0 | | | $ | 22.0 | |
| M/V Magic Eclipse | 06/07/2021 | | $ | 16.3 | | | $ | 17.2 | |
| M/V Magic Pluto | 08/06/2021 | | $ | 19.3 | | | $ | 20.3 | |
| M/V Magic Perseus | 08/09/2021 | | $ | 19.6 | | | $ | 20.6 | |
| M/V Magic Mars | 09/20/2021 | | $ | 18.8 | | | $ | 19.6 | |
| M/V Magic Phoenix | 10/26/2021 | | $ | - | | | $ | 17.6* | |
| M/V Magic Callisto | 01/04/2022 | | $ | 21.2* | | | $ | 22.4* | |
| M/V Ariana A | 11/23/2022 | | $ | 21.5* | | | $ | 23.9* | |
| M/V Gabriela A | 11/30/2022 | | $ | 20.9* | | | $ | 23.5* | |
| Total | | | $ | 267.8 | | | $ | 343.4 | |
* Indicates vessels for which we believe that, as of December 31, 2020, the2023 and 2022, 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, 20202023 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.
We performed undiscounted cash flow tests as
As of December 31, 2020, as2023, 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 unamortized dry-docking costs. The difference, if any, between the carrying amount of the vessel plusestimated unamortized dry-docking costs and theirthe unamortized portion of any intangible asset and/or liability. In the event that the net operating undiscounted cash flows are less than the carrying value of the vessels and the associated unamortized dry-docking cost and intangible asset and/or liability, if any, then the vessel is written down to its fair value and an impairment loss is recognized in the Company's accounts as impairment loss.recorded.
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:
in accordance with
our secondhand vessels are depreciated from the prevailing industry standard, depreciation is calculated using andate of their acquisition through their remaining estimated useful life. We estimate the full useful life of vessels to be 25 years for our vessels, commencing atfrom the date the vessel was originally deliveredof 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; and
•
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;
• it includes at least one market cycle; and
• respective data series are adequately populated.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 remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in our depreciation calculations.
The impairment test that we conduct, when required, is most sensitive to variances in future time charter rates. Based on the sensitivity analysis performed for December 31, 2020,2023, we would begin recording impairment loss on the first vessel, that will incur impairment if time charter declines by 7%6% 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, 2020.2023.
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | Directors and Senior ManagementDIRECTORS AND SENIOR MANAGEMENT |
Set forth below are the names, ages and positions of our directors and executive officer. Our Board currently consists of three directors and iswho are elected annually on a staggered basis, and eachbasis. Each director elected holds office for a three-year term.until the third succeeding annual general meeting from their election. 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 | | 31 | 33 | | Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer and Class C Director |
| Dionysios Makris | | 40 | 43 | | Secretary and Class B Director |
| Georgios Daskalakis | | 31 | 34 | | Class A Director |
Certain biographical information with respect to each director and senior management of the Company listed above is set forth below.
Petros Panagiotidis, Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer and Class C Director
Petros Panagiotidis is the founder of Castor Maritime Inc. He has been serving as the Company’s Chairman of the Board, Chief Executive Officer and Chief Financial Officer since our inception in 2017. During his years with Castor Maritime he has been actively engagedMr. Panagiotidis played a key role 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, he gained extensive experience workingWith his expertise in shipping and investment banking positions focused on operations, corporate financeextensive experience in capital markets he navigates the Company’s strategic path and business management.overall management, driving operational excellence and ensuring sustainable growth. Additionally, Mr. Panagiotidis is the Chief Executive Officer of Toro Corp. He holds a bachelor’sBachelor’s degree in International Studies and Mathematics from Fordham University and a Master’s Degreedegree in Management and Systems from the New York University. In 2023 Mr. Panagiotidis received the Lloyd’s List Next Generation Shipping Award in recognition for his achievements within the maritime sector.
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.
71Board Diversity Matrix
As a foreign private issuer listed on the Nasdaq, we disclose directors’ diversity characteristics as per Nasdaq listing rules. We follow home country best practice regarding our board composition. We identify and nominate our directors based on their qualifications and ability regardless of factors such as sex, race, gender, religion and nationality. We remain committed to evaluating the composition of our Board and enhancing its diversity in line with best practice.
The Board Diversity Matrix set forth below contains the requisite information for the Company as of February 27, 2024.
| | Board Diversity Matrix |
| | | As of February 27, 2024 | As of December 31, 2023 |
| | Country of Principal Executive Offices | Cyprus | Cyprus |
| | Foreign Private Issuer | Yes | Yes |
| | Disclosure Prohibited Under Home Country Law | No | No |
| | Total Number of Directors | 3 | 3 |
| | | Female | Male | Non- Binary | Did Not Disclose Gender | Female | Male | Non-Binary | Did Not
Disclose Gender |
| | Part I: Gender Identity | | | | | | | | |
| | Directors | 0 | 3 | 0 | 0 | 0 | 3 | 0 | 0 |
| | Part II: Demographic Background | | |
| | Underrepresented Individual in Home Country Jurisdiction | 0 | 0 |
| | LGBTQ+ | 0 | 0 |
| | Did Not Disclose Demographic Background | 0 | 0 |
| B. | CompensationCOMPENSATION |
Compensation of Directors
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, 2023, are included in our master agreementthe Amended and Restated Master Management 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, 2020,2023, 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. | Board PracticesBOARD PRACTICES |
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 oruntil the third succeeding annual general meeting from their election and 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,September 1, 2023, our shareholders re-elected our Class C director to serve until the annual meeting of shareholders to be held in 2023 and approved the granting2026. The term of discretionary authority to our Board to effect one or more reverse stock splitsoffice of our issued common shares,Class B director expires at a ratiothe annual meeting 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 ratioshareholders to be set at a whole number within this range to be determined byheld in 2025, and 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.
As
We have no employees. Our vessels are commercially and technically managed by Castor Ships. For further details, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Management, Commercial and Administrative Services.”
| E. | Share OwnershipSHARE OWNERSHIP |
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 and Series D 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 |
72
Not applicable.
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| A. | Major ShareholdersMAJOR SHAREHOLDERS |
Based on information available to us, including information contained in public filings, as of March 26, 2021,February 27, 2024, 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.February 27, 2024.
All of our common shareholders are entitled to one vote for each common share held.
The percentage of beneficial ownership is based on 707,157,93696,623,876 common shares outstanding as of March 26, 2021.February 27, 2024.
| 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, holdholds more than 1% of our outstanding common shares. |
(2)
| (2) | By virtue of his control of Thalassa, our Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis, owns 1,124,094is the ultimate beneficial owner of 112,409 common shares and 12,000 Series B Preferred Shares (representing all such Series B Preferred Shares outstanding, each Series B Preferred Share having the voting power of one hundred thousand (100,000)100,000 common shares). Mr. Panagiotidis therefore beneficially owns 0.12% of our total issued and outstanding share capital and controls 92.6% of the aggregate voting power of the Company’s total issued and outstanding share capital as of February 27, 2024. Please 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. |
All of our common shareholders are entitled to one vote for each common share held. As of February 27, 2024, there were eight holders of record of our common shares which have a U.S. mailing address. One of these holders is Cede & Co., a nominee company for The Depository Trust Company, which held approximately 99.85% of Castor’s outstanding common shares as of the same date. The beneficial owners of the common shares held by Cede & Co. may include persons who reside outside the United States.
| B. | Related Party TransactionsRELATED PARTY TRANSACTIONS |
From time to time, we have entered into agreements and have consummated transactions with certain related parties. We may enter into related party transactions from time to time in the future.
Management, Commercial and Administrative Services
Our vessels are technically managed by Pavimar,
During the period from September 1, 2020 (being the initial effective date of the Castor Ships Management Agreements (as defined below)) 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 with Fleet(the “Commercial Ship Management Inc. ("Fleet Ship"Agreements”), 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.
Our vessels are commercially managed by Castor Ships
a company controlled by our Chairman, Chief Executive Officer and Chief Financial Officer.(together, the “Castor Ships Management Agreements”), Castor Ships
managesmanaged our business
overall and
provides us withprovided commercial
ship management, chartering and administrative services
including, but not limited to
securing employment for our Fleet, arranging and supervising the vessels' commercial operations, handling all of the Company's vessel sale and purchase transactions, undertaking related shipping project and management advisory and support services, as well as other associated services requested from time to time by us and our
ship-owningvessel owning subsidiaries.
InDuring the abovementioned period, in exchange for
theseCastor Ship’s services, we
and our subsidiaries paypaid Castor
Ships Ships: (i) a flat quarterly management fee in the amount of $0.3 million for the management and administration of ourthe Company’s business, (ii) a daily fee of $250 per vessel for the provision of commercialthe services under the Commercial Ship Management Agreements, (iii) a commission rate of 1.25% on all charter agreements arranged by Castor Ships and (iv) a commission of 1% on each vessel sale and purchase transaction. The following is a summary of the Amended and Restated Master Management Agreement and is qualified in its entirety by reference to the full text of the relevant agreement, which is attached as an exhibit hereto and incorporated by reference into this Annual Report. Refer to Note 4 to the consolidated financial statements included elsewhere in this Annual Report for further information. Effective July 1, 2022, we and each of our 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 our 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 existing Castor Ships Management Agreements. Pursuant to the Amended and Restated Master Management Agreement, Castor Ships manages our overall business and provides our 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 our 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 cybersecurity and general corporate and administrative services, among other matters, which it may choose to subcontract to other parties at its discretion. Castor Ships shall generally not be liable to us 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 our recovery will be limited to two times the Flat Management Fee, as defined below). Notwithstanding the foregoing, Castor Ships shall in no circumstances be responsible for the actions of the crews of our vessels. We have also agreed to indemnify Castor Ships in certain circumstances. Under the terms of the Amended and Restated Master Management Agreement, our shipowning subsidiaries have also entered into separate management agreements appointing Castor Ships as commercial and technical manager of their vessels (collectively, the “Ship Management Agreements”).
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. The Ship Management Fee and Flat Management Fee are adjusted annually on each anniversary under the terms of the Amended and Restated Master Management Agreement’s effective date. As a result and effective July 1, 2023, the Ship Management Fee for the dry bulk vessels and containerships increased from $925 per vessel per day to $986 per vessel per day and the Flat Management Fee increased from $0.75 million to $0.8 million. 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 was paid the residual amount of $325 in the first half of 2022 and $386, effective from July 1, 2023. The Company may also reimburse 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 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 dry bulk vessels. In late January 2023, Castor Ships transferred the technical management of our containership vessels from Pavimar to a third-party ship management company, which continues to provide technical management services to such vessels as of February 27, 2024. 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.
Pavimar
From our inception until 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 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 operations on the industries we currently operate in 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 Toro’s board determines to do so.
Mr. Panagiotidis will continue to devote such portion of his business time and attention to our business as is appropriate and will also continue to 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. 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 9,461,009 common shares of Toro, 140,000 Toro Series A Preferred Shares 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 then 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 shareholders 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 Toro 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 borne solely by Toro and we shall pay any transfer taxes and fees and expenses of its counsel relating to a sale of Registrable Securities. These registration rights shall terminate on (i) the date occurring after the seventh anniversary of the original issue date of the Toro Series A Preferred Shares on which Castor owns no Registrable Securities or (ii) if earlier, the date on which we own no Toro 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 Amended and Restated Master Management Agreement and entered into a master management agreement with Toro and Castor Ships with substantially similar terms to the Amended and Restated Master Management Agreement. 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 reimbursed us $2,694,646 for transaction expenses that we incurred in relation to the Spin-Off. As of December 31, 2023, there were no outstanding expenses to be reimbursed to us by Toro under the Contribution and Spin-Off Distribution Agreement.
Investment in Toro
In connection with the Spin-Off, Toro issued 140,000 Toro Series A Preferred Shares to Castor. Dividends are payable quarterly in arrears on the 15th day of January, April, July and October in each year, subject to Toro’s board of directors’ approval. For each quarterly dividend period commencing on or after the reset date (the seventh anniversary of the issue date of the Toro Series A Preferred Shares), the dividend rate will be the dividend rate in effect for the prior quarterly dividend period multiplied by a factor of 1.3, provided that the management feesdividend rate will not exceed 20% per annum in respect of any quarterly dividend period. As of December 31, 2023, Toro paid to Castor a dividend amounting to $0.8 million on the Toro Series A Preferred Shares for the period from March 7, 2023 to October 14, 2023.
