OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective December 21, 2015, the U.S. Coast GuardUSCG adjusted the limits of OPA liability for non-tank vessels, (e.g. drybulk)edible oil tank vessels, and any oil spill response vessels, to the greater of $1,100 per gross ton or $939,800 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsibility 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 damagedamages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We plan to comply with the U.S. Coast Guard'sUSCG's financial responsibility regulations by providing a certificateapplicable certificates of responsibility evidencing sufficient self-insurance.financial responsibility.
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. InMany U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted suchthis type of legislation have not yet issued implementing regulations defining vesseltanker owners' responsibilities under these laws. The Company intends to comply with all applicable state regulations in the ports where the Company's vessels call.
The EPA requires a permit regulating ballast water discharges and other discharges incidental to the normal operation of certain vessels within U.S.United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels ("VGP"( the "VGP"). On March 28, 2013, the EPA re-issued the VGP for another five years from the effective date of December 19, 2013. The 2013 VGP focuses on authorizing 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. For a new vessel delivered to an owner or operator after SeptemberDecember 19, 20092013 to be covered by the VGP, the owner must submit a Notice of Intent ("NOI") at least 30 days (or 7 days for eNOIs) before the vessel operates in U.S.United States waters. On March 28, 2013, the EPA re-issued the VGPWe have submitted NOIs for another five years. This VGP took effect on December 19, 2013. our vessels where required.
water before it is discharged or the implementation of other port facility disposal arrangements or procedures, and/or may otherwise restrict our vessels from entering U.S. waters. The USCG has implemented revised regulations on ballast water management by establishing standards on the allowable concentration of living organisms in ballast water discharged from ships in U.S. waters. As of January 1, 2014, vessels were technically subject to the phasing-in of these standards, and the USCG must approve any technology before it is placedplaces on a vessel, but has not yetvessel. The USCG first approved thesaid technology necessary for vesselsin December 2016, and continues to meet the foregoing standards.
The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. On December 27, 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers. ItIn addition, through the CWA certification provisions that allow U.S. states to place additional conditions on the use of the VGP within state waters, a number of states have proposed or implemented a variety of stricter ballast requirements including, in some states, specific treatment standards. Compliance with the EPA, USCG and state regulations could require 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 cost, or may otherwise restrict our vessels from entering U.S. waters.
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, ("UNFCCC"), which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions. The 2015 United Nations Convention on Climate Change Conference in Paris did not result in an agreement that directly limited greenhouse gas emissions from ships. On January 1, 2013, two new sets of mandatory requirements to address greenhouse gas emissions from ships, which were adopted in July 2011, entered into force. Currently operating ships are required to develop SEEMPs, and minimum energy efficiency levels per capacity mile, as outlined in the EEDI, apply to new ships. These requirements could cause us to incur additional compliance costs.
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 or MTSA.("MTSA"). To implement certain portions of the MTSA in July 2003, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements onStates and at certain ports and facilities, some of which are regulated by the U.S. Environmental Protection Agency (EPA).EPA.
| · | compliance with flag state security certification requirements. |
Ships operating without a valid certificate may be detained at port until it obtains an ISSC, expelled from port, or refused entry at port.
Furthermore, additional security measures could be required in the future which could have a significant financial impact on us. The U.S. Coast GuardUSCG regulations, intended to be aligned with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel's compliance with the SOLAS Convention security requirements and the ISPS Code. Our vessels are in complianceFuture security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the MTSA, SOLAS Convention and the ISPS Code. We do not believe these additional requirements will have a material financial impact on our operations.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified "in class" by a classification society which is a member of the International Association of Classification Societies,
(the IACS).the IACS. In December 2013,The IACS has adopted new harmonized Common Structural Rules, or the Rules, which apply to oil tankers and bulk carriers constructed on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. All of our vessels are certified as being "in class" by all the applicable Classification Societies (e.g., American Bureau of Shipping, Lloyd's Register of Shipping). Our vessels are currently classed with Lloyd's Register of Shipping, Bureau Veritas and Nippon Kaiji Kyokai. ISM and ISPS certification have been awarded by Bureau Veritas and the Panama Maritime Authority to our vessels and Eurobulk, our ship management company.
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel. Vessels under five years of age can waive dry docking in order to increase available days and decrease capital expenditures, provided the vessel is inspected underwater. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan
agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
The following table lists the drydocking or special survey for the vessels in our current fleet.
Vessel | | Next | | Type |
| | |
MANOLIS P | June 2018 | Intermediate Survey |
NINOS | | July 2018 | | DrydockingIntermediate Survey |
KUO HSIUNG EM ATHENS | | July 2016 | | Drydocking |
MANOLIS P
| | MayDecember 2018 | | Special Survey |
CAPTAIN COSTAS (*)EM ASTORIA | | July 2017 | April 2019 | Special Survey |
EVRIDIKI G | May 2019 | June 2016Intermediate Survey |
JOANNA P | June 2019 | Special Survey |
MONICA P
| | May 2016 | | Drydocking |
ELENI P
| | March 2017 | | Special Survey |
PANTELIS
| | January 2018 | | Drydocking |
VENTO DI GRECALE | | June 2017 | | Drydocking |
EIRINI P | May 2019 | June 2017 | | DrydockingSpecial Survey |
XENIAEM CORFU | | February 2021 | October 2019 | Special Survey |
AGGELIKI P
| AKINADA BRIDGE | October 20172019 | Special Survey |
KUO HSIUNG | DrydockingNovember 2019 | Special Survey |
PANTELIS | June 2020 | Special Survey |
TASOS | June 2020 | Special Survey |
EM OINOUSSES | September 2020 | Special Survey |
AEGEAN EXPRESS | October 2020 | Special Survey |
XENIA | February 2021 | Special Survey |
ALEXANDROS P | January 2022 | Special Survey |
(*) The Company has signed a memorandum of agreement to sell this vessel. The sale is expected to occur in May 2016 and to result in gross proceeds of $2.77 million.Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we consider it appropriate), which covers business interruptions that result in the loss of use of a vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs."
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Our vessels are members of the UK Club and The Standard Club. Each P&I Association has capped its exposure to this pooling agreement at $4.5 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.
C. | Organizational structure |
Euroseas is the sole owner of all outstanding shares of the subsidiaries listed in Note 1 of our consolidated financial statements under "Item 18. Financial Statements" and in Exhibit 8.1 to this annual report.
D. | Property, plants and equipment |
We do not own any real property. As part of the management services provided by Eurobulk during the period in which we have conducted business to date, we have shared, at no additional cost, offices with Eurobulk. We do not have current plans to lease or purchase office space, although we may do so in the future.
Our interests in our vessels are owned through our wholly-owned vessel owning subsidiaries and these are our only material properties. Please refer to Note 1, "Basis of representationPresentation and General Information", of the attached Financial Statements for a listing of our vessel owning subsidiaries. Our vessels are subject to priority mortgages, which secure our obligations under our various credit facilities. For further details regarding our credit facilities, refer to "Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Credit Facilities."
Item 4A. | Item 4A. Unresolved Staff Comments |
None.
Item 5. | Operating and Financial Review and Prospects |
The following discussion should be read in conjunction with "Item 3. Key Information – D. Risk Factors", "Item 4. Business Overview", and our financial statements and footnotes thereto contained in this annual report. This discussion contains forward-looking statements, which are based on our assumptions about the future of our business. Our actual results may differ materially from those contained in the forward-looking statements. Please read "Forward-Looking Statements" for additional information regarding forward-looking statements used in this annual report. Reference in the following discussion to "we," "our" and "us" refer to Euroseas and our subsidiaries, except where the context otherwise indicates or requires.
We actively manage the deployment of our fleet between spot market voyage charters, which generally last from several days to several weeks, and time charters, which can last up to several years. Some of our vessels may participate in shipping pools, or, in some cases in contracts of affreightment. We may also use FFA contracts to provide partial coverage for our drybulk vessels -– as a substitute for time charters -– in order to increase the predictability of our revenues. As of April 1, 2016, all but one of our vessels are under contract (except three still under construction).
Vessels operating on time charters provide more predictable cash flows but can yield lower profit margins than vessels operating in the spot market during periods characterized by favorable market conditions. Vessels operating in the spot market generate revenues that are less predictable but may enable us to achieve increased profit margins during periods of high vessel rates although we are exposed to the risk of declining vessel rates, which may have a materially adverse impact on our financial performance. Vessels operating in pools benefit from better scheduling, and thus increased utilization, and better access to contracts of affreightment due to the larger commercial operation of the pool. We are constantly evaluating opportunities to increase the number of our vessels deployed on time charters or to participate in shipping pools (if available for our vessels), however we only expect to enter into additional time charters or shipping pools if we can obtain contract terms that satisfy our criteria. Containerships are employed almost exclusively on time charter contracts. We carefully evaluate the length and the rate of the time charter contract at the time of fixing or renewing a contract considering market conditions, trends and expectations.