The Toro Series A Preferred Shares do not have voting rights. The Toro Series A Preferred Shares are convertible into common shares at the Company’s option commencing upon the third anniversary of the issue date until but excluding the seventh anniversary, at a conversion price equal to the lesser of (i) 150% of the VWAP of Toro common shares over the five consecutive trading day period commencing on the distribution date, and (ii) the VWAP of Toro common shares over the 10 consecutive trading day period expiring on the trading day immediately prior to the date of delivery of written notice of the conversion, provided, that, in no event shall the conversion price be less than $2.50. In connection with the Spin-Off, we obtained certain registration rights in connection with the Toro Series A Preferred Shares, as described under “—Contribution and Spin-Off Distribution Agreement.”
This transaction and its terms were approved by the independent members of the board of directors of each of Castor and the Company at the recommendation of their respective special committees comprised of independent and disinterested directors, which negotiated the transaction and its terms.
Issuance of Series D Preferred Shares and Dividends to Toro
On August 7, 2023, Castor entered into a share purchase agreement with Toro (the “Series D Purchase Agreement”) pursuant to which we agreed to issue and sell 50,000 newly designated Series D Preferred Shares to Toro for aggregate cash consideration of $50.0 million. The Series D Preferred Shares were issued in a private placement pursuant to Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder. The following description of the Series D Purchase Agreement does not purport to be complete and is subject to
and qualified in its entirety by reference to the Series D Purchase Agreement, which is included as an
annual reviewexhibit to this Annual Report and is incorporated by reference herein.
The Series D Purchase Agreement contains customary representations, warranties, and covenants of each party. We granted Toro certain registration rights with respect to the Series D Preferred Shares and the common shares issuable upon conversion thereof.
The distribution rate on the Series D Preferred Shares is 5.00% per annum, which rate will be multiplied by a factor of 1.3 on the seventh anniversary of the issue date of the Series D Preferred Shares and annually thereafter, subject to a maximum distribution rate of 20% per annum in respect of any quarterly dividend period. Dividends on the Series D Preferred Shares are payable quarterly in arrears on the 15th day of January, April, July and October in each year, subject to approval by the Board. The first payment date occurred on October 16, 2023 and we paid a dividend on the Series D Preferred Shares to Toro amounting to $0.5 million. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of Series D Preferred Shares” for a full description of the Series D Preferred Shares.
This transaction and its terms were approved by the independent members of the board of directors of each of Castor and Toro at the recommendation of their anniversary.respective special committees comprised of independent and disinterested directors, which negotiated the transaction and its terms.
Vessel AcquisitionDisposals and Acquisitions
The following descriptions do not purport to be complete and are subject to and qualified in their entirety by reference to the Form of Memorandum of Agreement for Vessel Sale, which is included as an exhibit to this Annual Report and is incorporated by reference herein.
On October 14, 2019,26, 2022, we, through two of our wholly owned subsidiaries, entered into through atwo separate wholly-owned subsidiary, an agreementagreements for each to purchaseacquire a 2005 Japan built Panamax dry bulk carrier,German-built 2,700 TEU containership vessel, from two separate entities beneficially owned by family members of our Chairman, Chief Executive Officer and Chief Financial Officer. The purchase price for the Magic Moon, for avessel agreed to be acquired by the first of the two subsidiaries, Tom Shipping Co., was $25.75 million, and the purchase price of $10.2 million from a third party in whichthe vessel agreed to be acquired by the second subsidiary, Jerry Shipping Co., was $25.00 million. The vessels were delivered to us on November 30, 2022, and November 23, 2022, respectively.
On December 21, 2023, we, through one of our wholly owned subsidiaries, entered into an agreement with an entity beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer hasfor the sale of the M/V Magic Venus, a 2010-built Kamsarmax bulk carrier vessel, for a price of $17.5 million. The vessel is expected to be delivered to its new owner by the end of the first quarter of 2024.
On January 19, 2024, we, through two of our wholly owned subsidiaries, entered into two separate agreements for the sale of two 2010-built Panamax bulk carrier vessels, M/V Magic Horizon and M/V Magic Nova, from two separate entities beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer. The sale price for M/V Magic Horizon was $15.8 million, and for M/V Magic Nova was $16.1 million. The vessels are expected to be delivered to their new owners during the first quarter of 2024.
On February 15, 2024, we, through one of our wholly owned subsidiaries, entered into an interest.agreement with an entity beneficially owned by a family member of our Chairman, Chief Executive Officer and Chief Financial Officer, for the sale of the M/V Magic Nebula for a gross sale price of $16.2 million.
Loans
The terms of each of the foregoing transactions were negotiated and approved by a special committee of disinterested and independent directors of the Company. In connection with all foregoing vessel sales, excluding the sale of the M/V Magic Nebula, we have agreed to enter into novation agreements in respect of the time charters the vessels are currently employed in.
$5.0 Million Term Loan Facility
On August 30, 2019, we entered into thea $5.0 Million Term Loan Facilitymillion term loan facility with Thalassa, an entity affiliated with Petros Panagiotidis.Panagiotidis, which was repaid in full on September 3, 2021. Please see "Item 5 –“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources – Resources—Our Borrowing Activities"Activities” for more information about the $5.0 Million Term Loan Facility.information.
$7.5 Million Shareholder Bridge Loan
On October 20, 2019, we took deliveryThe V8 Plus Pool
Prior to completion of the Magic Moon that was purchased for $10.2 million fromSpin-Off, the six Aframax/LR2 tanker vessels owned by the certain of the subsidiaries contributed to Toro in the Spin-Off participated in the V8 Plus Pool, an Aframax/LR2 pool managed by V8 Plus Management Pte Ltd., a third partycompany in which a family member of Petros Panagiotidis has ana minority equity interest. The purchaseDuring the period between the vessels’ entry into the V8 Plus Pool and completion of the Magic Moon was financed using a combination of cash on hand, the net cash proceeds from sales under our ATM Program received through September 30, 2019 and the proceeds from a $7.5 million interest free unsecured bridge loan, whichSpin-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 us by an entity controlled by Petros Panagiotidis, ora $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 $7.5 Million Shareholder Bridge Loan.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. The $7.5 Million Shareholder Bridge Loan, originally maturing on December 31, 2019, allowed usagreements pursuant to timely partly financewhich the Magic Moon acquisition whilerelevant vessels participated in the meantime assessing financing options for our Fleet. Our BoardV8 Plus Pool were negotiated and approved by a special committee consisting of the Company’s disinterested and independent members of the Board approved the $7.5 Million Shareholder Bridge Loan. On December 6, 2019, we repaid the $7.5 Million Shareholder Bridge Loan in full by partially using the net proceeds received under the Alpha Bank Facility, further discussed under "Item 5 –Liquidity and Capital Resources – Our Borrowing Activities".directors.
2019 Commercial Services
During 2019, we occasionally used the commercial services of Alexandria Enterprises S.A., ("Alexandria") an entity controlled by a family member of the Company's Chairman, Chief Executive Officer and Chief Financial Officer. In exchange for these services, Alexandria charged the Company a commission rate equal to 1.25% of the gross charter hire, freight and the ballast bonus earned under a charter agreement. During the year ended December 31, 2019, commissions charged by Alexandria amounted to $40,471. We did not incur any charges from Alexandria during the year ended December 31, 2020 and we no longer use the services of Alexandria.
| C. | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION |
| A. | Consolidated Statements and other Financial InformationCONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
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, subject to customary deductibles, 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
We do not have a declared dividend policy in respect of our common shares. 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 (as described below), and other factors.
Any dividends paid by us maywill 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 relatingsubject to the U.S. federal income tax treatmentpriority of our dividend payments, if any are declared inSeries D Preferred Shares. The foregoing is not an exhaustive list of factors which may impact the future.
In addition, we may incur expenses or liabilities, including extraordinary expenses, decreases in revenues, including as a resultpayment of unanticipated off-hire days or loss of a vessel, or increased cash needs that could reduce or eliminate the amount of cash that we have available for distribution as dividends. The dry bulk and tanker charter markets are cyclical and volatile. We cannot predict with accuracy the amount of cash flows our operations will generate in any given period. Factors beyond our control may affect the charter market for our vessels and our charterer's ability to satisfy their contractual obligations to us, and we cannot assure you that dividends will actually be declared or paid in the future. We are a recently formed company and have a limited performance record and operating history. Accordingly, we cannot assure you that we will be able to pay dividends at all, and our ability to pay dividends will be subject to the limitations set forth abovebelow and inunder “Item 3. Risk Factors—Risks Relating to our Common Shares—We do not have a declared dividend policy and our Board may never declare cash dividends on our common shares.”
In the sectionevent that we declare a dividend of this annual report titled "Risk Factors".the stock of a subsidiary which we control, the holder(s) of our 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 will be issued pro rata to holder(s) of the Series B Preferred Shares. The Series B Preferred Shares have no other dividend or distribution rights. See “Item 10. Additional Information—B. Memorandum and Articles of Association” for more detailed descriptions of the Series B Preferred Shares.
Dividends on our Series AD Preferred Shares accrue and are cumulative starting on January 1, 2022from their issue date and are payable quarterly in arrears on the 15th day of each JuneJanuary, April, July and October, respectively, in each year, beginning on October 15, and December 15, when, as and if2023, assuming dividends have been declared by our Board or any authorized committee thereof out of legally available funds for such purpose. TheFrom, and including, their issue date, the dividend rate for the Series D Preferred Shares will be 5.00% per annum of the stated amount of $1,000 per share; For each dividend period commencing on and from the seventh anniversary of August 7, 2023, the rate shall be the annual dividend rate in effect for the prior dividend period multiplied by a factor of 1.3, provided that such dividend rate cannot exceed 20% per annum. The rights of the holders of our Series AD Preferred Shares is 9.75% per annum per share. Please seerank senior to the section herein "Itemobligations to holders of our common shares. This means that, unless accumulated dividends have been paid or set aside for payment on all of our outstanding Series D Preferred Shares for all past completed dividend periods, no distributions may be declared or paid on our common shares subject to limited exceptions. We may redeem the Series D Preferred Shares in whole or in part, at any time and from time to time after the fifth anniversary of August 7, 2023 (the issue date of the Series D Preferred Shares), at a cash redemption price equal to 105% of the stated amount, together with an amount equal to all accrued dividends. See “Item 10. Additional Information —B.Information—B. Memorandum and Articles of Association —Description of Series A Preferred Shares"” for a description of the dividend termsmore detailed descriptions of the Series AD Preferred Shares.
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.Annual Report, excluding the distribution of Toro shares to common shareholder of Castor and the dividend paid to Toro amounting to $0.5 million in connection to the Series D Preferred Shares.
| B. | Significant ChangesSIGNIFICANT CHANGES |
Not applicable.
There have been no significant changes since the date of the consolidated financial statements included in this Annual Report, other than those described in Note 20 to the consolidated financial statements included elsewhere in this Annual Report.
| ITEM 9. | THE OFFER AND LISTING |
| A. | Offer and Listing DetailsOFFER AND LISTING DETAILS |
Our common shares and associated Preferred Stock Purchase Rights under the Stockholders Rights Agreement 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. | Plan of DistributionPLAN OF DISTRIBUTION |
Not applicable.
Please see "Item 9.“—A. The Offer and Listing—A. Offer and Listing Details".Details.”
| D. | Selling ShareholdersSELLING SHAREHOLDERS |
Not applicable.
Not applicable.
| F. | Expenses of the IssueEXPENSES OF THE ISSUE |
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION |
| A. | Share CapitalSHARE CAPITAL |
Not applicable.
| B. | Memorandum and Articles of AssociationMEMORANDUM AND ARTICLES OF ASSOCIATION |
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.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. However, in connection with the Spin-Off, our Board resolved to focus our efforts on our then current business of dry bulk shipping, though we have since expanded into container shipping services in accordance with such resolutions. Our amended and restated Articles of Incorporation and Bylaws do not impose any limitations on the ownership rights of our shareholders.
Shareholders’ Meetings
The time and place of our annual meeting of shareholders is determined by our Board. Special meetings of the shareholders, unless otherwise prescribed by law, may be called for any purpose or purposes permitted under applicable law (i) at any time by the Chairman, Chief Executive Officer or President of the Company or a majority of the Board and (ii) by shareholders holding more than 50% of the voting rights in the Company. No other person or persons are permitted to call a special meeting, unless otherwise prescribed by law. The Board may fix a record date of not more than sixty (60) nor less than fifteen (15) days prior to the date of any meeting of 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 707,157,93696,623,876 common shares were issued and outstanding as of March 26, 2021,February 27, 2024, 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 currentlyand 50,000 Series D Preferred Shares were issued and outstanding.outstanding as of the same date.
Description of Common Shares
Each outstanding common share entitles the holder to one vote on all matters submitted to
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
On September 22, 2017, we entered into an exchange agreement, or the Exchange Agreement, with Spetses Shipping Co., or Spetses, and its shareholders. Under the terms of the Exchange Agreement, we issued 2,400,000 common shares, 480,000 Series A Preferred Shares and 12,000 Series B Preferred Shares of the Company in exchange for all of the issued and outstanding common shares of Spetses.
On November 21, 2017, we declared a dividend of one preferred share purchase right for each outstanding common share and adopted a shareholder rights plan, as set forth in a Stockholders Rights Agreement dated as of November 20, 2017, by and between us and American Stock Transfer & Trust Company, LLC, as rights agent. For more information, please see "Stockholders Rights Agreement" below. In connection with the Stockholders Rights Agreement, we designated 3,000 shares as Series C Participating Preferred Shares, none of which are outstanding as of the date of this annual report.
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 B Preferred Shares
On September 22, 2017, we issued 480,000 shares of Series A Preferred Sharespursuant to an Exchange Agreement dated September 22, 2017, between the Company, Spetses Shipping Co., and the shareholders of Spetses under the Exchange Agreement. On October 10, 2019,Shipping Co., we adopted the Amended and Restated Statement of Designations of the Series A Preferred Shares.
The Series A Preferred Shares entitle the holders thereof to receive cumulative cash dividends when, as and if declared by our Board out of legally available funds for such purpose. Each Series A Preferred Share has a fixed liquidation preference of $30.00 per share plus an amount equal to accumulated and unpaid dividends thereon to the date fixed for payment, whether or not declared. See "Liquidation Rights " below.
The Series A Preferred Shares represent perpetual equity interests in us and, unlike indebtedness, will not give rise to a claim for payment of a principal amount at a particular date. As such, the Series A Preferred Shares would rank junior to allmade certain issuances of our indebtedness and other liabilities with respect to assets available to satisfy claims against us.
Ranking
The Series A Preferred Shares rank, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of our affairs, senior to our common shares, our Series B Preferred Shares and to each other class or series of capital stock, established after the original issue date of the Series A Preferred Shares as to the payment of dividends and amounts payable upon liquidation, dissolution or winding up, whether voluntary or involuntary ("Junior Stock").
We may issue additional common shares, additional Series A Preferred Shares and Junior Stock. Except as described in the Series A Preferred Shares Statement of Designation, the Board has the authority to determine the preferences, powers, qualifications, limitations, restrictions and special or relative rights or privileges, if any, of any such series of Junior Stock beforeincluding the issuance of any shares of that series. The Board shall also determine the number of shares constituting each series of securities.
Dividends
General
Holders of Series A Preferred Shares will be entitled to receive, when, as and if declared by our Board out of legally available funds for such purpose, cumulative cash dividends from January 1, 2022 (or, for any newly issued and outstanding shares, from the Dividend Payment Date immediately preceding the issuance date of such stock or for shares issued on or before June 14, 2022 then January 1, 2022). No dividends shall accrue or accumulate for the period from July 1, 2019 to December 31, 2021.
Dividend Rate
Dividends on Series A Preferred Shares will be cumulative and payable on each Dividend Payment Date, commencing on June 15, 2022, when, as and if declared by our Board or any authorized committee thereof out of legally available funds for such purpose. Dividends on the Series A Preferred Shares will accrue at a rate of 9.75% per annum per Series A Preferred Share having a value of $25.00 per share.
In the event that any semi-annual dividend payable on the Series A Preferred Shares is in arrears, the Dividend Rate payable on the Series A Preferred Shares shall be increased a single time to a rate of 1.3 times the Dividend Rate for each Series A Preferred Share having a value of $25.00 per share until the Dividend Payment Default is cured.
Dividend Payment Dates
The "Dividend Payment Dates" for the Series A Preferred Shares will be each June 15 and December 15, commencing June 15, 2022. Dividends will accumulate in each dividend period from and including the preceding Dividend Payment Date or the initial issue date, as the case may be, to but excluding the applicable Dividend Payment Date for such dividend period. If any Dividend Payment Date otherwise would fall on a day that is not a Business Day, declared dividends will be paid on the immediately succeeding Business Day without the accumulation of additional dividends. Dividends on the Series A Preferred Shares will be payable based on a 360-day year consisting of twelve 30-day months.
"Business Day" means a day on which Nasdaq is open for trading and which is not a Saturday, a Sunday or other day on which banks in New York City are authorized or required by law to close.
Payment of Dividends
Not later than 5:00 p.m., New York City time, on each Dividend Payment Date, we will pay those dividends, if any, on the Series A Preferred Shares that have been declared by our Board to the holders of such shares as such holders' names appear on our stock transfer books maintained at the Company or by the Registrar and Transfer Agent on the applicable Record Date. The applicable record date (the "Record Date"), will be the Business Day immediately preceding the applicable Dividend Payment Date, except that in the case of payments of dividends in arrears, the Record Date with respect to a Dividend Payment Date will be such date as may be designated by our Board in accordance with our Bylaws then in effect and the Statement of Designation.
No dividend may be declared or paid or set apart for payment on any Junior Stock (other than a dividend payable solely in shares of Junior Stock) unless full cumulative dividends have been or contemporaneously are being paid or provided for on all outstanding Series A Preferred Shares for all prior and the then-ending dividend periods. In addition, in the event that full cumulative dividends on the Series A Preferred Shares have not been paid or declared and set apart for payment, we may not repurchase, redeem or otherwise acquire, in whole or in part, any Series A Preferred Shares except pursuant to a purchase or exchange offer made on the same terms to all holders of Series A Preferred Shares. Common shares and any other Junior Stock may not be redeemed, repurchased or otherwise acquired unless full cumulative dividends on the Series A Preferred Shares for all prior and the then-ending dividend periods have been paid or declared and set apart for payment.
Accumulated dividends in arrears for any past dividend period may be declared by our Board and paid on any date fixed by our Board, whether or not a Dividend Payment Date, to holders of the Series A Preferred Shares on the record date for such payment, which may not be more than 60 days, nor less than 5 days, before such payment date. Subject to the next succeeding sentence, if all accumulated dividends in arrears on all outstanding Series A Preferred Shares have not been declared and paid, or sufficient funds for the payment thereof have not been set apart, payment of accumulated dividends in arrears will be made in order of their respective Dividend Payment Dates. If less than all dividends payable with respect to all Series A Preferred Shares are paid, any partial payment will be made pro rata with respect to the Series A Preferred Shares entitled to a dividend payment at such time in proportion to the aggregate amounts remaining due in respect of such shares at such time. Holders of the Series A Preferred Shares will not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends. No interest or sum of money in lieu of interest will be payable in respect of any dividend payment which may be in arrears on the Series A Preferred Shares.
Liquidation Rights
The holders of outstanding Series A Preferred Shares will be entitled, in the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, to receive the liquidation preference of $30.00 per share in cash plus an amount equal to accumulated and unpaid dividends thereon to the date fixed for payment of such amount (whether or not declared), and no more, before any distribution will be made to the holders of our common shares or any other Junior Stock. A consolidation or merger of us with or into any other entity, individually or in a series of transactions, will not be deemed a liquidation, dissolution or winding up of our affairs for this purpose. In the event that our assets available for distribution to holders of the outstanding Series A Preferred Shares are insufficient to permit payment of all required amounts, our assets then remaining will be distributed among the Series A Preferred Shares, as applicable, ratably on the basis of their relative aggregate liquidation preferences. After payment of all required amounts to the holders of the outstanding Series A Preferred Shares, our remaining assets and funds will be distributed among the holders of the common shares and any other Junior Stock then outstanding according to their respective rights.
Voting Rights
The Series A Preferred Shares have no voting rights except as provided by Marshall Islands law. Unless the Company shall have received the affirmative vote or consents of the holders of at least two thirds of the outstanding Series A Preferred Shares, voting as a single class, the Company may not adopt any amendment to its Articles of Incorporation that adversely alters the preferences, powers or rights of the Series A Preferred Shares.
Redemption
Optional Redemption
We have the right, at any time, to redeem the Series A Preferred Shares, in whole or from time to time in part, from any funds available for such purpose. Any such redemption shall occur on a date set by the Company, or the Redemption Date.
Redemption Procedures
(a) Redemption Price. The Company may redeem each share of Series A Preferred Shares with cash, common shares or a Note as shall be determined by the Company at its sole discretion. If the Company redeems Series A Preferred Shares with cash, then each share of Series A Preferred Shares shall have a value of $30.00 per share, whether or not declared, or the Cash Redemption Price. If paid in common shares or a Note, then each Series A Preferred Share shall have a value of $25.00 per share, whether or not declared, or the Cashless Redemption Price and together with the cash Redemption Price, the Redemption Price. If paid in common shares, the price of the common shares will be 90% of the lowest daily volume weighted average price on any trading day during the 5-consecutive trading day period ending and including the trading day immediately prior to the date of the applicable Redemption Date.
Notwithstanding any other provisions herein, the holder of Series A Preferred Shares shall not acquire, or be obligated or have the right to acquire, any common share pursuant to an optional redemption which, when aggregated with all other common shares then beneficially owned (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by the Holder and its Affiliates, would result in the beneficial ownership by the holder of Series A Preferred Shares of more than 4.9% of the then issued and outstanding common shares, or the Ownership Limitation. If the Company issues a Redemption Notice that would cause the aggregate number of common shares then beneficially owned (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by the holder of Series A Preferred Shares and its affiliates to exceed the Ownership Limitation, such Redemption Notice shall be void ab initio to the extent of the amount by which the number of common shares otherwise issuable pursuant to such Redemption Notice, together with all common shares then beneficially owned (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by the holder of Series A Preferred Shares and its affiliates, would exceed the Ownership Limitation. Upon the written or oral request of the holder of Series A Preferred Shares, the Company shall promptly confirm orally or in writing to the holder of Series A Preferred Shares the number of common shares then outstanding.
The holder of Series A Preferred Shares and the Company shall each cooperate in good faith in the determinations required hereby and the application hereof. The written certification to the Company by the holder of Series A Preferred Shares of the applicability of the Ownership Limitation, and the resulting effect thereof hereunder at any time, shall be conclusive with respect to the applicability thereof and such result absent manifest error. Upon delivery of a written notice to the Company, the holder of Series A Preferred Shares may from time to time increase (with such increase not effective until the sixty-first (61st) day after delivery of such notice) or decrease the Ownership Limitation to any other amount of common shares not in excess of 9.99% of the then issued and outstanding shares of common shares as specified in such notice, provided that any such increase in the Ownership Limitation will not be effective until the sixty-first (61st) day after such written notice is delivered to the Company.
(b) Redemption Notice. The Company shall give notice of any redemption by mail not less than 30 days and not more than 60 days before the scheduled Redemption Date, to the holder of Series A Preferred Shares of record (as of 4:59 p.m. New York City time on the Business Day next preceding the day on which notice is given) of any Series A Preferred Shares to be redeemed as such holders' names appear on the Company's stock transfer books maintained by the Registrar and Transfer Agent and at the address of such holders shown therein. Such notice, or the Redemption Notice shall state: (1) the Redemption Date, (2) the number of Series A Preferred Shares to be redeemed and, if less than all outstanding Series A Preferred Shares are to be redeemed, the number (and the identification) of shares to be redeemed from such Holder, (3) the Redemption Price, (4) the place where the Series A Preferred Shares is to be redeemed and shall be presented and surrendered for payment of the Redemption Price therefor and (5) that dividends on the stock to be redeemed shall cease to accumulate from and after such Redemption Date.