We constantly evaluate vessel purchase opportunities to expand our fleet accretive to our earnings and cash flow. Additionally, we will consider selling certain of our vessels when favorable sales opportunities present themselves. If, at the time of sale, the carrying value is less than the sales price, we will realize a gain on sale, which will increase our earnings, but if, at the time of sale, the carrying value of a vessel is more than the sales price, we will realize a loss on sale, which will negatively impact our earnings. Please see "Critical Accounting Policies", below, for a further discussion of the consequences of selling our vessels for amounts below their carrying values.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in the results of our operations consist of the following:
Calendar days. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period.
Available days. We define available days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled repairs, drydockings or special or intermediate surveys. The shipping industry uses available days to measure the number of days in a period during which vessels were available to generate revenues.
Voyage days. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled and unscheduled repairs, drydockings or special or intermediate surveys or days waiting to find employment.employment but including days our vessels were sailing for repositioning. The shipping industry uses voyage days to measure the number of days in a period during which vessels actually generate revenues.
Fleet utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our available days during that period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire either waiting to find employment, or commercial off-hire, or for reasons such as unscheduled repairs or other off-hire time related to the operation of the vessels, or operational off-hire. We distinguish our fleet utilization into commercial and operational. We calculate our commercial fleet utilization by dividing our available days net of commercial off-hire days during a period by our available days during that period. We calculate our operational fleet utilization by dividing our available days net of operational off-hire days during a period by our available days during that period.
Spot Charter Rates. Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. The fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes.
Time Charter Equivalent, or TCE. A standard maritime industry performance measure used to evaluate performance is the daily time charter equivalent, or daily TCE. Daily TCE revenues are voyage revenues minus voyage expenses divided by the number of voyage days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter whereas under spot market voyage charters, we pay such voyage expenses. We believe that the daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employment of drybulk carriers on time charter or on the spot market (containership are chartered on a time charter basis) and presents a more accurate representation of the revenues generated by our vessels.
Basis of Presentation and General Information
We use the following measures to describe our financial performance:
Voyage revenues. Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charter hire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the transportation market, the number of vessels on time charters, spot charters and in pools and other factors affecting charter rates in both the drybulk carrier and containership markets.
Commissions. We pay commissions on all chartering arrangements of 1.25% to Eurochart, one of our affiliates, plus additional commission of usually up to 5% to other brokers involved in the transaction.transaction, plus address commission of up to 3.75% deducted from charter hire. These additional commissions, as well as changes to charter rates will cause our commission expenses to fluctuate from period to period. Eurochart also receives a fee equal to 1% calculated as stated in the relevant memorandum of agreement for any vessel sold by it on our behalf.
Voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage which would otherwise be paid by the charterer under a time charter contract, as well as commissions.contract. Under time charters, the charterer pays voyage expenses whereas under spot market voyage charters, we pay such expenses. The amounts of such voyage expenses are driven by the mix of charters undertaken during the period.
Vessel operating expenses. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically changed in line with the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general (including, for instance, developments relating to market prices for insurance or inflationary increases) may also cause these expenses to increase.
ManagementRelated party management fees. These are the fees that we pay to our affiliated ship managers under our management agreements for the technical and commercial management that Eurobulk and Eurobulk FE perform on our behalf.
Vessel depreciation. We depreciate our vessels on a straight-line basis with reference to the cost of the vessel, age and scrap value as estimated at the date of acquisition. Depreciation is calculated over the remaining useful life of the vessel. Remaining useful lives of property are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of estimated lives are recognized over current and future periods.
Drydocking and special survey expense. Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are trading. Drydocking and special survey expenses are accounted on the direct expense method as this method eliminates the significant amount of time and subjectivity to determine which costs and activities related to drydocking and special survey should be deferred.
Interest expense and loan costs. We traditionally finance vessel acquisitions partly with debt on which we incur interest expense. The interest rate we pay is generally linked to the 3-month LIBOR rate, although from time to time we may utilize fixed rate loans or could use interest rate swaps to eliminate our interest rate exposure. Interest due is expensed in the period incurred. Loan costs are deferred and amortized over the period of the loan; the un-amortized portion is written-off if the loan is prepaid early.
Other general and administrative expenses. We incur expenses consisting mainly of executive compensation, professional fees, directors' liability insurance and reimbursement of our directors' and officers' travel-related expenses. We acquire executive services of our chief executive officer, chief financial officer, chief administrative officer, internal auditor and corporate secretary, through Eurobulk as part of our Master Management Agreement.
In evaluating our financial condition, we focus on the above measures to assess our historical operating performance and we use future estimates of the same measures to assess our future financial performance. In addition, we use the amount of cash at our disposal and our total indebtedness to assess our short term liquidity needs and our ability to finance additional acquisitions with available resources (see also discussion under "Capital Expenditures" below). In assessing the future performance of our present fleet, the greatest uncertainty relates to the spot market performance which affects those of our vessels that are not employed under fixed time charter contracts as well as the level of the new charter rates for the charters that are to expire. Decisions about the acquisition of additional vessels or possible sales of existing vessels are based on financial and operational evaluation of such action and depend on the overall state of the drybulk and containership vessel market, the availability of purchase candidates, available employment, anticipated drydocking cost and our general assessment of economic prospects for the sectors in which we operate.
Results from Operations
Year ended December 31, 20152017 compared to year ended December 31, 20142016
Voyage revenues. Voyage revenues for 20152017 amounted to $39.66$45.12 million, decreasingincreasing by 6.9%51% compared to the year ended December 31, 20142016 during which voyage revenues amounted to $42.59$29.79 million. This decrease was primarily due to the increased commercial off-hire days for our fleet during 2015 as compared to 2014. In 2015,2017, we operated an average of 14.7414.2 vessels, a marginal23% increase over the average of 14.611.52 vessels we operated during the same period in 2014, and2016. In the year 2017 our fleet had 4,9334,965 voyage days earning revenue as compared to 5,1263,926 voyage days earning revenue in 2014.2016. While employed, our vessels generated a time-charter equivalent (or "TCE") rate, of $8,289 per day per vessel in 2017 compared to a TCE rate of $7,259 per day per vessel in 2016, an increase of 14%. The average TCE rate our vessels achieve is a combination of the time charter rate earned by our vessels under time charter contracts, which is not influenced by market developments during the duration of the charter (unless the two charter parties renegotiate the terms of the charter or the charterer is unable to make the contracted payments or we
enter into new charter party agreements), and the TCE rate earned by our vessels employed in the spot market which is influenced by market developments.
Commissions. We paid a total of $2.44 million in charter commissions for the year ended December 31, 2017, representing 5.4% of charter revenues. This represents an increase over the year ended December 31, 2016, where commissions paid were $1.60 million, representing 5.4% of voyage revenues.
Voyage expenses. Voyage expenses for the year were $3.96 million and relate to expenses for certain voyage charters. For the year ended December 31, 2016, voyage expenses amounted to $1.29 million. Our vessels are generally chartered under time charter contracts. Voyage expenses usually represent a small fraction (8.8% and 4.3% in each of 2017 and 2016, respectively) of voyage revenues. In 2017 some of our drybulk vessels were chartered on voyage charters to capitalise on the rising drybulk market, hence the higher percentage compared to 2016. Voyage expenses are dependent on the number of voyage charters, the cost of fuel, port costs and canal tolls and the number of days our vessels sailed without a charter.
Vessel operating expenses. Vessel operating expenses were $21.91 million in 2017 compared to $18.16 million in 2016. Daily vessel operating expenses per vessel amounted to $5,662 per day in 2017 versus $5,883 per day in 2016, a decrease of 3.8%.
Management fees. These are part of the fees we pay to Eurobulk and Eurobulk FE under our Master Management Agreement. During 2017, Eurobulk and Eurobulk FE charged us 685 Euros per day per vessel totalling $4.04 million for the year, or $779 per day per vessel. During 2016, Eurobulk and Eurobulk FE charged us 685 Euros per day per vessel totalling $3.18 million for the year, or $754 per day per vessel. The increase in the total amount of U.S. dollars paid within 2017 is due to the higher exchange rates of the Euro (€) with respect to the U.S. dollar compared to the previous year and the higher number of vessels operated within the year 2017 compared to the previous year.
Other general and administrative expenses. These expenses include the fixed portion of our management fees, incentive awards, legal and auditing fees, directors' and officers' liability insurance and other miscellaneous corporate expenses. In 2017, we had a total of $3.42 million of general and administrative expenses as compared to $3.47 million in 2016.
Drydocking expenses. These are expenses we pay for our vessels to complete a drydocking as part of an intermediate or special survey. In 2017, we had one vessel undergoing drydocking for a total of $0.7 million. During 2016, we had three vessels undergoing drydocking for a total of $2.2 million.
Vessel depreciation. Vessel depreciation for 2017 was $8.37 million. Comparatively, vessel depreciation for 2016 amounted to $8.8 million. Vessel depreciation in 2017 was lower compared to 2016, despite a higher number of vessels operated in 2017. This is due to the vessels acquired in 2016 and 2017 (M/Vs "Xenia" and "Alexandros P.") which have lower average daily depreciation charges compared to the fleet average, due to their lower initial values (acquisition prices) and greater remaining useful lives compared to the remaining vessels of our fleet.