(c) Effect of Redemption; Partial Redemption. If the Company elects to redeem less than all of the outstanding Series A Preferred Shares, the number of shares to be redeemed shall be determined by the Company, and such shares shall be redeemed pro rata or by lot, with adjustments to avoid redemption of fractional shares. The Company shall give notice, or cause notice to be given, to the holders of the number of shares of Series A Preferred Shares to be redeemed, and the Company shall determine the number of Series A Preferred Shares to be redeemed from the account of each of its participants holding such shares in its participant account. The aggregate Redemption Price for any such partial redemption of the outstanding Series A Preferred Shares shall be allocated correspondingly among the redeemed Series A Preferred Shares. The Series A Preferred Shares not redeemed shall remain outstanding and subject to all the terms provided in this Statement of Designation.
(d) Redemption Funds. If the Company gives or causes to be given a Redemption Notice, the Company shall deposit with the paying agent funds sufficient to redeem the Series A Preferred Shares as to which such Redemption Notice shall have been given, no later than 4:59 p.m. New York City time on the Business Day immediately preceding the Redemption Date, and shall give the paying agent irrevocable instructions and authority to pay the Redemption Price to the holders of the Series A Preferred Shares to be redeemed upon surrender or deemed surrender of the certificates therefor. If the Redemption Notice shall have been given, from and after the Redemption Date, unless the Company defaults in providing funds sufficient for such redemption at the time and place specified for payment pursuant to the Redemption Notice, all dividends on such Series A Preferred Shares to be redeemed shall cease to accumulate and all rights of Holders of such shares as the Company's shareholders shall cease, except the right to receive the Redemption Price, and such shares shall not thereafter be transferred on Company's stock transfer books or be deemed to be outstanding for any purpose whatsoever. The Company shall be entitled to receive from the paying agent the interest income, if any, earned on such funds deposited with the paying agent (to the extent that such interest income is not required to pay the Redemption Price of the Series A Preferred Shares to be redeemed), and the holders of any shares so redeemed shall have no claim to any such interest income. Any funds deposited with the paying agent hereunder by the Company for any reason, including, but not limited to, redemption of Series A Preferred Shares, that remain unclaimed or unpaid after two years after the applicable Redemption Date or other payment date, shall be, to the extent permitted by law, repaid to the Company upon its written request after which repayment the holders of the Series A Preferred Shares entitled to such redemption or other payment shall have recourse only to the Company. Notwithstanding any Redemption Notice, there shall be no redemption of any Series A Preferred Shares called for redemption until funds sufficient to pay the full Redemption Price of such shares shall have been deposited by the Company with the paying agent.
(e) Certificate. If only a portion of the Series A Preferred Shares represented by a certificate shall have been called for redemption, upon surrender of the certificate to the Paying Agent, the Paying Agent shall issue to the Holder of such shares a new certificate (or adjust the applicable book-entry account) representing the number of shares of Series A Preferred Shares represented by the surrendered certificate that have not been called for redemption.
Description of Series B Preferred Shares
On September 22, 2017, we issued 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. 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:
Conversion. The Series B Preferred Shares are not convertible into common shares.
Voting. Each Series B Preferred Share has the voting power of 100,000 common shares and count for 100,000 votes for purposes of determining quorum at a meeting of shareholders.
Distributions| • | 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. |
Description of Series D Preferred Shares
On August 7, 2023, we entered into the Series D Purchase Agreement, pursuant to which we agreed to issue 50,000 newly designated Series D Preferred Shares, having a stated value of $1,000 and par value of $0.001 per share. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Issuance of Series D Preferred Shares and Dividends to Toro” for further details regarding this transaction. The Series D Preferred Shares have no dividend or distribution rights.the following characteristics:
| • | Conversion. The Series D Preferred Shares are convertible, at their holder’s option, to common shares after the first anniversary of August 7, 2023 and at any time thereafter. The conversion price for any conversion of the Series D Preferred Shares shall be the lower of (i) $0.70 and (ii) the 5 day value weighted average price immediately preceding the conversion. The conversion price is subject to certain adjustments, including due to a stock dividend, subdivision, split or combination. The minimum conversion price is $0.30 per common share. The Series D Preferred Shares otherwise are not convertible into or exchangeable for property or shares of any other series or class of our capital stock. |
| • | Redemption. The Company may, at its option, redeem the Series D Preferred Shares in whole or in part, at any time and from time to time after the fifth anniversary of August 7, 2023 (the Series D Preferred Shares issue date), at a cash redemption price equal to 105% of the stated amount, together with an amount equal to all accrued dividends. |
| • | Dividends. Holders of Series D Preferred Shares are entitled to receive, when, as and if declared by the Board, cumulative dividends at 5.00% per annum of the stated amount, in cash or Series D Preferred Shares, payable quarterly in arrears on the 15th day of each January, April, July and October, respectively, in each year, beginning on October 15, 2023. For each dividend period commencing on and from the seventh anniversary of August 7, 2023, the rate shall be the annual dividend rate in effect for the prior dividend period multiplied by a factor of 1.3; provided that such dividend rate cannot exceed 20% per annum. |
Liquidation, Dissolution91
| • | Restrictions on Dividends, Redemption and Repurchases. So long as any Series D Preferred Share remains outstanding, unless full Accrued Dividends on all outstanding Series D Preferred Shares through and including the most recently completed Dividend Period have been paid or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend may be declared or paid or set aside for payment, and no distribution may be made, on any Junior Stock, other than a dividend payable solely in stock that ranks junior to the Series D Preferred Shares in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Company. “Accrued Dividends” means, with respect to Series D Preferred Shares, an amount computed at the Annual Rate from, as to each share, the date of issuance of such share to and including the date to which such dividends are to be accrued (whether or not such dividends have been declared), less the aggregate amount of all dividends previously paid on such share. |
So long as any Series D Preferred Share remains outstanding, unless full Accrued Dividends on all outstanding Series D Preferred Shares through and including the most recently completed Dividend Period have been paid or Winding Up. Upondeclared and a sum sufficient for the payment thereof has been set aside for payment, no monies may be paid or made available for a sinking fund for the redemption or retirement of Junior Stock, nor shall any shares of Junior Stock be purchased, redeemed or otherwise acquired for consideration by us, directly or indirectly, other than (i) as a result of (x) a reclassification of Junior Stock, or (y) the exchange or conversion of one share of Junior Stock for or into another share of stock that ranks junior to the Series D Preferred Shares in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Company,Company; or (ii) through the use of the proceeds of a substantially contemporaneous sale of other shares of stock that rank junior to the Series BD Preferred Shares shall havein the samepayment of dividends and in the distribution of assets on any liquidation, rights asdissolution or winding up of the common shares.Company.
| • | Voting. Except as indicated below or otherwise required by law, the holders of the Series D Preferred Shares do not have any voting rights, except for (a) the right to elect, together with parity stock, up to two preferred directors, in certain circumstances upon nonpayment of dividends and (b) together with any other series of preferred shares that would be adversely affected in substantially the same manner and entitled to vote as a single class in proportion to their respective stated amounts (to the exclusion of all other series of preferred shares), given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, will be necessary for effecting or validating: (i) any amendment, alteration or repeal of any provision of our Articles of Incorporation or Bylaws that would alter or change the voting powers, preferences or special rights of the Series D Preferred Shares so as to affect them adversely; (ii) the issuance of Dividend Parity Stock if the Accrued Dividends on all outstanding Series D Preferred Shares through and including the most recently completed Dividend Period have not been paid or declared and a sum sufficient for the payment thereof has been set aside for payment; (iii) any amendment or alteration of the Articles of Incorporation to authorize or create, or increase the authorized amount of, any shares of any class or series or any securities convertible into shares of any class or series of our capital stock ranking prior to Series A in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Company; or (iv) any consummation of (x) a binding share exchange or reclassification involving the Series D Preferred Shares, (y) a merger or consolidation of the Company with another entity (whether or not a corporation), or (z) a conversion, transfer, domestication or continuance of the Company into another entity or an entity organized under the laws of another jurisdiction, unless in each case (A) the Series D Preferred Shares remain outstanding or, in the case of any such merger or consolidation with respect to which we are not the surviving or resulting entity, or any such conversion, transfer, domestication or continuance, the Series D Preferred Shares are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (B) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and restrictions and limitations thereof, of the Series D Preferred Shares immediately prior to such consummation, taken as a whole. The foregoing voting rights do not apply in connection with the issuance of Series C Participating Preferred Shares of the Company. |
| • | Liquidation, Dissolution or Winding Up. In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, before any distribution or payment out of the Company’s assets may be made to or set aside for the holders of any Junior Stock (as defined in the statement of designations of the Series D Preferred Shares), holders of Series D Preferred Shares will be entitled to receive out of our assets legally available for distribution to our shareholders an amount equal to the stated amount per share ($1,000), together with an amount equal to all accrued dividends to the date of payment whether or not earned or declared. |
| • | No Preemptive Rights; No Sinking Fund. Holders of the Series D Preferred Shares do not have any preemptive rights. The Series D Preferred Shares will not be subject to any sinking fund or any other obligation of us for their repurchase or retirement. |
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 Board adopted the Rights Agreement to protect shareholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group that acquires 15% or more of our outstanding common shares without the approval of our Board. 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, is exempt from these provisions.
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.
For those interested in the specific terms of the Rights Agreement, we provide the following summary description. Please note, however, that this description is only a summary, and is not complete, and should be read together with the entire Rights Agreement, which is an exhibit to this annual report. The foregoing description of the Rights Agreement is qualified in its entirety by reference to such exhibit.
The Rights. The Rights trade with, and are inseparable from, our common shares. The Rights are evidenced only by certificates that represent our common shares. New Rights will accompany any new common shares of the Company issued after November 21, 2017 until the Distribution Date described below.
Exercise Price. Each Right allows its holder to purchase from the Company one one-thousandth of a share of Series C Participating Preferred Shares or a Series C Preferred Share, for $15.00, or(as defined in the Exercise Price, once theStockholders Rights Agreement) and 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. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.
Exercisability. The Rights are not exercisable until 10 days after thea public announcement that a person or group has become an "Acquiring Person" by obtainingobtained beneficial ownership of 15% or more of our outstanding common shares. Except our Chairman, Chief Executive Officer and Chief Financial Officer, Petros Panagiotidis, is exempt from being the "Acquiring Person".
Certain synthetic interests in securities created by derivative positions — whether or not such interests are considered to be ownershipSee Exhibit 2.2 (Description of Securities) for a full description of the underlying common shares or are reportable for purposesStockholders Rights Agreement. As of Regulation 13D of the Securities Exchange Act of 1934, as amended— are treated as beneficial ownership of the number ofDecember 31, 2023, 96,623,876 Rights were issued and outstanding in connection with our common shares equivalent to the economic exposure created by the derivative position, to the extent our actual common shares are directly or indirectly held by counterparties to the derivatives contracts. Swaps dealers unassociated with any control intent or intent to evade the purposes of the Rights Agreement are excepted from such imputed beneficial ownership.shares.
For persons who, prior to the time of public announcement of the Rights Agreement, beneficially own 15% or more of our outstanding common shares, the Rights Agreement "grandfathers" their current level of ownership, so long as they do not purchase additional shares in excess of certain limitations.
The date when the Rights become exercisable is the "Distribution Date". Until that date, our common share certificates (or, in the case of uncertificated shares, by notations in the book-entry account system) will also evidence the Rights, and any transfer of our common shares will constitute a transfer of Rights. After that date, the Rights will separate from our common shares and will be evidenced by book-entry credits or by Rights certificates that the Company will mail to all eligible holders of our common shares. Any Rights held by an Acquiring Person are null and void and may not be exercised.
Series C Preferred Share Provisions
Each one one-thousandth of a Series C Preferred Share, if issued, will, among other things:
not be redeemable;
entitle holders to quarterly dividend payments in an amount per share equal to the aggregate per share amount of all cash dividends, and the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in our common shares or a subdivision of our outstanding common shares (by reclassification or otherwise), declared on our common shares since the immediately preceding quarterly dividend payment date; and
entitle holders to one vote on all matters submitted to a vote of the shareholders of the Company.