Loss on write-down of vessels held for sale. The Company recorded a loss on write-down of a vessel held for sale of $4.6 million in 2017. This amount was booked in order to reduce the carrying value of two vessels to their fair values. These vessels are one dry-bulk vessel (M/V "Monica P") and one containership (M/V "Aggeliki P."), which were both classified as held for sale as of September 30, 2017. M/V "Aggeliki P". was sold in December 2017 for a net price of approximately $4.4 million. As of December 31, 2017 M/V "Monica P". was still held for sale. The Company reached an agreement to sell the vessel on March 19, 2018. The vessel will be delivered to its buyers by June 30, 2018. The Company recorded a loss on write-down of a vessel held for sale of $5.92 million in 2016. This amount was booked in order to reduce the carrying value of one dry-bulk vessel (M/V "Eleni P") held for sale as of December 31, 2016 to its fair value, the value that it was actually sold.
Interest and other financing costs. Interest expense and other financing costs for the year were $3.37 million. Comparatively, during the same period in 2016, interest and other financing costs amounted to $2.53 million. Interest incurred and loan fees were higher in 2017 due to the higher average outstanding debt during the year as compared to 2016.
Derivatives gain/loss. In 2017, we had a marginal realized gain of $0.02 million from the net interest settlement on our interest rate swap contracts that we entered into in October 2014 and August 2017 and an unrealized gain of $0.05 million from the mark to market valuation on the same interest rate swaps compared to a realized loss of $0.13 million and unrealized gain of $0.01 million in 2016. We had entered into the interest rate swaps to mitigate our exposure to possible increases in interest rates.
Impairment in Joint Venture. In 2016, the Company recorded an impairment of $14.07 million on its investment in Euromar reducing the carrying value of the investment to zero, due to persisting depressed market
environment and amended loan agreements based on which the Company concluded that its investment in Euromar was impaired and that the impairment was other than temporary.
Equity Loss in Joint Venture. As explained above, due to the impairment in Joint venture no equity loss was recorded in 2017. In 2016, we recognized a $2.44 million loss in our share in Euromar, compared to a $2.16 million loss in 2015. In September 2017, Euroseas acquired the 85.714% interest in Euromar it did not already own for nominal cost. As a result of the acquisition, Euromar, which was a joint venture among the Company and two private equity firms, became a wholly-owned subsidiary of the Company. However, its vessels were substantially under the control of its lenders and were all sold by the end of 2017, and, thus, it has not been consolidated in our results nor any gain or loss from it has been recognized
Other Investment Income. In 2016, we recognized $1.02 million income from accrued dividends relating to $5.00 million of funds we have made available to Euromar, $4.00 million of which remained in an escrow account as of December 31, 2016 and were available to be invested in Euromar if called by our partners in good faith, and the $1.00 million of such funds contributed to Euromar in 2014 in the form of Preferred Units. These funds accrued dividends in Preferred Units of Euromar. In December 2016, we determined that it was unlikely to recover any investment in Preferred Units of Euromar and recorded an impairment of $4.42 million representing the entire value of Preferred Units; we also stopped recognizing any additional accrued dividends. As of December 31, 2016, our Other Investment is shown in our Consolidated balance sheet at $4.00 million which represents the funds in the escrow account. During 2017, we continued not recognizing any accrued dividends and hence, other investment income was nil for the period. The funds held in the escrow account were returned to us in September 2017.
Dividend Series B Preferred Shares. The Series B Preferred Shares pay dividends (in cash or in-kind at the option of the Company, subject to certain exceptions) during the first five years at a rate of 0% or 5%, depending on the trading price of the Company's common stock. In 2017, the Company declared and paid in kind dividends of $1.81 million. In 2016, the Company declared and paid in kind dividends of $1.73 million.
Net loss. As a result of the above, net loss for the year ended December 31, 2017 was $7.9 million compared to a net loss of $45.95 million for the year ended December 31, 2016.
Year ended December 31, 2016 compared to year ended December 31, 2015
Voyage revenues. Voyage revenues for 2016 amounted to $29.79 million, decreasing by 24.9% compared to the year ended December 31, 2015 during which voyage revenues amounted to $39.66 million. In 2016, we operated an average of 11.52 vessels, a 21.8% decrease over the average of 14.74 vessels we operated during the same period in 2015. In the year 2016 our fleet had 3,926 voyage days earning revenue as compared to 4,988 voyage days earning revenue in 2015. While employed, our vessels generated a time-charter equivalent, or TCE rate, of $7,570$7,259 per day per vessel in 2016 compared to a TCE rate of $7,487 per day per vessel in 2015, compared to a TCE ratedecrease of $7,534 per day per vessel in 2014, a slight increase of 0.5%3.0%. The average TCE rate our vessels achieve is a combination of the time charter rate earned by our vessels under time charter contracts, which is not influenced by market developments during the duration of the charter (unless the two charter parties renegotiate the terms of the charter or the charterer is unable to make the contracted payments or we enter into new charter party agreements ), and the TCE rate earned by our vessels employed in the spot market which is influenced by market developments.
Commissions. We paid a total of $2.22$1.60 million in charter commissions for the year ended December 31, 2015,2016, representing 5.59%5.39% of charter revenues. This represents an increasea decrease over the year ended December 31, 2014,2015, where commissions paid were $2.19$2.22 million, representing 5.15%5.59% of voyage revenues.
Voyage expenses. Voyage expenses for the year ended December 31, 2016 were $2.31$1.29 million and relatesrelate to expenses for certain voyage charters. For the year ended December 31, 2014,2015, voyage expenses amounted to $3.96$2.31 million. Because our vessels are generally chartered under time charter contracts, voyage expenses usually represent a small fraction (5.8%(4.3% and 9.3%5.8% in each of 20152016 and 2014,2015, respectively) of voyage revenues. VoyagesVoyage expenses are dependent on the number of voyage charters, the cost of fuel, port costs and canal tolls. A highertolls and the number of voyage charter contracts fordays our vessels in 2014 resulted in increased voyages expenses as compared to 2015.sailed without a charter.
Vessel operating expenses. Vessel operating expenses were $18.16 million in 2016 compared to $25.2 million in 2015 compared to $25.28 million for 2014.2015. Daily vessel operating expenses per vessel amounted to $4,306 per day in 2016 versus $4,685 per day in 2015, a decrease of 1.2% compared to the daily vessel operating expenses of $4,740 in 2014.8.1%.
Management fees. These are part of the fees we pay to Eurobulk and Eurobulk FE under our Master Management Agreement. During 2016, Eurobulk and Eurobulk FE charged us 685 Euros per day per vessel totalling $3.18 million for the year, or $754 per day per vessel. During 2015, Eurobulk and Eurobulk FE charged us 685 Euros per day per vessel totalling $4.15 million for the year, or $772 per day per vessel. During 2014, Eurobulk charged us 685 Euros per day per vessel totalling $4.89 million for the year, or $919 per day per vessel. The decrease in the total amount of U.S. dollars paid within 20152016 is due to the lower exchange rates of the Euro (€) with respect to the U.S.
dollar compared to the previous year and the lower number of vessels operated within the year 2016 compared to the previous year.
Other general and administrative expenses. These are expenses we pay as part of our operation as a public company and include the fixed portion of our management fees, incentive awards, legal and auditing fees, directors' and officers' liability insurance and other miscellaneous corporate expenses. In 2015,2016, we had a total of $3.33$3.47 million of general and administrative expenses as compared to $3.51$3.33 million in 2014.2015.
Drydocking expenses. These are expenses we pay for our vessels to complete a drydocking as part of an intermediate or special survey. In 2016, we had three vessels undergoing drydocking for a total of $2.2 million. During 2015, we had three vessels undergoing drydocking for a total of $1.91 million. During 2014, we had five vessels undergoing drydocking for a total of $1.98 million.
Vessel depreciation. Vessel depreciation for 20152016 was $11.00$8.8 million. Comparatively, vessel depreciation for 20142015 amounted to $12.14$11.0 million. Vessel depreciation in 20152016 was lower compared to 20142015 due to the salelower number of four of our vessels operated in the fourth quarter of 2015.year 2016.
Impairment of vesselsloss and loss on write-down of vessel held for sale. The Company recorded a loss on write-down of a vessel held for sale of $5.92 million in 2016. This amount was booked in order to reduce the carrying value of one dry-bulk vessel (M/V "Eleni P") held for sale as of December 31, 2016 to its fair value, the value that it was actually sold. The Company recorded a loss on write-down of vessel held for sale (M/V "Aristides NP") of $1.64 million in 2015. This amount was booked in order to reduce the carrying value of one dry-bulk vessel held for sale as of December 31, 2015 to its fair value, the value that it was actually sold. In 2014,
Loss on termination and impairment of shipbuilding contracts. During 2016, we recorded a $3.25 million loss on termination of the Company determined that the carrying value oftwo Ultramax shipbuilding contracts and a dry-bulk vessel was not recoverable as of December 31, 2014 and recorded an$3.85 million impairment charge on the Kamsarmax shipbuilding contract based on the probability of $3.5 million.terminating the contract at the time given the significantly above-market price of the contract; subsequent to year end, we negotiated a lower price for the newbuilding contract and decided to proceed with the construction of the vessel.