The value of one one-thousandth interest in a Series C Preferred Share should approximate the value of one common share.
Consequences of a Person or Group Becoming an Acquiring Person.
Flip In. If an Acquiring Person obtains beneficial ownership of 15% or more of our common shares, then each Right will entitle the holder thereof to purchase, for the Exercise Price, a number of our common shares (or, in certain circumstances, cash, property or other securities of the Company) having a then-current market value of twice the Exercise Price. However, the Rights are not exercisable following the occurrence of the foregoing event until such time as the Rights are no longer redeemable by the Company, as further described below.
Following the occurrence of an event set forth in preceding paragraph, all Rights that are or, under certain circumstances specified in the Rights Agreement, were beneficially owned by an Acquiring Person or certain of its transferees will be null and void.
Flip Over. If, after an Acquiring Person obtains 15% or more of our common shares, (i) the Company merges into another entity; (ii) an acquiring entity merges into the Company; or (iii) the Company sells or transfers 50% or more of its assets, cash flow or earning power, then each Right (except for Rights that have previously been voided as set forth above) will entitle the holder thereof to purchase, for the Exercise Price, a number of our common shares of the person engaging in the transaction having a then-current market value of twice the Exercise Price.
Notional Shares. Shares held by affiliates and associates of an Acquiring Person, including certain entities in which the Acquiring Person beneficially owns a majority of the equity securities, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights Agreement) with an Acquiring Person, will be deemed to be beneficially owned by the Acquiring Person.
Redemption. The Board may redeem the Rights for $0.01 per Right at any time before any person or group becomes an Acquiring Person. If the Board redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of the Rights will be to receive the redemption price of $0.01 per Right. The redemption price will be adjusted if the Company has a stock dividend or a stock split.
Exchange. After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of our outstanding common shares, the Board may extinguish the Rights by exchanging one common share or an equivalent security for each Right, other than Rights held by the Acquiring Person. In certain circumstances, the Company may elect to exchange the Rights for cash or other securities of the Company having a value approximately equal to one common share.
Expiration. The Rights expire on the earliest of (i) November 21, 2027, or (ii) the redemption or exchange of the Rights as described above.
Anti-Dilution Provisions. The Board may adjust the purchase price of the Series C Preferred Shares, the number of Series C Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, or a reclassification of the Series C Preferred Shares or our common shares. No adjustments to the Exercise Price of less than 1% will be made.
Amendments. The terms of the Rights and the Rights Agreement may be amended in any respect without the consent of the holders of the Rights on or prior to the Distribution Date. Thereafter, the terms of the Rights and the Rights Agreement may be amended without the consent of the holders of Rights, with certain exceptions, in order to (i) cure any ambiguities; (ii) correct or supplement any provision contained in the Rights Agreement that may be defective or inconsistent with any other provision therein; (iii) shorten or lengthen any time period pursuant to the Rights Agreement; or (iv) make changes that do not adversely affect the interests of holders of the Rights (other than an Acquiring Person or an affiliate or associate of an Acquiring Person).
Taxes. The distribution of Rights should not be taxable for federal income tax purposes. However, following an event that renders the Rights exercisable or upon redemption of the Rights, shareholders may recognize taxable income.
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. As of February 27, 2024, 62,344 Class A Warrants remain outstanding.
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. On March 7, 2023, in connection with the Spin-Off, the exercise price of the Class A Warrants was reduced to $2.53.
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.
Exercise Price. The exercise price per whole common share purchasable upon exercise of the Class A Warrants is $0.35 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, stock combinations, reclassifications or similar events affecting our common shares. The Class A Warrants will be immediately exercisable and may be exercised at any time until they are exercised in full.
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 or by virtue of such holder's ownership of our common shares, 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.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Class A Warrants and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our common shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common shares, the holders of the Class A Warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Class A Warrants immediately prior to such fundamental transaction.
Governing Law. The Class A Warrants and warrant agreement are governed by New York law.
Description of the Private Placement Warrants
Each Private Placement Warrant is exercisable at any time after its original issuance for $0.35 per common share and has a term of 5 years. If a registration statement registering the resale of the common shares underlying the Private Placement Warrants under the Securities Act is not effective or available at any time after the six month anniversary of the date of issuance of the Private Placement Warrants, the holder may, in its sole discretion, elect to exercise the Private Placement 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 Private Placement Warrant. The Private Placement Warrant containscontain certain damages provisions pursuant to which we have agreed to pay the holder certain damages if we do not issue the shares in a timely fashion.
A holder will not have the right to exercise any portion of the 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 of the common shares underlying the Private Placement
Governing Law. The Class A Warrants within 30 calendar days from the date 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 or shares issuable upon exercise thereof.warrant agreement are governed by New York law.
Description of the January 5 and January 12April 7 Warrants
Each January 5April 7 Warrant and January 12 Warrant wasis exercisable for $0.19$6.50 per common share and for a term of 5 years. All ofyears, on substantially the January 5 and January 12same terms as the Class A Warrants were exerciseddescribed above. On March 7, 2023, in full prior toconnection with the date of this annual report, resulting inSpin-Off, the issuance of an aggregate of 231,750,000 common shares for an aggregate exercise price of approximately $44.0 million.the April 7 Warrants was reduced to $5.53.
On October 6, 2023, we repurchased, in privately negotiated transactions with unaffiliated third-party warrantholders, 8,900,000 April 7 Warrants for $0.105 per repurchased warrant. Following the repurchase and as of February 27, 2024, 10,330,770 April 7 Warrants remain outstanding.
Listing and Markets
On December 21, 2018, our
Our common shares par value $0.001, were registered for tradingand associated Preferred Stock Purchase Rights under the Stockholders Rights Agreement are listed on the NOTC with ticker symbol "CASTOR". On February 11, 2019, our common shares began trading on the NASDAQNasdaq Capital Market under the ticker symbol "CTRM"“CTRM” and on the Norwegian OTC, or the NOTC, under the symbol “CASTOR”.
On April 20, 2023, the Company received written notification from the Nasdaq that it was not in compliance with the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq Capital Market. See “Item 4. Information on the Company—A. History of the Company— Nasdaq Listing Standards Compliance” for further information.
Transfer Agent
The registrar and transfer agent for our common shares is American Stock Transfer & Trust Company, LLC.
Marshall Islands Company Law Considerations
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. | Material ContractsMATERIAL CONTRACTS |
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 that are to be performed in whole or in part at or after the date of this annual report are attached as exhibits to this annual report. Other than these contracts, we have no other material contracts, other than contracts entered into in the ordinary course of business, to which we are a party during the two-year period immediately preceding the date of this annual report.Annual Report.
| D. | Exchange ControlsEXCHANGE CONTROLS |
The Marshall Islands impose no exchange controls on non-resident corporations.
The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations relevant to a U.S. Holder and a Non-U.S. Holder, each as defined below, with respect to the common 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 reportAnnual 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.
8795
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
In general,
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; orreturns.
in certain circumstances, fail to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an applicable IRS Form W-8.
93101
On December 8, 2021, the Company reached an agreement with the holders ofredeemed all its 480,000 Series A Preferred Shares, to settleeach with a cash liquidation preference of $30, resulting in full all accumulated dividend obligations onan 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 (the “Series A Dividends Settlement Agreement”)redemption and, to simultaneously adopt an Amendedas a result, the difference between the carrying value 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 forgive the Company’s obligations related to all due and overdue accumulated dividends on the Series A Preferred shares during 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 issued common shares, the fair value 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.
In addition, in accordance with the terms of the Series A Amended SOD, the Company and the Series A Preferred holders mutually agreed to:
| i) | waive all dividend payment obligations on the Series A Preferred Shares during the period from July 1, 2019 until December 31, 2021; |
| ii) | reduce the previous progressively increasing dividend payment default rate that was 1.30 times the rate payable on the Series A Preferred Shares on the date preceding such payment to a fixed dividend payment default rate that is 1.30 times the base dividend payment rate; |
| iii) | increase the redemption price of the Series A Preferred Shares to $30 from $25 per share in case that the Company exercises its current option to redeem the Series A Preferred Shares, in whole or in part, with cash; and |
| iv) | increase the liquidation preference from $25 to $30 per Series A Preferred Share. |
As a result of the foregoing, dividends on the Series A Preferred Shares neither accrue nor accumulate during the period from July 1, 2019 until December 31, 2021 and the Company does not have any dividend priority restrictions to holders of its common shares during this period.
The Company has accounted for the amendment to the rights, preferences and privileges of the Series A Preferred Shares, amounting to $11.8 million, was recognized in accordance with FASB ASC Topic 260-10-S99-2,retained earnings as an extinguishment of the original preferred stocka deemed dividend, and the issuance of new preferred stock due to the significance of the modifications to the substantive contractual terms of the preferred stock and the associated fundamental changes to the nature of the preferred stock, which, as discussed above, included the forfeiture of accrued dividends on the Series A Preferred Shares up to and including June 30, 2019 and the issuance of 300,000 common shares in settlement thereof. Accordingly, upon extinguishment, the Company recorded a net gain of $112,637 on the Series A Preferred Stock within shareholders’ equity equal to the difference between the fair value of the new shares of preferred stock issued and the carrying amount of the old shares of preferred stock extinguished. The Company allocated the entire net gain on extinguishment of the Series A Preferred Shares to Additional paid-in capital. The net gain on extinguishment is reflectedhas been considered in the calculation of net income available to common stockholders in accordance with FASB ASC Topic 260, Earnings2021 earnings per Share. The non-recurring fair value of the new Series A Preferred Shares was based on Level 3 hierarchical data using the income approach, which was based on projected cash flows discounted to their present value using a discount rate that considers the timing and risk of the forecasted cash flows. The discount rate used was 16.6% and was based on the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics and is considered an unobservable significant input.share calculations (Note 13).
CASTOR MARITIME INC. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in U.S. Dollars – except for share data unless otherwise stated) |
7. | Equity Capital Structure (continued): |
As of December 31, 2019 and 2020,2021, there were no accumulated, due or overdue dividends on the Series A Preferred Shares.
Description ofShares, since, pursuant to the Series A Preferred Shares following the Series A Amended SOD:
Dividends on Series A Preferred Shares will be cumulative from January 1, 2022 (or, for any newly issued and outstanding shares, from theStock Amendment Agreement dated October 10, 2019, all dividend payment date immediately preceding the issuance date of such stock and, for shares issued on or before June 14, 2022, then January 1, 2022) and payable on each dividend payment date, which will be each June 15 and December 15, commencing on June 15, 2022, when, as and if declared by Company’s Board of Directors out of legally available funds for such purpose. Dividendsobligations on the Series A Preferred Shares will accrue at a rate of 9.75% per annum per Series A Preferred Share having a value of $25 per share. In the event that any semi-annual dividend payable on the Series A Preferred Shares is in arrears, the dividend rate payable on the Series A Preferred Shares shall be increased a single time to a rate of 1.30 times of the dividend rate for each Series A Preferred Share having a value of $25.00 per share until the dividend payment default is cured.
The Series A Preferred Shares rank, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company’s affairs, senior to the common shares and the Series B Preferred Shares.
The Series A Preferred Shares do not have a mandatory redemption feature. The Company has the right to redeem the Series A Preferred Shares, in whole or from time to time in part, from any funds available for such purpose, on a date set by the Company. If the Company redeems Series A Preferred Shares with cash then each share of Series A Preferred Shares shall have a value of $30.00 per share, or the Cash Redemption Price. If paid in common shares or a Note, then each Series A Preferred Share shall have a value of $25.00 per share, or the Cashless Redemption Price. If paid in common shares, the value of the common shares will be 90% of the lowest daily volume weighted average price on any trading day during the 5-consecutive trading day period ending and including the trading day immediately prior to the date of the applicable Redemption Date.from July 1, 2019 until December 31, 2021, were waived.
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.