Interest and other financing costs. Interest expense and other financing costs net of interest income for the year were $1.49$2.53 million. Comparatively, during the same period in 2014,2015, interest and other financing costs amounted to $2.15$1.49 million. Interest incurred and loan fees were higher in 20142016 due to the higher average outstanding debt during the year as compared to 2015.
Interest income. Interest income for the year was $0.03 million. Comparatively, during the same period in 2014, interest income amounted to $0.42 million. Interest income was lower in 2015 due to lower average cash balances during the year.
Derivatives losses. In 2015,2016, we had a realized loss of $0.31$0.13 million from the net interest settlement on our interest rate swap contracts that we entered into in January 2011, September 2013 and October 2014 and an unrealized gain of $0.05$0.01 million from the mark to market valuation on the same interest rate swaps compared to a realized loss of $0.76$0.31 million and unrealized gain of $0.72$0.05 million in 2014.2015. We had entered into the interest rate swaps to mitigate our exposure to possible increases in interest rates.
Equity Loss in Joint Venture. In 2015,2016, we recognized a $2.16$2.44 million loss in our share in Euromar, compared to a $2.54$2.16 million loss in 2014.2015. We ownowned a 14.286% interest in Euromar.
Impairment in Joint Venture. In 2016, the Company recorded an impairment of $14.07 million on its investment in Euromar reducing the carrying value of the investment to zero, due to persisting depressed market environment and amended loan agreements based on which the Company concluded that its investment in Euromar was impaired and that the impairment was other than temporary.
Other Income. In 2015,2016, we recognized $1.21$1.02 million income from accrued dividends relating to $5.00 million of funds we had made available to Euromar, $4.00 million we have depositedof which remain in an escrow account which isas of December 31, 2016 and were available to be invested in Euromar if called by our partners in Euromargood faith, and the $1.00 million of such funds contributed to Euromar in 2014.2014 in the form of Preferred Units. These funds accrueaccrued dividends in preferred unitsPreferred Units of Euromar. The amount of other income onOther Income from accrued dividends in 20142015 was $0.99$1.21 million. In December 2016, we determined that it was unlikely to recover any investment in Preferred Units of Euromar and recorded an impairment of $4.42 million representing the entire value of Preferred Units; we also stopped recognizing any additional accrued dividends. As of December 31, 2016, our Other Investment was shown in our Consolidated balance sheet at $4.00 million which represents the funds in the escrow account.
Dividend Series B Preferred Shares. The Series B Preferred Shares pay dividends (in cash or in-kind at the option of the Company, subject to certain exceptions) during the first five years at a rate of 0% or 5%, depending on the trading price of the Company's common stock. In 2016, the Company declared and paid in-kind dividends of $1.73 million. In 2015, the Company declared and paid in kindin-kind dividends of $1.64 million. In 2014, the Company declared and paid in kind dividends of $1.44 million.
Net loss. As a result of the above, net loss for the year ended December 31, 20152016 was $15.69$45.95 million compared to net loss of $19.36$15.69 million for the year ended December 31, 2014.
Year ended December 31, 2014 compared to year ended December 31, 2013
Voyage revenues. Voyage revenues for the year were $42.59 million, increased 4.3% compared to the year ended December 31, 2013 during which voyage revenues amounted to $40.85 million. This increase was primarily due to the increased voyage days for our fleet during 2014 as compared to 2013 as well as the increased percentage of voyage charters for which we pay the voyage costs as compared to time charters for which the voyage costs are paid by the charterer. In 2014, we operated an average of 14.6 vessels, a marginal increase over the average of 14.56 vessels we operated during the same period in 2013, and our fleet had 5,126 voyage days earning revenue as compared to 4,948 voyage days earning revenue in 2013. While employed, our vessels generated a time-charter equivalent, or TCE rate, of $7,534 per day per vessel in 2014 compared to a TCE rate of $7,924 per day per vessel in 2013, a decrease of 5.2%. The average TCE rate our vessels achieve is a combination of the time charter rate earned by our vessels under time charter contracts, which is not influenced by market developments during the duration of the charter (unless the two charter parties renegotiate the terms of the charter or the charterer is unable to make the contracted payments or we enter into new charter party agreements), and the TCE rate earned by our vessels employed in the spot market which is influenced by market developments.
Commissions. We paid a total of $2.19 million in charter commissions for the year ended December 31, 2014, representing 5.15% of charter revenues. This represents an increase over the year ended December 31, 2013, where commissions paid were $1.94 million, representing 4.74% of voyage revenues. The higher dollar amount of commissions paid in 2014 reflects the increase of the charter contracts rates we entered into during 2014.
Voyage expenses. Voyage expenses for the year were $3.96 million and related to expenses for certain voyage charters. For the year ended December 31, 2013, voyage expenses amounted to $1.54 million. Because our vessels are generally chartered under time charter contracts, voyage expenses usually represent a small fraction (9.3% and 3.8% in each of 2014 and 2013, respectively) of voyage revenues. Voyages expenses are dependent on the number of voyage charters, the cost of fuel, port costs and canal tolls. A higher number of voyage charter contracts for our vessels in 2014 resulted in increased voyages expenses as compared to 2013.
Vessel operating expenses. Vessel operating expenses were $25.28 million in 2014 compared to $25.19 million for 2013. Daily vessel operating expenses per vessel amounted to $4,740 per day in 2014 in line with daily vessel operating expenses of $4,744 per day in 2013.
Management fees. These are part of the fees we pay to Eurobulk under our Master Management Agreement. During 2014, Eurobulk charged us 685 Euros per day per vessel totalling $4.89 million for the year, or $919 per day per vessel. During 2013, Eurobulk charged us 685 Euros per day per vessel totalling $4.89 million for the year, or $921 per day per vessel.
Other general and administrative expenses. These are expenses we pay as part of our operation as a public company and include the fixed portion of our management agreement fees, incentive awards, legal and auditing fees, directors' and officers' liability insurance and other miscellaneous corporate expenses. In 2014, we had a total of $3.51 million of general and administrative expenses as compared to $3.54 million in 2013.2015.
Drydocking expenses. These are expenses we pay for our vessels to complete a drydocking as part of an intermediate or special survey. In 2014, we had five vessels undergoing drydocking for a total of $1.98 million. During 2013, we had eight vessels undergoing drydocking for a total of $3.82 million.
Vessel depreciation. Vessel depreciation for 2014 was $12.14 million. Comparatively, vessel depreciation for 2013 amounted to $19.98 million. Effective October 1, 2013, the Company revised its estimate of the useful life of its containerships to 25 years from 30 years based on management's current expectations to scrap vessels earlier based on the outlook of the container market. The revision of the estimated useful life of our containerships was driven by the protracted depressed charter rates for containerships which did not show any improvement in the fall of 2013 contrary to our expectations. The effect of this change of estimate added $3.37 million to the Company's depreciation expenses during the fourth quarter of 2013, or $0.08 loss per share, basic and diluted. The depreciation expense for the year 2014 before the change in the estimates would have been $17.05 million. Excluding the above-said effect, vessel depreciation in 2014 was lower compared to 2013 due to the impairment charge in nine of our vessels in 2013.
Impairment of vessels. As a result of the Company's change of the estimated useful life of its containerships to 25 years from 30 years and the continued low level or decline in charter rates which affect the estimated average historical charter rates and cash flows, the Company determined that the carrying values of nine of its containerships were not recoverable as of December 31, 2013. Consequently, the Company recorded an impairment charge of $78.21 million to reduce the carrying value for each of the nine containerships to their estimated market value as determined by the Company based on third party valuation as of December 31, 2013. In 2014, the Company determined that the carrying value of a dry-bulk vessel was not recoverable as of December 31, 2014. The Company recorded an impairment charge of $3.5 million.
Interest and other financing costs. Interest expense and other financing costs net of interest income for the year were $2.15 million. Comparatively, during the same period in 2013, interest and other financing costs amounted to $1.85 million. Interest incurred and loan fees were higher in 2014 due to the higher average outstanding debt during the year as compared to 2013.
Interest income. Interest income for the year was $0.42 million. Comparatively, during the same period in 2013, interest income amounted to $0.39 million. Interest income was lower in 2013 due to lower average cash balances during the year.
Derivatives losses. In 2014, we had a realized loss of $0.76 million from the net interest settlement on our interest rate swap contracts that we entered into January 2011, September 2013 and October 2014 and an unrealized gain of $0.72 million from the mark to market valuation on the same interest rate swaps compared to a realized loss of $1.55 million and unrealized gain of $1.38 million in 2013. We had entered into the interest rate swaps to mitigate our exposure to possible increases in interest rates.
Equity Loss in Joint Venture. In 2014, we recognized a $2.54 million loss in our share in Euromar, compared to a $2.02 million loss in 2013. We own a 14.286% interest in Euromar.
Other Income. In 2014, we recognized $0.99 million income from accrued dividends relating to $5.00 million we have deposited in an escrow account which is available to be invested in Euromar if approved by Euromar's board of managers which funds accrue dividends in preferred units of Euromar. The amount of other income on accrued dividends in 2013 was $0.20 million.
Dividend Series B Preferred Shares. The Series B Preferred Shares pay dividends (in cash or in-kind at the option of the Company, subject to certain exceptions) during the first five years at a rate of 0% or 5%, depending on the trading price of the Company's common stock. In 2014, the Company declared and paid in kind dividends of $1.44 million. There was no such amount for the year ended December 31, 2013.
Net loss. As a result of the above, net loss for the year ended December 31, 2014 was $19.36 million compared to net loss of $103.42 million for the year ended December 31, 2013.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application.
Depreciation
We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation.depreciation and impairment (if any). Depreciation is based on cost less the estimated residual scrap value. An increase in the useful life of the vessel or in the residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of the vessel or in the residual value would have the effect of increasing the annual depreciation charge and possibly an impairment charge. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years from date of initial delivery from the shipyard. Effective October 1, 2013,shipyard and the Company changed its estimateresidual value of the useful lives of its containershipsour vessels is estimated to 25 years from 30 years due to reduction of average scrapping age of containership vessels during 2012 and 2013. The effect of this change of estimates added approximately $2.5 million to the Company's depreciation for 2015. be $250 per lightweight ton.
Impairment of vessels
We review for impairment our vessels held and usedfor use whenever events or changes in circumstances (such as vessel market values, vessel sales and purchases, business plans and overall market conditions) indicate that the carrying amount of the assets may not be recoverable. If we identify indication for impairment for a vessel, we determine undiscounted projected net operating cash flows for each vessel and compare it to the vessel carrying value. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we evaluate the asset for an impairment loss. In the event that impairment occurred, we would determine the fair value of the related asset and we record a charge to operations calculated by comparing the asset's carrying value to the estimated fair market value. We estimate fair market value primarily through the use of third party valuations performed on an individual vessel basis.
The carrying values of the Company's vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. The Company determines the rates to be used in its impairment analysis based on the prevailing market charter rates for the first two years and on inflation-adjustedinflation-unadjusted historical average rates, typically a 7-year to 14-year average to include complete cycles, from year three onwards.
The Company calculates the historical average rates over a 15-year period for 2016 and a 16-year period for 2017, which both start in 2002 and take into account complete market cycles, and which provide a more representative reference for the long term rates. These rates are used for the period a vessel is not under a charter contract; if there is a contract, the charter rate of the contract is used for the period of the contract.
Our impairment test exercise is highly sensitive on variances in the time charter rates effective fleet utilization rate, estimated scrap values, future drydocking costs and estimated vessel operating costs. costs; it also requires assumptions for :
| · | the effective fleet utilization rate; |
| · | future drydocking costs; and |
| · | probabilities of sale for each vessel. |
Our estimates for the time charter rates for the first two years are based on market information available for future rates (based on the length of charters that can be secured at the time of the analysis, generally, one to two years). Vessel utilization estimates are based on the status of each vessel at the time of the assessment and the Company's past experience in finding employment for its vessels at comparable market conditions. Cost estimates, like drydocking and operating costs, have beenare based on the Company's data for its own vessels; past estimates for such costs have generally been very close to the actual levels observed. Overall, the assumptions are based on historical trends
as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. Our impairment test for the year ended December 31, 20152017 identified fivefour of our vessels with indication for impairment.impairment as presented in the following table. For these vessels, we performed our impairment analysis which indicated no impairment. Furthermore, we performed sensitivity analysis for the charter rates and operating cost assumptions (which are the inputs most sensitive to variations) allowing for variances of up to 10% without registeringan impairment indication.
Under the same analysis as of December 31, 2014, we determined that the respective book value of one dry-bulk carrier (M/V Aristides NP) was not recoverable, so an impairment loss of $3.5 million, or $0.64 loss per share, basic and diluted, was recorded.
There can be no assurance as to how long term charter rates and vessel values will remain atincrease as compared to their currently lowcurrent levels and approach historical average levels for similarly aged vessels or whether they will improve by any significant degree. Charter rates, which improved significantly during 2017, may remain atreturn to their previously depressed levels for some time which could adversely affect our revenue and profitability, and future assessments of vessel impairment. Furthermore, theimpairment.. The impairment analysis may result in determiningdetermine that the carrying value of a vessel is recoverable if the vessel is held and operated to the end of its useful life, however, if the vessel is sold when the market is still depressed, the Company might suffer a loss on the sale. Whether the Company realizes a gain or loss on the sale of a vessel is primarily a function of the relative market values of vessels at the time the vessel was acquired less the accumulated depreciation and impairment, if any, versus the relative market values on the date a vessel is sold.
In June and July 2013, the Company sold Anking and Irini, respectively. Anking was sold at a loss of $3.19 million. Irini was sold at a gain of $1.26 million. In 2015, the Company sold four of its vessels: Tiger Bridge on November 4, 2015, Marinos on November 26, 2015, Depsina P on December 28, 2015, which resulted in a combined gain on sale of $0.46 million. Aristides NP was classified as held for sale as of December 31, 2015, after a $1.64 million write-down to its fair value.
For a discussion of the potential loss in the case of sale of all of our vessels with market value below their carrying value, we refer to the "Item 4.B. Business Overview – Our Fleet".
For the fivefour vessels which had impairment indication, a comparison of the average estimated daily time charter equivalent rate used in our impairment analysis with the average "break even rate" for the uncontracted period for each of the vessels is presented below:
Vessel | | Charter Rate as of 12/31/2017 | | | Remaining Months Chartered | | | Remaining Life (years) | | | Rate Year 1 (2018) | | | Rate Year 2 (2019) | | | Rate Year 3+ (2020+) | | | Breakeven Rate (USD/day) | |
Eirini P* | | | 0 | | | | 0 | | | | 11 | | | | 12,415 | | | | 12,415 | | | | 20,889 | | | | 11,324 | |
Xenia | | | 14,100 | | | | 25 | | | | 23.5 | | | | 12,534 | | | | 12,534 | | | | 21,090 | | | | 9,209 | |
Pantelis | | | 10,500 | | | | 0.5 | | | | 7.5 | | | | 12,057 | | | | 12,057 | | | | 20,287 | | | | 11,781 | |
Evridiki | | | 11,000 | | | | 1.0 | | | | 8.5 | | | | 10,140 | | | | 10,140 | | | | 14,853 | | | | 9,694 | |
Vessel | Charter Rate as of 12/31/2015 | Remaining Months Chartered | Remaining Life (years) | Rate Year 1 (2016) | Rate Year 2 (2017) | Rate Year 3+ (2018+) | Breakeven Rate (USD/day) |
Pantelis | 6,551(*) | 6 | 9.5 | 6,551 | 6,551 | 21,974 | 12,500 |
Aggeliki | 7,950 | 1 | 7.5 | 7,113 | 7,113 | 12,530 | 9,036 |
Eleni P | 6,323(*) | 1 | 6.5 | 6,323 | 6,323 | 21,208 | 11,147 |
Monica P | 4,500 | 1 | 7.5 | 6,438 | 6,438 | 17,655 | 11,382 |
Eirini P | 6,714(*) | 12 | 13.5 | 6,714 | 6,714 | 23,072 | 12,251 |
(*)
These vessels areThis vessel is chartered at a market index linked rate.
Equity Investments in Joint Ventures
We record our investment in Euromar, our joint venture with Eton Park and Rhône, using the equity method of accounting. Despite the fact that we are a minority partner (we own 14.286%) in the Joint Venture, we are considered to have significant influence in the operations and management as we manage the daily operations of the vessels, perform the daily management of the Joint Venture, provide recommendations for chartering and investment decisions, have the right to appoint two members to a six member board of managers and have veto rights on investment decisions. According to the equity method, we record our share of income or loss of Euromar in our "Consolidated statement of operations" and we record the carrying value of our investment as a non-current asset on our Consolidated balance sheet.
For the years ended December 31, 2013, 2014 and 2015, we recorded a loss of $2.02 million, $2.54 million and $2.16 million, respectively, being our share of the equity pick up. As of December 31, 2015, our $25.0 million investment in the Joint Venture was recorded as a non-current asset of $16.52 million reflecting the accumulated losses recorded to December 31, 2015. We did not record any impairment against our investment in Euromar because the impairment test we performed for Euromar's vessels indicated that the carrying values of its vessels are recoverable and the refinancing of its debt obligations maturing in 2016 (two balloon payments of $63.16 million and $23.45 million in August and October, respectively) is very likely. If Euromar cannot meet or refinance these obligations it might be forced to liquidate part or all of its assets which could result in an impairment charge against our investment. We are monitoring the assumptions used by Euromar for its impairment test and will appropriately adjust the value we carry of our investment in Euromar if necessary.