8.10. | Equity Capital Structure (continued): |
5.00% SERIES D CUMULATIVE PERPETUAL CONVERTIBLE PREFERRED SHARES
On August 7, 2023, the Company agreed to issue 50,000 Series D Preferred Shares, having a stated value of $1,000 and par value of $0.001 per share , to Toro for aggregate consideration of $50.0 million in cash. This transaction and its terms were approved by the independent members of the board of directors of each of Castor and Toro at the recommendation of their respective special committees comprised of independent and disinterested directors, which negotiated the transaction and its terms. The Series D Preferred Shares were measured at fair value, being $49.5 million, and a deemed capital contribution from Toro of $0.5 million, being the difference between the fair value and the transaction price, was recognized. The Series D Preferred Shares have the following characteristics:
| • | Dividends. Holders of Series D Preferred Shares are entitled to receive, when, as and if declared by the Company’s board of directors, cumulative dividends at 5.00% per annum of the stated amount, in cash or shares of this Series, payable quarterly in arrears on the 15th day of each January, April, July and October, respectively, in each year, beginning on October 15, 2023. For each dividend period commencing on and from the seventh anniversary of August 7, 2023, the rate shall be the annual dividend rate in effect for the prior dividend period multiplied by a factor of 1.3; provided that such dividend rate cannot exceed 20% per annum. |
| • | Restrictions on Dividends, Redemption and Repurchases. So long as any Series D Preferred Share remains outstanding, unless full Accrued Dividends on all outstanding Series D Preferred Shares through and including the most recently completed Dividend Period have been paid or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend may be declared or paid or set aside for payment, and no distribution may be made, on any Junior Stock, other than a dividend payable solely in stock that ranks junior to the Series D Preferred Shares in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Company. “Accrued Dividends” means, with respect to Series D Preferred Shares, an amount computed at the Annual Rate from, as to each share, the date of issuance of such share to and including the date to which such dividends are to be accrued (whether or not such dividends have been declared), less the aggregate amount of all dividends previously paid on such share.
So long as any Series D Preferred Share remains outstanding, unless full Accrued Dividends on all outstanding Series D Preferred Shares through and including the most recently completed Dividend Period have been paid or declared and a sum sufficient for the payment thereof has been set aside for payment, no monies may be paid or made available for a sinking fund for the redemption or retirement of Junior Stock, nor shall any shares of Junior Stock be purchased, redeemed or otherwise acquired for consideration by us, directly or indirectly, other than (i) as a result of (x) a reclassification of Junior Stock, or (y) the exchange or conversion of one share of Junior Stock for or into another share of stock that ranks junior to the Series D Preferred Shares in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Company; or (ii) through the use of the proceeds of a substantially contemporaneous sale of other shares of stock that rank junior to the Series D Preferred Shares in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Company. |
| • | Redemption. The Company may, at its option, redeem the Series D Preferred Shares in whole or in part, at any time and from time to time after the fifth anniversary of August 7, 2023 (the Series D Preferred Shares issue date), at a cash redemption price equal to 105% of the stated amount, together with an amount equal to all accrued dividends. |
| • | Conversion Rights. The Series D Preferred Shares are convertible, at their holder’s option, to common shares after the first anniversary of August 7, 2023 and at any time thereafter. The conversion price for any conversion of the Series D Preferred Shares shall be the lower of (i) $0.70 and (ii) the 5 day value weighted average price immediately preceding the conversion. The conversion price is subject to certain adjustments, including due to a stock dividend, subdivision, split or combination. The minimum conversion price is $0.30 per Common Share. The Series D Preferred Shares otherwise are not convertible into or exchangeable for property or shares of any other series or class of our capital stock. |
| • | Voting Rights. Except as indicated below or otherwise required by law, the holders of the Series D Preferred Shares do not have any voting rights, except for (a) the right to elect, together with parity stock, up to two preferred directors, in certain circumstances upon nonpayment of dividends and (b) together with any other series of preferred shares that would be adversely affected in substantially the same manner and entitled to vote as a single class in proportion to their respective stated amounts (to the exclusion of all other series of preferred shares), given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, will be necessary for effecting or validating: (i) any amendment, alteration or repeal of any provision of our Articles of Incorporation or Bylaws that would alter or change the voting powers, preferences or special rights of the Series D Preferred Shares so as to affect them adversely; (ii) the issuance of Dividend Parity Stock if the Accrued Dividends on all outstanding Series D Preferred Shares through and including the most recently completed Dividend Period have not been paid or declared and a sum sufficient for the payment thereof has been set aside for payment; (iii) any amendment or alteration of the Articles of Incorporation to authorize or create, or increase the authorized amount of, any shares of any class or series or any securities convertible into shares of any class or series of our capital stock ranking prior to Series A in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Company; or (iv) any consummation of (x) a binding share exchange or reclassification involving the Series D Preferred Shares, (y) a merger or consolidation of the Company with another entity (whether or not a corporation), or (z) a conversion, transfer, domestication or continuance of the Company into another entity or an entity organized under the laws of another jurisdiction, unless in each case (A) the Series D Preferred Shares remain outstanding or, in the case of any such merger or consolidation with respect to which we are not the surviving or resulting entity, or any such conversion, transfer, domestication or continuance, the Series D Preferred Shares are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (B) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and restrictions and limitations thereof, of the Series D Preferred Shares immediately prior to such consummation, taken as a whole. The foregoing voting rights do not apply in connection with the issuance of Series C Participating Preferred Shares of the Company. |
| • | Liquidation Rights. In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, before any distribution or payment out of the Company’s assets may be made to or set aside for the holders of any Junior Stock, holders of Series D Preferred Shares will be entitled to receive out of our assets legally available for distribution to our shareholders an amount equal to the stated amount per share ($1,000), together with an amount equal to all accrued dividends to the date of payment whether or not earned or declared. |
| • | No Preemptive Rights; No Sinking Fund. Holders of the Series D Preferred Shares do not have any preemptive rights. The Series D Preferred Shares will not be subject to any sinking fund or any other obligation of us for their repurchase or retirement. |
| 10. | Equity Capital Structure (continued): |
The Series D Preferred Shares have been classified in Mezzanine equity as per ASC 480-10-S99 “Distinguishing liabilities from Equity – SEC Materials” as they are in essence redeemable at the option of the holder as Mr. Panagiotidis, the Chief Executive Officer and controlling shareholder of Castor and Toro, can effectively determine the timing of the redemption of the Series D Preferred Shares.
The Company uses an effective interest rate of 6.12% over the expected life of the Series D Preferred Shares being nine years, which is the expected earliest redemption date. This is consistent with the interest method, taking into account the discount between the issuance price and liquidation preference and the stated dividends, including “step-up” amounts. As of December 31, 2023, the amount accreted was $196,296 and is presented as ‘Deemed dividend on Series D Preferred Shares’ in the accompanying consolidated statements of comprehensive income.
As of December 31, 2023, the net value of Mezzanine Equity amounted to $49,549,489, comprising (i) the fair value measurement of the Series D Preferred Shares on initial recognition based on a third party valuation of $49,500,000, less issuance costs of $146,807 and (ii) $196,296 of deemed dividend on the Series D Preferred Shares for the period August 7, 2023 through December 31, 2023, and is separately presented as ‘Mezzanine Equity’ in the accompanying consolidated balance sheet. As of December 31, 2023, the accrued dividend for the period from October 15, 2023 to December 31, 2023 (included in the dividend period ended January 14, 2024) amounted to $541,666 (Note 4(d)).
| 11. | Financial Instruments and Fair Value Disclosures: |
The principal financial assets of the Company consist of cash at banks, restricted cash, trade accounts receivable, investments in listed equities, an investment in related party 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, trade accounts receivable, amounts due from related party and trade accounts payable: The carrying values reported in the accompanying consolidated balance sheets for those financial instruments are reasonable estimates of their fair values due to their short-term maturity nature. Cash and cash equivalents are considered Level 1 items as they represent liquid assets with short term maturities. The carrying value approximates the fair market value for interest bearing cash classified as restricted cash, non-current and is considered Level 1 item of the fair value hierarchy. The carrying value of these instruments is separately reflected in the accompanying consolidated balance sheets.
|
F-25Cash and cash equivalents, restricted cash, accounts receivable trade, net, amounts due from/to related party/(ies) and accounts payable: The carrying values reported in the accompanying consolidated balance sheets for those financial instruments are reasonable estimates of their fair values due to their short-term maturity nature. Cash and cash equivalents and restricted cash, current are considered Level 1 items as they represent liquid assets with short term maturities. The carrying value approximates the fair market value for interest bearing cash classified as restricted cash, non-current and is considered Level 1 item of the fair value hierarchy.
Investment in listed equity securities:The carrying value reported in the accompanying consolidated balance sheet for this financial instrument represents its fair value and is considered Level 1 item of the fair value hierarchy as it is determined though quoted prices in an active market.
Long-term debt: The secured credit facilities discussed in Note 8, have a recorded value which is a reasonable estimate of their fair value due to their variable interest rate and are thus considered Level 2 items in accordance with the fair value hierarchy as SOFR rates are observable at commonly quoted intervals for the full terms of the loans.
CASTOR MARITIME INC. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in U.S. Dollars – except for share data unless otherwise stated) |
Investment in related party:Investments in related party is initially measured at fair value which is deemed to be the cost and subsequently assessed for the existence of any observable market for the Series A Preferred Shares and any observable price changes for identical or similar investments and the existence of any indications for impairment. As per the Company’s assessment no such case was identified as at December 31, 2023.
8. | Financial Instruments and Fair Value Disclosures (continued): |
◾ | Long-term debt: The $11.0 Million Alpha Bank Facility and the Chailease Financial Services Facility discussed in Note 6, have a recorded value which is a reasonable estimate of their fair value due to their variable interest rate and are thus considered Level 2 items in accordance with the fair value hierarchy as LIBOR rates are observable at commonly quoted intervals for the full terms of the loans. The fair value of the fixed interest bearing $5.0 Million Term Loan Facility, discussed in Note 3, determined through Level 2 inputs of the fair value hierarchy (quoted prices for identical or similar assets and liabilities in markets that are not active), approximates its recorded value as of December 31, 2020.
|
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.
9.12. | Commitments and contingencies:Contingencies: |
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 (except as disclosed under Note 12 (b)), 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 BWMS Installation |
On November 15, 2018, the Company entered into a contract to purchase and install BWMS on its dry bulk carriers, which was further amended on October 20, 2019 and December 8, 2020, to reflect the Company’s vessel acquisitions, as applicable in each period. The Company completed the BWMS installation on the Magic Sun during the vessel’s scheduled dry-docking which took place in the fourth quarter of 2020, whereas, the BWMS system installations on the Magic P and the Magic Moon were granted extensions from the third quarter of 2020 to the third quarter of 2022. It is estimated that the contractual obligations related to these purchases as well as purchases on the Company’s remaining fleet vessels (where not already installed), excluding installation costs, will be approximately €0.7 million (or $0.8 million on the basis of a Euro/US Dollar exchange rate of €1.0000/$1.2271 as of December 31, 2020). These costs will be capitalized and depreciated over the remainder of the life of each vessel. As of December 31, 2020, part of the BWMS equipment for the Magic P had been delivered to the vessel and has, thus, been included in Vessels, net in the accompanying consolidated balance sheet.
(b) | Commitments under long-term lease contracts |
CASTOR MARITIME INC. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in U.S. Dollars – except for share data unless otherwise stated) |
9. | Commitments and contingencies (continued): |
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 within2023. 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.
| 12. | Commitments and Contingencies (continued):
|
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 | |
2024
| | $
| 29,554,098 | |
| Total | | $ | 29,554,098 | |
Following the buyers’ failure to take delivery of M/V Magic Moon, the Company terminated the sale of the vessel under the Memorandum of Agreement, dated March 23, 2023, between the Company and the buyers (the “MoA”). Notably, the MoA required that the buyers deposit 10% of the purchase price into an escrow account administered by the escrow agent as security for completion of the transaction according to the terms and conditions set forth in the MoA and the buyers deposited $1,395,000 into such account prior to their breach of the MoA. The Company accordingly initiated arbitration proceedings during September 2023 for the release of and remittance to the Company of the $1,395,000 deposit held in escrow based on the Company’s position that the buyers’ failure to take delivery of the M/V Magic Moon constituted a default under the MoA. While the Company is unable to provide any assurances as to the ultimate outcome of the case, it believes it will prevail at arbitration. All the submissions on behalf of the Company have been properly prepared, reviewed and filed and the arbitrator’s award is expected to be issued within the next 45 to 60 days.
In addition, the Company included in the claim both the damages that it has suffered due to the unlawful breach of MoA by the buyers as well as all the related expenses it has incurred due to the buyers’ default under the MoA. As of December 31, 2023, the Company has included the amount of $115,000 in ‘Prepaid expenses and other assets’ in the accompanying consolidated balance sheets.
In light of the ongoing nature of the dispute, the Company has followed the provisions of ASC 450-30-25-1 and has not recorded the expected gain on the sale of the M/V Magic Moon in its financial statements for the year ended December 31, 2023.
Separately, the M/V Magic Moon was arrested by the buyers to secure a claim before the Korean courts for the amount of $1,395,000, equal to the amount of the deposit and the Company paid a counter-security of $1,395,000 for the purpose of lifting the arrest of the vessel. The Company has applied to the Korean courts to decide the issue of the return of the counter-security to the Company. While the Company is unable to provide any assurances as to the ultimate outcome of the case, it believes it will prevail in its request from the courts in Korea to award to the Company the return of the counter-security. The Company has included the $1,395,000 in ‘Prepaid expenses and other assets’ in the accompanying consolidated balance sheets for the year ended December 31, 2023 incurred in connection with the cash deposit made by the Company for the purpose of lifting the arrest of the M/V Magic Moon.
It is possible that from time to time in the ordinary course of business the Company may be involved in legal proceedings or investigations, which could have an adverse impact on its reputation, business and financial condition and divert the attention of management from the operation of the business. However, the Company believes that the current legal proceedings are not expected to have a material adverse effect on its business, financial position or results of operations.
| 13. | Earnings Per Common Share: |
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, 2023, the effect of the warrants outstanding during that period and as of that date, would be antidilutive, hence they were excluded from the computation of diluted earnings per share. For the purpose of calculating diluted earnings per common share, the weighted average number of diluted shares outstanding includes the conversion of outstanding Series D Preferred Shares (Note 10) calculated with the “if converted” method by using the average closing market price over the reporting period from August 7, 2023 (the date of their issuance) to December 31, 2023.
For the year ended December 31, 2022, the effect of the 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.
The components of the calculation of basic and diluted earnings / (loss) per common share are as follows:
| | | | | | Year ended December 31, | | | Year ended December 31, | |
| | | 2021
| | | 2022
| | | 2023
| |
| Net income and comprehensive income from continuing operations, net of taxes | | | 52,811,783 | | | | 66,540,925 | | | | 21,303,156 | |
| Net (loss) / income and comprehensive income / (loss) from discontinued operations, net of taxes | | | (541,296 | ) | | | 52,019,765 | | | | 17,339,332 | |
| Net income and comprehensive income | | $ | 52,270,487 | | | $ | 118,560,690 | | | $ | 38,642,488 | |
| Less: Deemed dividend on Series A Preferred Shares | | | (11,772,157 | ) | | | —
| | | | —
| |
| Less: Dividend on Series D Preferred Shares | | | — | | | | — | | | | (1,020,833 | ) |
Less: Deemed dividend on Series D Preferred Shares
| | | — | | | | — | | | | (196,296 | ) |
Less: Deemed dividend on warrants repurchased
| | | — | | | | —
| | | | (444,885 | ) |
Net income and comprehensive income available to common shareholders, basic
| | | 40,498,330 | | | | 118,560,690 | | | | 36,980,474 | |
| Dividend on Series D Preferred Shares | | | — | | | | — | | | | 1,020,833 | |
| Deemed dividend on Series D Preferred Shares | | | — | | | | — | | | | 196,296 | |
| Net income attributable to common shareholders, diluted | | | 40,498,330 | | | | 118,560,690 | | | | 38,197,603 | |
| | | | | | | | | | | | | |
Weighted average number of common shares outstanding, basic
| | | 83,923,435 | | | | 94,610,088 | | | | 95,710,781 | |
Effect of dilutive shares
| | | 1,409,293 | | | | — | | | | 123,819,466 | |
| Weighted average number of common shares outstanding, diluted | | | 85,332,728 | | | | 94,610,088 | | | | 219,530,247 | |
| | | | | | | | | | | | | |
Earnings per common share, basic, continuing operations
| | $ | 0.49 | | | $ | 0.70 | | | $ | 0.21 | |
| Earnings per common share, diluted, continuing operations | | $ | 0.48 | | | $ | 0.70 | | | $ | 0.10 | |
| (Loss) / Earnings per common share, basic, discontinued operations | | $ | (0.01 | ) | | $ | 0.55 | | | $ | 0.18 | |
| (Loss) / Earnings per common share, diluted, discontinued operations | | $ | (0.01 | ) | | $ | 0.55 | | | $ | 0.08 | |
Earnings per common share, basic, Total
| | $ | 0.48 | | | $ | 1.25 | | | $ | 0.39 | |
Earnings per common share, diluted, Total
| | $ | 0.47 | | | $ | 1.25 | | | $ | 0.17 | |
| 14. | Total Vessel Revenues: |
The following table includes the vessel revenues earned by the Company in each of the years ended December 31, 2021, 2022 and 2023, as presented in the accompanying consolidated statements of comprehensive income:
| | | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | |
| | | 2021
| | | 2022
| | | 2023
| |
| Time charter revenues | | | 102,785,442 | | | | 150,216,130 | | | | 97,515,511 | |
| Total Vessel revenues | | $ | 102,785,442 | | | $ | 150,216,130 | | | $ | 97,515,511 | |
During each of the years ended December 31, 2021, 2022 and 2023, the Company generated its revenues from time charters.
The Company typically enters into fixed rate or index-linked rate charters 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.
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.
| 15. | Vessel Operating Expenses and Voyage Expenses: |
The amounts in the accompanying consolidated statements of comprehensive income are analyzed as follows:
| | | Year ended | | | Year ended December 31, | | | Year ended December 31, | |
| Vessel Operating Expenses | | 2021
| | | 2022
| | | 2023
| |
| Crew & crew related costs | |
| 14,494,527 | | | | 21,567,463 | | | | 21,790,625 | |
| Repairs & maintenance, spares, stores, classification, chemicals & gases, paints, victualling | | | 6,661,392 | | | | 11,289,623 | | | | 10,387,925 | |
| Lubricants | | | 1,774,852 | | | | 2,476,027 | | | | 2,748,208 | |
| Insurances | | | 2,250,295 | | | | 3,286,750 | | | | 3,503,257 | |
| Tonnage taxes | | | 445,132 | | | | 885,881 | | | | 872,702 | |
| Other | | | 1,215,402 | | | | 1,753,810 | | | | 2,610,911 | |
| Total Vessel operating expenses | | $ | 26,841,600 | | | $ | 41,259,554 | | | $ | 41,913,628 | |
| | | Year ended | | | Year ended December 31, | | | Year ended December 31, | |
| Voyage expenses | | 2021
| | | 2022
| | | 2023
| |
| Brokerage commissions | |
| 1,212,587 | | | | 1,842,495 | | | | 1,900,940 | |
Brokerage commissions- related party
| | | 1,299,108 | | | | 1,944,288 | | | | 1,274,384 | |
| Port & other expenses | | | 604,537 | | | | 858,827 | | | | 615,838 | |
Bunkers consumption
| | | 1,490,825 | | | | 2,713,216 | | | | 1,114,356 | |
| (Gain) / loss on bunkers | | | (2,715,792 | ) | | | (3,637,549 | ) | | | 146,710 | |
| Total Voyage expenses | | $ | 1,891,265 | | | $ | 3,721,277 | | | $ | 5,052,228 | |
| 16. | General and Administrative Expenses: |
General and administrative expenses are analyzed as follows:
| | Year ended | | | Year ended December 31, | | | Year ended December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| Non-executive directors’ compensation | | $ | 48,000 | | | $ | 72,000 | | | $ | 72,000 | |
Audit fees
| | | 265,744 | | | | 503,187 | | | | 249,217 | |
Professional fees and other expenses
| | | 1,752,566 | | | | 4,368,750 | | | | 2,261,154 | |
Administration fees-related party (Note 4(a))
| | | 1,200,000 | | | | 2,100,000 | | | | 3,099,000 | |
| Total | | $ | 3,266,310 | | | $ | 7,043,937 | | | $ | 5,681,371 | |
| 17. | Interest and Finance Costs: |
The amounts in the accompanying consolidated statements of comprehensive income are analyzed as follows:
| | | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | |
| | 2021
| | | 2022
| | | 2023
| |
| Interest on long-term debt | | $ | 1,645,490 | | | $ | 6,816,153 | | | $ | 9,826,795 | |
| Interest on long-term debt – related party (Note 4 (e)) | | | 204,167 | | | | — | | | | — | |
| Amortization and write-off of deferred finance charges | | | 319,840 | | | | 730,513 | | | | 888,523 | |
| Other finance charges | | | 179,490 | | | | 134,816 | | | | 544,325 | |
| Total | | $ | 2,348,987 | | | $ | 7,681,482 | | | $ | 11,259,643 | |
Castor and its subsidiaries are incorporated under the laws of the Republic of the Marshall Islands and theybut 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).income.
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.
For
In the year ended December 31, 2020, the Company determined thatCompany’s case, 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 2022. It will be disclosed again when the 50% Ownership Test as itCompanyfiles its U.S. tax returns for 2023.
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 $177,794 and $388,669 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, in the U.S. 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.
As a result, U.S. source income taxes of approximately $21,640 were recognized in the accompanying consolidated comprehensive income/(loss) for the year ended December 31, 2020.
11.Earnings/ (Loss) Per Share:
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 adjusting for the effect of cumulative dividends on the Series A Preferred Shares, whether or not earned, and only at periods when dividends on the Series A Preferred Shares are contractually allowed to accumulate.
Diluted earnings/(loss) per 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. As of December 31, 2020, securities that could potentially dilute basic loss per share that were excluded from the computation of diluted loss per share, because to do so would have been antidilutive for the period presented, were the incremental shares in connection with the unexercised, 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 and the year ended December 31, 2019.
The components of the calculation of basic and diluted net loss per common share in each of the periods comprising the accompanying consolidated statements of comprehensive income/(loss) are as follows:
CASTOR MARITIME INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in U.S. Dollars – except for share data unless otherwise stated) |
11. | Earnings/ (Loss) Per Share (continued): |
| | | 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 | ) |
12. | Vessel Operating and Voyage Expenses: |
The amountstax in the accompanying consolidated statements of comprehensive income/(loss) are analyzed as follows:
| | | 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 | |
CASTOR MARITIME INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in U.S. Dollars – exceptincome for share data unless otherwise stated) |
13. | General and Administrative Expenses: |
General and administrative expenses include costs in relation to the administration of the Company and its non-recurring public registration costs.
Company Administration Expenses: Company administration expenses are analyzed as follows:
| | | 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 | |
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(d) above).
Public Registration Costs: During the year ended September 30, 2018, the Transition Period ended December 31, 2018 and the years ended December 31, 20192023 and 2020,December 31, 2022, respectively. In addition, U.S. source gross transportation income taxes of $291,165 were recognized in its consolidated statement of comprehensive income for the year ended December 31, 2021.
In late 2022, the Company incurred public registration costsacquired two containerships. As a result of $350,167, $161,116, $132,091 and $0 respectively. Public registration costs relatethe different characteristics of such containerships in relation to the costs incurred byCompany’s other operating segments, the Company determined that, with effect from the fourth quarter of 2022, it operated in connection withtwo reportable segments: (i) the dry bulk segment and (ii) the containership segment, each on a continued operations basis. 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 containerized products, which are carried by containerships. Furthermore, the nature of trade, as well as the trading routes, charterers and cargo handling, is different in the containership segment and the dry-bulk segment.