Recent Accounting Pronouncements
Please refer to Note 2 of the financial statements attached to this annual report.
B. | Liquidity and Capital Resources |
Historically, our sources of funds have been equity provided by our shareholders, operating cash flows and long-term borrowings. Our principal use of funds has been capital expenditures to establish and expand our fleet, maintain the quality of our vessels during operations and the periodically required drydockings, comply with international shipping standards and environmental laws and regulations, fund working capital requirements and if necessary operating shortfalls, make principal repayments on outstanding loan facilities, and pay dividends. We expect to rely on cash available, funds generated from operating cash flows, funds from our shareholders, equity offerings and long term borrowings to meet our liquidity needs going forward and to finance our capital expenditures
in 2016. In 2016, we took delivery of one of our bulk carrier newbuildings and
have under construction three bulk carriers with a total contracted amount remaining to be paid of $63.00 million with $40.84 million payable in 2016, $2.77 million in 2017 and $19.39 millionworking capital needs in 2018
which we plan to finance with additional borrowings, cash available and
by raising additional equity. Specifically, we secured debt financing for the newbuilding vessel, M/V Xenia, which we took delivery of in February 2016, and as of April 1, 2016, we have secured debt financing for the vessels to be delivered in the second and third quarter of 2016 for 62.5% and 65% of the market value at delivery for a total of up to $38.95 million; we plan to arrange long term borrowings for the third vessel which we expect to take delivery in the first quarter of 2018, and, if necessary, supplement the funds needed with equity offerings, refinancing of balloon payments due in 2016, negotiating the deferral of payments of our existing loan facilities, and possibly, sale of existing vessels or one or more of our vessels under construction. Furthermore, our contracts with the yards are with our shipowning subsidiaries and we have not extended any guarantees for the remaining payments for our two vessels that are to be delivered in 2016. Excluding payments for our newbuildings discussed above, we believe that our working capital and available loan facilities are sufficient to meet our needs over the period through December 31, 2016.beyond.Cash Flows
As of December 31, 2015,2017, we had a cash balance of $8.72 million and $10.47 million of restricted cash. Amounts "owed to" or "due from related party" represent net disbursements and collections made by our fleet manager, Eurobulk, on behalf of the shipowning companies during the normal course of operations which they have the right of offset. Typically, amounts are due from such related company to us and mainly consist of advances to our fleet manager of funds to pay for all anticipated vessel expenses. We occasionally may owe funds to such related party if the timing of any advance delays disbursement of funds. As of December 31, 2015, we had $0.32 million due to related parties. Interest earned on funds deposited in related party accounts, if any, is credited to the account of the shipowning companies or Euroseas. We do not pay interest for any funds that we may owe to such a related company. Working capital equals current assets minus current liabilities, including the current portion of long term debt. We had a working capital surplusdeficit of $2.21$2.45 million including the current portion of long term debt of $14.81and have been incurring losses. Our cash balance amounted to $4.12 million and cash in restricted and retention accounts amounted to $9.08 million as of December 31, 2015.2017. As of December 31, 2017, we had committed to pay an additional $18.0 million in relation to the construction of M/V "Ekaterini". An amount of $2.25 million has already been paid in February 2018, with the balance payable upon delivery of the vessel, which is expected in May 2018.
We intend to fund our working capital requirements and capital commitments via cash at hand, cash flow from operations, new mortgage debt financing for the vessel under construction, debt balloon payment refinancing and proceeds from equity offerings. We have signed a term sheet to draw a loan
up to $18.4 million for our newbuilding M/V "Ekaterini." In the unlikely event that these are not sufficient we may also draw down up to $4.00 million under a commitment from COLBY Trading Ltd., a company controlled by the Pittas family and affiliated with our Chief Executive Officer, and possible vessel sales (where equity will be released) or sale of the newbuilding contract itself, if required, among other options. We believe we will have adequate funding through the sources described above and, accordingly, we believe we have the ability to continue as a going concern and finance our obligations as they come due over the next twelve months following the date of the issuance of our financial statements. Consequently, our consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Net cash from operating activities.
Our net deficitsurplus from cash flows used inprovided by operating activities for 20152017 was $2.03$7.96 million as compared to a cash flow used indeficit from operating activities of $0.73$0.83 million in 20142016 and cash provided byflow deficit from operating activities of $4.03$2.03 million in 2013, which is primarily due to the lower rates our vessels earned on average during 2014 and 2015 as compared with 2013.2015. This represents the net amount of cash, after expenses paid, generated by chartering our vessels. Eurobulk on our behalf, collectsand Eurobulk FE collect our chartering revenues and payspay our chartering expenses.expenses on our behalf. The surplus is primarily due to the higher rates our vessels earned on average during 2017 compared to 2016. Our net loss for 20152017 was $14.05$6.09 million, which was offsetcash flow increased by $11.00$1.94 million offrom other operating assets and liabilities, $8.37 million from vessel depreciation, $1.64$4.6 million from a non-cash write-down of impairment lossvessels held for sale, $0.32 million from amortization and increasedwrite-off of deferred charges, $0.06 million from amortization of debt discount and $0.12 million from share-based compensation. Operating Cash flow was decreased by $0.8 million from a non-cash gain on the sale of vessels, $0.05 million unrealized gain on derivatives and by $1.51$0.5 million of changes ofnon-cash other operating assets and liabilities.income. In 2014,2016, net cash flows used inflow deficit from operating activities was $0.73$0.83 million based on a net loss of $17.92$44.22 million, which was offset by $12.14$8.79 million of vessel depreciation, $3.5$20.94 million of equity loss and impairment of our investment in Euromar and impairment of other investment and $7.05 million from a loss on termination and termination of shipbuilding contracts and increased by $0.72$0.01 million unrealized gain on derivatives and further offsetincreased by $0.07$0.83 million of increase infrom other operating assets and liabilities. In 2013,2015, net cash flow deficit from operating activities was $4.03$2.03 million based on a net loss of $103.42$14.05 million, which was offset by $19.98$11.0 million of vessel depreciation $78.21and $1.64 million from a non-cash write-down of vessels held for sale, increased by $2.16 million of impairmentequity loss of our investment in Euromar, $0.05 million unrealized gain on derivatives and increaseddecreased by $6.17$1.51 million of increase infrom other operating assets and liabilities of which net $4.04 million was an increase in our operating cash flows from funds that were due to us by a related company.
Net cash from investing activities.
In 2017, we invested $39.7 million in advances for vessels under construction and acquisition and capitalized expenses, we had $9.6 million proceeds from the sale of vessels and another $4.0 million of inflows from cash realized released from other investment. In 2016, we invested $27.33 million in advances for vessels under construction and acquisition and had $4.2 million proceeds from the sale of vessels. In 2015, we invested $16.63 million in advances for vessels under construction and we increased our restricted cash by $6.58 million due to increased minimum liquidity requirements of our loans, and had about $4.10$9.5 million released from retention accounts. Additionally we receivedproceeds from the sale of M/V "Tiger Bridge", M/V "Marinos" and M/V "Depsina P", $7.35 million and another $1.12 million advance deposit for the sale of the M/V "Aristides NP", which was held for sale as of December 31, 2015. In 2014, we invested $21.32 million for the acquisition of M/V "Eirini P", we also invested another $15.64 in advances for vessels under construction and we increased our restricted cash by $0.30 million due to increased minimum liquidity requirements because of the acquisition of M/V "Eirini P" and had about $0.17 million released from retention accounts. In 2013, we received $7.32 million from the sale of M/V "Anking" and M/V "Irini" and invested $5.98 million for the acquisition of M/V "Vento di Grecale". Additionally, we decreased our restricted cash in retention accounts by $1.6 million and had released another $0.46 million from retention accounts, contributed another $6.25 million as a capital call to our Euromar Joint Venture and $5.00 million in an escrow account to be invested in Euromar. The total cash used in investing activities was $7.88 million.
Net cash from financing activities.
In 2017, net cash provided by financing activities consisted of $0.55 million net proceeds from issuance of common stock for which we paid $0.34 million of offering expenses and $33.1 million proceeds from long term bank loans. We paid $0.23 million loan arrangement fees and repaid bank loans of $9.06 million and a related party loan of $2 million. In 2016, net cash provided by financing activities consisted of $3.17 million net proceeds from issuance of common stock for which we paid $0.08 million of offering expenses, $28.3 million proceeds from long term bank loans and $2.0 million proceeds from a related party loan. We paid $0.79 million loan arrangement fees and repaid loans of $18.46 million. In 2015, net cash used in financing activities consisted of $10.55 million net proceeds from issuance of common stock for which we paid $0.40 million of offering expenses, and $8.4 million proceeds from long term debt for which webank loans. We paid $0.44 million loan arrangement fees and repaid loans of $22.14 million. In 2014, net cash provided by financing activities consisted of $14.55 million net proceeds from issuance of common stock and $29.55 million net proceeds from issuance of preferred shares, for which we paid $0.56 million of offering expenses, $23.3 million proceeds from long term debt for which we paid $0.3 million loan arrangement fees, we paid dividends of $0.01 million and repaid loans of $14.69 million. In 2013, net cash used in financing activities amounted to $18.13 million. This consisted of $2.09 million of dividends paid and $15.94 million of loan repayments and we also paid $0.10 million of expenses.
Debt Financing
We operate in a capital intensive industry which requires significant amounts of investment, and we fund a major portion of this investment through long term debt. We maintain debt levels we consider prudent based on our market expectations, cash flow, interest coverage and percentage of debt to capital.
As of December 31, 2015,2017, we had sixeight outstanding loans with a combined outstanding balance of $40.52$74.4 million. These loans have maturity dates between 20162018 and 2019.2023. Our long-term debt as of December 31, 20152017 comprises bank loans granted to our vessel-owning subsidiaries. A description of our loans as of December 31, 2015 2017
is provided in Note 9 of our attached financial statements. As of December 31, 2015,2017, we wereare scheduled to repay approximately $14.81$12.9 million of the above debt based on ourbank loans in 2016. In February 2016, we refinanced about $13.13 million of our debt outstanding as of December 31, 2015 with a new facility of $14.50 million with a three-year tenor and, additionally, drew a loan of $13.8 million to partly finance the delivery of the first of our newbuildings.2018.
Our loan agreements contain covenants.covenants.
Our loans have various covenants such as minimum requirements regarding the hull ratio cover (the ratio of fair value of vessel to outstanding loan less cash in retention accounts) and restrictions as to changes in management and ownership of the vessel shipowningship-owning companies, distribution of profits or assets (in effect, limiting dividends in some loans to 60% of profits, or, not permitting dividend payment or other distributions in cases that an event of default has occurred), additional indebtedness and mortgage of vessels without the lender's prior consent, sale of vessels, maximum fleet-wide leverage, sale of capital stock of our subsidiaries, ability to make investments and other capital expenditures, entering in mergers or acquisitions, minimum cash balance requirements and minimum cash retention accounts (restricted cash). When necessary, we do provide supplemental collateral in the form of restricted cash or cross-collateralize vessels to ensure compliance with hull cover ratio ("loan-to-value" ratio). Increases in restricted cash required to satisfy loan covenants would reduce funds available for investment or working capital and could have a negative impact on our operations. If we cannot correctcure any violated covenants, we might be required to repay all or part of our loans, which, in turn, might require us to sell one or more of our vessels under distressed conditions. As of December 31, 2015,2017, we were not in default of any credit facility covenant.
Shelf registration
On December 2, 2015,19, 2016, the Company filed aSEC declared effective our shelf registration statement on Form F-3 registeringpursuant to which we registered common shares, preferred shares, debt securities, warrants and units up to a total dollar amount of $400,000,000 (about $2.80 million of which were used under our ATM offering), to be sold by the Company, as well as 3,763,6525,723,375 common shares to be sold by certain selling shareholders. The SEC has not yet declared effective this shelf registration statement.
Capital Expenditures
We make capital expenditures from time to time in connection with our vessel acquisitions or participation in joint ventures to acquire vessels.
In 2013,2010, we contributed our remaining capital commitment of $6.25 million to the Joint Venture and entered into an agreement contributing $5.00 million into an escrow account to fund an additional capital commitment toour Euromar for up to a five-year period in exchange for preferred units if such commitment is called. The decision by Euromar to call the funds from escrow into Euromar itself is based on the joint approval of the other joint venture partners. The preferred units have a preferred rate of return, commencing from the initial date of the commitment. In the event such commitment is not called, then Euroseas shall be issued preferred units to make up for any shortfall between the preferred rate of return and any actual amounts earned on the committed capital while in escrow. The preferred units can be redeemed at the option of Euromar, in part or in full, at any time on or after the second anniversary of the issuance of such units, and must be mandatorily redeemed by Euromar on the earlier of (A) the seventh anniversary of the issuance of the units and (B) a public offering of Euromar; provided, however, that any redemption obligation is subordinate to, and cannot be made if it would result in a default under, any obligations under any then existing credit agreement, guarantee, security agreement or similar agreement with any third party and Euromar. The redemption price for each preferred unit will be equal to the outstanding principal amount plus any outstanding accrual amount. In March 2014, $1.00 million of the escrow funds was called into Euromar in connection with a vessel acquisition. As of April 1, 2016, we have no remaining capital commitments to the Joint Venture.
two private equity firms. The Company has not provided any guarantees to Euromar beyond its capital already invested or funds put in escrow. None of the loans entered into by Euromar have any recourse to the Company. On September 7, 2017, Euroseas became the sole owner of Euromar at a nominal price of $1. The Company believes that its financial condition, liquidity and capital resources will not be negatively influenced inacquired the event Euromar becomes a consolidated subsidiary of the Company, as lenders to Euromar have no recourse to the Company, both before and after consolidation.
According to the agreement between the Company and its joint venture partners85.714% interest in Euromar they have the right to convert their Euromar interest into common shares of the Company either in part or in full. This conversion can take place only if at the time of such conversion the net asset market value of Euromar and the Company are both positive. The Company believes that the net asset market values of Euromar and the Company as of December 31, 2015 were positive. As per the terms of the conversion agreement, the conversion ratio is based on the ratio of the net asset market values of the Companyit did not already own and Euromar or the ratio of the Company's market value multiplied by 0.925 and the net asset market value of Euromar whichever is to the advantage of the Company. No conversion can take place if any of the net asset market values are negative. As a result of these arrangements, the Company believes that if it acquires Euromar as a result of conversion of Euromar interests into common stock of the Company, it will acquire Euromar with positive market value at conversion and the acquisition will not dilute the Company's shareholders.
In the event of a consolidation, the Company's results of operations will be affected by the results of operations of Euromar as follows: revenues, operating expenses and interest expenses will increase by the corresponding amounts of Euromar and its net income or loss will be affected by the respective amounts of Euromar. Had Euromar become a consolidated subsidiary of the Company in 2015, the Company's revenues would have increased by $34.42 million, its operating expenses would have increased by $41.13 million and its net loss would have increased by $12.95 million. Furthermore, if Euromar were to becomebecame a wholly-owned subsidiary of the Company. The Company it would increaseprovided no guarantees to Euromar's lenders, and none of the Company's total indebtedness, long term assets and book value.lenders have any recourse against the Company. As of December 31, 2015, Euromar's total indebtedness stood at $111.8 million2017, all vessels of Euromar were sold with repayments due in 2016 of $100.9 million. The average marginthe consent of Euromar's outstandinglenders; all proceeds from such sales and any funds in excess of other liabilities were applied towards the indebtedness as of December 31, 2015 is approximately 4.06% and the remaining tenor rangesEuromar with any excess indebtedness written off; Euromar was released from 0.6all its corporate guarantees to 1.6 years. Summary financial information for Euromar is provided in Note 17 of the financial statements (see page F-42 below).its lenders.
Finally, inIn January and May 2014, we ordered two Ultramax and two Kamsarmax drybulk carriers for which we have paid $15.64 million in 2014 and $17.01 million in 2015. In February 2016, we paid another $21.74 million (inclusive of approximately $0.39 million of expenses) after taking delivery of our drybulk carrier, M/V Xenia. An additional amount"Xenia". In the second and third quarter of $40.84 is2016, we cancelled both Ultramax vessels ordered due to excessive construction delays, however, in December 2016, we agreed with the shipyard to acquire one of the Ultramax vessels, Hull DY 160 (named "Alexandros P"), for a significantly lower price than in the original contract and in settlement of our outstanding claims against each other. The Company applied the construction deposits
already paid for Hull DY160 and a sister vessel, Hull DY 161, and contributed another $0.59 million for a total of $16.9 million for the acquisition of the vessel before any delivery expenses. The vessel was delivered to the Company in January 2017.
In September 2016 we took delivery of the feeder Containership MV Aegean Express for a cost of $3.1 million. In November 2016, we signed a memorandum of agreement to purchase the M/V "Capetan Tassos" (renamed M/V "Tasos"), a Panamax size drybulk carrier of 75,100 dwt built in 2000 in Japan for approximately $4.4 million. The vessel was delivered to us in January 2017. In December 2016 we purchased the feeder containership M/V "RT Dagr" by issuing 0.9 million shares of the Company's common stocks. In January 2017 we took delivery of the Ultramax newbuilding Hull DY 160 (named "Alexandros P.") for a total cost of $17.81 million. In March 2017 we declared our option to build a Kamsarmax vessel (to be paid untilnamed "Ekaterini") which will be delivered in May 2018 for $22.5 million. In June 2017 we took delivery of the feeder containership M/V "EM Astoria" for $4.75 million. In September 2017 we took delivery of the feeder containership M/V "EM Athens" for $4.2 million. In October 2017 we took delivery of the feeder containership M/V "EM Oinousses" for $4.3 million and the feeder containership M/V "EM Corfu" for $5.7 million. In December 31, 2016. Under2017 we took delivery of the same contractsintermediate containership M/V "Akinada Bridge" for $11 million. All these five containerships were purchased from Euromar LLC for $29.85 million.