The table below presents information about the Company’s registrationreportable segments as of and listingfor the years ended December 31, 2021, 2022, and 2023. The accounting policies followed in the preparation of its 2,400,000 issued and outstanding common sharesthe reportable segments are the same as those followed in the preparation of the Company’s consolidated financial statements. Segment results are evaluated based on the Norwegian OTC on December 21, 2018 and the NASDAQ Stock Market on February 11, 2019. Apartincome from registration and listing costs, public registration costs further include legal, consultancy and other costs incurred in connection with the subject listings.operations.
| | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | |
| | | 2021 | | | 2022 | | | 2023 | |
| | | Dry bulk segment | | | Dry bulk segment | | | Container ship segment | | | Total | | | Dry bulk segment | | | Container ship segment | | | Total | |
| - Time charter revenues | | $ | 102,785,442 | | | $ | 148,930,997 | | | $ | 1,285,133 | | | $ | 150,216,130 | | | $ | 82,996,018 | | | $ | 14,519,493 | | | $ | 97,515,511 | |
| Total vessel revenues | | $ | 102,785,442 | | | $ | 148,930,997 | | | $ | 1,285,133 | | | $ | 150,216,130 | | | $ | 82,996,018 | | | $ | 14,519,493 | | | $ | 97,515,511 | |
| Voyage expenses (including charges from related party) | | | (1,891,265 | ) | | | (3,649,944 | ) | | | (71,333 | ) | | | (3,721,277 | ) | | | (4,425,879 | ) | | | (626,349 | ) | | | (5,052,228 | ) |
| Vessel operating expenses | | | (26,841,600 | ) | | | (40,697,898 | ) | | | (561,656 | ) | | | (41,259,554 | ) | | | (36,876,772 | ) | | | (5,036,856 | ) | | | (41,913,628 | ) |
| Management fees to related parties | | | (4,890,900 | ) | | | (6,481,000 | ) | | | (81,400 | ) | | | (6,562,400 | ) | | | (6,469,699 | ) | | | (697,698 | ) | | | (7,167,397 | ) |
| Depreciation and amortization | | | (10,528,711 | ) | | | (18,039,966 | ) | | | (495,271 | ) | | | (18,535,237 | ) | | | (16,689,989 | ) | | | (5,386,842 | ) | | | (22,076,831 | ) |
| Provision for doubtful accounts | | | (2,483 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net gain on sale of vessels | | | — | | | | — | | | | — | | | | — | | | | 6,383,858 | | | | — | | | | 6,383,858 | |
| Segments operating income/(loss) | | $ | 58,630,483 | | | $ | 80,062,189 | | | $ | 75,473 | | | $ | 80,137,662 | | | $ | 24,917,537 | | | $ | 2,771,748 | | | $ | 27,689,285 | |
| Interest and finance costs | | | (2,125,307 | ) | | | | | | | | | | | (7,642,577 | ) | | | | | | | | | | | (10,883,521 | ) |
| Interest income | | | 11,000 | | | | | | | | | | | | 1,282,756 | | | | | | | | | | | | 2,631,798 | |
| Foreign exchange (losses)/gains | | | 15,999 | | | | | | | | | | | | 105,314 | | | | | | | | | | | | (84,127 | ) |
| Less: Unallocated corporate general and administrative expenses | | | (3,266,310 | ) | | | | | | | | | | | (7,043,937 | ) | | | | | | | | | | | (5,681,371 | ) |
| Less: Corporate Interest and finance costs | | | (223,680 | ) | | | | | | | | | | | (38,905 | ) | | | | | | | | | | | (376,122 | ) |
| Less: Corporate Interest income | | | 63,472 | | | | | | | | | | | | 72,735 | | | | | | | | | | | | 578,088 | |
| Less: Corporate exchange (losses)/ gains | | | (2,709 | ) | | | | | | | | | | | 4,568 | | | | | | | | | | | | (8,618 | ) |
| Dividend income on equity securities | | | — | | | | | | | | | | | | 24,528 | | | | | | | | | | | | 1,312,222 | |
| Dividend income from related party | | | — | | | | | | | | | | | | — | | | | | | | | | | | | 1,166,667 | |
| Gains on equity securities | | | — | | | | | | | | | | | | 27,450 | | | | | | | | | | | | 5,136,649 | |
| Net income and comprehensive income from continuing operations, before taxes | | $
| 53,102,948 | | | | | | | | | | | $
| 66,929,594 | | | | | | | | | | | $ | 21,480,950 | |
| Net (loss) / income and Comprehensive (loss) / income from discontinued operations, before taxes | | | (335,122 | ) | | | | | | | | | | | 52,979,946 | | | | | | | | | | | | 17,513,269 | |
| Net income and Comprehensive income, before taxes | |
| 52,767,826 | | | | | | | | | | |
| 119,909,540 | | | | | | | | | | |
| 38,994,219 | |
14. | Interest and Finance Costs: |
The amountsF-49
19. Segment Information (continued):
A reconciliation of total segment assets to total assets presented in the accompanying consolidated balance sheets are analyzedof December 31, 2022 and 2023, is as follows:
| | | 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 | |
| | | As of
December 31, 2022
| | | As of
December 31, 2023
| |
| Dry bulk segment | | $ | 339,780,007 | | | $ | 259,759,770 | |
| Containership segment | | | 52,872,276 | | | | 46,202,603 | |
Cash and cash equivalents (1) | | | 82,336,438 | | | | 103,822,505 | |
Prepaid expenses and other assets (1) | | | 680,745 | | | | 195,257,101 | |
Total assets from continuing operations
| | $
| 475,669,466 | | | $ | 605,041,979 | |
| Total assets from discontinued operations | | $ | 157,479,104 | | | $
| — | |
| Total consolidated assets | | $ | 633,148,570 | | | $ | 605,041,979 | |
CASTOR MARITIME INC.(1)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(ExpressedRefers to assets of other, non-vessel owning, entities included in U.S. Dollars – except for share data unless otherwise stated)the consolidated financial statements. |
| (a) | Sale of the M/V Magic Moon: On January 16, 2024, the Company completed the previously announced sale of the M/V Magic Moon by delivering the vessel to its new owners. Please refer to Note 7. Following the completion of the sale, on January 16, 2024, Alpha Bank entered into a deed of partial release, with respect to the M/V Magic Moon, releasing and discharging the underlying borrower and all securities created over the M/V Magic Moon in full after the settlement of the outstanding balance of $2.4 million under the $11.0 million term loan facility.
|
| (b) | Sale of the M/V Magic Horizon: On January 19, 2024, the Company entered into an agreement with an entity beneficially owned by a family member of Petros Panagiotidis, for the sale of the M/V Magic Horizon for a gross sale price of $15.8 million. The vessel is expected to be delivered to its new owners during the first quarter of 2024. The Company expects to record during the first quarter of 2024 a net gain of approximately $4.6 million, excluding any transaction-related costs. |
| (c) | Sale of the M/V Magic Nova: On January 19, 2024, the Company entered into an agreement with an entity beneficially owned by a family member of Petros Panagiotidis, for the sale of the M/V Magic Nova for a gross sale price of $16.1 million. The vessel is expected to be delivered to its new owners during the first quarter of 2024. The Company expects to record during the first quarter of 2024 a net gain of approximately $4.4 million, excluding any transaction-related costs. |
| (d) | Sale of the M/V Magic Nebula:On February 15, 2024, the Company entered into an agreement with an entity beneficially owned by a family member of Petros Panagiotidis, for the sale of the M/V Magic Nebula for a gross sale price of $16.2 million. The vessel is expected to be delivered to its new owners during the second quarter of 2024. The Company expects to record during the second quarter of 2024 a net gain of approximately $2.5 million, excluding any transaction-related costs.
|
| (e) | Dividend on Series D Preferred Shares: On January 16, 2024, the Company paid to Toro a dividend (declared on December 27, 2023) amounting to $625,000 on the Series D Preferred Shares for the dividend period from October 15, 2023, to January 14, 2024. |
F-50
(a) Equity Offerings:
Second Registered Direct Equity Offering: On December 30, 2020, the Company entered into agreements with certain unaffiliated institutional investors pursuant to which it offered and sold 94,750,000 common shares and warrants to purchase 94,750,000 common shares (the “January 5 Warrants”) in a registered direct offering. In connection with this offering, which closed on January 5, 2021, the Company received gross proceeds of approximately $18.0 million.
Third Registered Direct Equity Offering: On January 8, 2021, the Company entered into agreements with certain unaffiliated institutional investors pursuant to which it offered and sold 137,000,000 common shares and warrants to purchase 137,000,000 common shares (the “January 12 Warrants”) in a registered direct offering. In connection with this offering, which closed on January 12, 2021, the Company received gross proceeds of approximately $26.0 million.
(b) Vessel Acquisitions:
On January 20, 2021, the Company entered into an agreement with an unaffiliated third party for the purchase of the Magic Orion, a secondhand 2006 Japanese-built Capesize dry bulk carrier for a purchase price of $17.5 million. The Magic Orion was delivered to the Company on March 17, 2021 and was financed in its entirety with cash on hand.
On January 28, 2021, the Company entered into an agreement with an unaffiliated third party for the purchase of the Magic Venus, a secondhand 2010 Japanese-built Kamsarmax dry bulk carrier for a purchase price of $15.85 million. The Magic Venus was delivered to the Company on March 2, 2021 and was financed in its entirety with cash on hand.
On February 2, 2021, the Company entered into an agreement with an unaffiliated third party for the purchase of the Magic Argo, a secondhand 2009 Japanese-built Kamsarmax dry bulk carrier for a purchase price of $14.5 million. The Magic Argo was delivered to the Company on March 18, 2021 and was financed in its entirety with cash on hand.
On February 5, 2021, the Company entered into agreements to purchase two 2005 Korean-built Aframax LR2 tankers from an unaffiliated third-party seller for an aggregate purchase price of $27.2 million. Both vessels have attached time charter contracts with a reputable charterer with an estimated remaining term of about one year, each of which shall provide the Company with a minimum gross daily hire of $15,000 and have a 50% profit sharing arrangement over such level based on a predetermined formula. The charterer has the option to extend the duration of each contract for an additional one-year term. The M/T Wonder Polaris and the M/T Wonder Sirius were delivered to the Company on March 11, 2021 and March 22, 2021, respectively. Both acquisitions were financed in their entirety with cash on hand.
On February 18, 2021, the Company entered into an agreement with an unaffiliated third party for the purchase of a secondhand 2010 Korean-built Kamsarmax dry bulk carrier for a purchase price of $14.8 million. The acquisition is expected to be consummated by taking delivery of the vessel sometime in the beginning of the second quarter of 2021 and is expected to be financed in its entirety with cash on hand.
On March 9, 2021, the Company entered into an agreement with an unaffiliated third party for the purchase of a secondhand 2010 Korean-built Kamsarmax dry bulk carrier for a purchase price of $15.5 million. The acquisition is expected to be consummated by taking delivery of the vessel within the second quarter of 2021 and is expected to be financed in its entirety with cash on hand.
On March 11, 2021, the Company entered into an agreement with an unaffiliated third party for the purchase of a secondhand 2011 Japanese-built Kamsarmax dry bulk carrier for a purchase price of $16.9 million. The acquisition is expected to be consummated by taking delivery of the vessel sometime between the second and third quarter of 2021 and is expected to be financed in its entirety with cash on hand.
CASTOR MARITIME INC. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Expressed in U.S. Dollars – except for share data unless otherwise stated) |
15. | Subsequent Events (continued): |
(c) Entry into $15.3 Million Debt Financing: On January 22, 2021, the Company, through two of its ship-owning subsidiaries, entered into a $15.3 million senior secured post-delivery term loan facility with Hamburg Commercial AG (the “$15.3 Million Hamburg Facility”). The $15.3 Million Hamburg Facility was drawn in full on January 27, 2021. The facility has a tenor of four years from the drawdown date, bears interest at 3.30% plus LIBOR per annum, and is secured by first mortgages on the Magic Horizon and the Magic Nova.
(d) $5.0 Million Term Loan Facility Extension: On March 2, 2021, the Company entered into a supplemental agreement pursuant to which it extended its originally maturing on March 3, 2021, $5.0 Million Term Loan Facility for an additional six-month period on terms similar with those of the initial loan agreement.
(e) Subsequent Warrant Exercises: Subsequent to December 31, 2020 and up to March 25, 2021, there have been exercises of 55,374,200 Class A Warrants, 57,071,360 Private Placement Warrants, 94,750,000 January 5 Warrants and 137,000,000 January 12 Warrants which resulted in the issuance of an equivalent number of the Company’s common shares and proceeds to the Company of approximately $83.4 million.
F-31