We currently have three vessels scheduled for drydocking over the next 12 months. Furthermore, for the delivery of the 82,000 DWT bulk carrier, M/V "Ekaterini", we have to pay $2.77make payments of $18.00 million in 20172018 (refer to section above "B. Liquidity and another $19.39 in 2018. Furthermore, in May 2014,Capital Resources – Cash Flows" for a discussion of how we acquired a Panamax drybulk carrier for which we paid $21.32 million.
62
plan to cover our working capital requirements and capital commitments).Dividends
In 20142015, 2016 and 2015,2017, the Company declared no dividend on its common stock. During the fourth quarter of 2013, the Company decided to suspend the quarterly dividend on its common stock to focus all its resources in exploiting investment opportunities in the markets.
The aggregate amount of common stock dividends paid in 2013 was $2.09 million. In 2014, the Company paid $13,050 of dividends that accrued before the fourth quarter of 2013 but were previously unpaid.
Within
20142015, 2016 and
2015,2017, the Company declared
eighttwelve consecutive quarterly dividends on its Series B Preferred Shares, amounting to
$1.44$1.64 million in 2015,
and $1.64$1.73 million in
2015,2016 and $1.81 million in 2017, all of which were paid in-kind.
C. | Research and development, patents and licenses, etc. |
Not applicable.
Our results of operations depend primarily on the charter hire rates that we are able to realize. Charter hire rates paid for drybulk and container vessels carriers are primarily a function of the underlying balance between vessel supply and demand.
The demand for drybulk carrier and containership capacity is determined by the underlying demand for commodities transported in these vessels, which in turn is influenced by trends in the global economy. One of the main drivers of the drybulk and containerized trade has been the growth in imports by China of iron ore, coal and steel products during the last ten years and exports of finished goods. Demand for drybulk carrier and containership capacity is also affected by the operating efficiency of the global fleet, i.e., the average speed the fleet operates, and port congestion. A factor affecting mainly the containership sector, especially during periods of high fuel prices and/or low charter rates, is slow-steaming (i.e., the practice of running a vessel at lower speeds to economize on fuel costs). Slow-steaming increases the number of ships required to carry a given amount of trade volume and thus increases demand for ships as do higher levels of port congestion, leading to higher charter rates if all other factors influencing rates are unchanged.
The supply of drybulk carriers, containerships vessels is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss. According to industry sources, as of April 1, 2016,the end of March 2018, the capacity of the fully cellular worldwide container vessel fleet was approximately 19.821.15 million teu with approximately 3.72.68 million teu, or, about 19%13.0% of the present fleet capacity on order, the growing supply of container vessels may exceed future demand. Similarly, as of April 1, 2016,the end of March 2018, as reported by industry sources, the capacity of the worldwide drybulk fleet was approximately 779.0823.6 million dwt with 112.581.2 million dwt, or, about 14.4%9.9% of the present fleet capacity was on order.
The level of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs. The average age at which a vessel is scrapped over the last ten years has been between 2625 and 27 years, with smaller vessels scrapped at a later age. During strong markets, the average age at which the vessels are scrapped increases; during 2004, 2005, 2006, 2007 and the first nine months of 2008, the majority of the Handysize and Handymax bulkers and Feedership, Handysize and Intermediate size containerships that were scrapped were in excess of 30 years of age. During the same period, Panamax drybulk carriers were scrapped at an average age of 29 years. However, the scrapping rate increased significantly and the average age decreased since the beginning of October of 2008 when daily charter rates declined. Increased charter hire rates in the drybulk market commencing in the second quarter of 2009 resulted in decreased scrapping rates of drybulk vessels throughout 2010. However, as the drybulk market declined throughout 2012, 2013, 2014 and 2015, scrapping rates of drybulk vessels increased again. In 2016 dry bulk rates increased, however, scraping activity remained strong, at close to 2015 levels. In 2017 scrapping of drybulk vessels declined to almost half of its 2016 level. Similarly, continued weakness of containership charter hire rates resulted in increased scrapping rates at even lower vessel scrapping ages. We sold oneIn fact, 2016 saw scrapping of our laid-up vessels, Artemis, built in 1987 (a 22-year old vessel) for scrap at the end of 2009. Higher containershipmore than 500,000 teu, a 35 year record. In 2017 scrapping rates have continued during 2012, 2013 and 2014 following the weakness of containership charter hire rates. The average scrapping age for containerships during 2014 and 2015 was 22 years and 23 years, down from about 24 years up to 2012. We sold another one of our vessels, Jonathan P, built in 1990 (a 22-year-old vessel) in March 2012, and we also sold for scrap two of our vessels, Anking and Irini (the latter a drybulk vessel) built in 1990 and 1988, respectively, in June and July 2013. In November 2015 we sold the containership Tiger Bridge (2,228 TEU, built 1990) while in December 2015 we sold two containerships Despina P (1,932declined year on year reaching 400,000 teu built 1990) and Marinos (1,599 TEU, built 1993). Further, in January 2016 we sold our drybulk vessel Aristides NP (69,268 DWT, built 1993). All four vessels were sold for scrap.
Declining shipping charter hire rates have a negative impact on our earnings when our vessels are employed in the spot market or when they are to be re-chartered after completing a time charter contract. As of April 1, 2016,March 5, 2018, approximately 60%39% of our ship capacity days in remainder of 20162018 and approximately 18%6% of our ship capacity days in 2017,2019, are under time charter contracts. If the market rates decrease from current market conditions and rates prevail,levels or the supply of vessels increases, our vessels may have difficulty securing employment and, if so, may be employed at rates lower than their present charters.
E. | Off-balance Sheet Arrangements |
As of December 31, 2015,2017, we did not have any off-balance sheet arrangements.
F. | Tabular Disclosure of Contractual Obligations |
Contractual Obligations and Commitments
Contractual obligations are set forth in the following table as of December 31, 2015:2017:
In U.S. dollars | Total | Less Than One Year | One to Three Years | Three to Five Years | More Than Five Years | | Total | | | Less Than One Year | | | One to Three Years | | | Three to Five Years | | | More Than Five Years | |
Bank debt | $40,521,040 | $14,810,000 | $10,282,706 | $15,428,334 | — | | $ | 74,412,271 | | | $ | 18,862,000 | | | $ | 38,286,299 | | | $ | 15,535,000 | | | $ | 7,728,972 | |
Interest Payments (1) | $3,518,896 | $1,423,530 | $1,831,490 | $263,876 | — | | $ | 11,377,954 | | | $ | 4,419,360 | | | $ | 5,078,316 | | | $ | 1,762,632 | | | $ | 117,646 | |
Vessel Management fees (2) | $22,896,849 | $4,138,195 | $9,220,327 | $9,538,327 | — | | $ | 25,390,390 | | | $ | 5,237,679 | | | $ | 10,070,919 | | | $ | 10,081,792 | | | $ | - | |
Other Management fees (3) | $10,724,932 | $2,000,000 | $4,212,450 | $4,512,482 | — | | $ | 10,724,932 | | | $ | 2,000,000 | | | $ | 4,212,450 | | | $ | 4,512,482 | | | $ | - | |
Payments for newbuildings (4) | $84,346,000 | $62,186,000 | $22,160,000 | — | — | |
Newbuilding Commitments (4) | | | $ | 18,000,000 | | | $ | 18,000,000 | | | $ | - | | | $ | - | | | $ | - | |
Total | $162,007,717 | $84,557,725 | $47,706,973 | $29,743,019 | — | | $ | 139,905,547 | | | $ | 42,519,039 | | | $ | 57,647,984 | | | $ | 31,891,906 | | | $ | 7,846,618 | |
(1) Assuming the amortization of the loans as of December 31, 20152017 described above, and an average calculatedeach loan's interest rate margin over LIBOR and average LIBOR rates of about 0.84%2.04%, 2.06%2.1%, 2.77%2.37%, 2.49% and 3.04%2.57%, 2.72% per annum for the five years, respectively, and based on an underlying assumption for LIBOR calculated from the swap rates of the LIBOR yield curve as of December 31, 2015 of 0.84%, 1.45%, 1.89%, 2.04% and 2.24% for years 1 to 5, respectively.2017. Also includes our obligation to
make payments required as of December 31, 20152017 under our interest rate swap agreements based on the same LIBOR forward rate assumptionassumptions (see Item 11).
(2) Refers to our obligation for management fees under our Amended and Restated Master Management Agreement and management agreement with the shipowning companies in effect as of January 1, 2018 and expires on January 1, 2023. The management fees have been computed for 2018 based on the agreed rate of 685 Euros per day per vessel (approximately $740) starting on January 1, 2016$840) and for the twelve vessels owned by Euroseas as of that date under the Amended and Restated Master Management Agreement2019 we have assumed an increase in effect as of January 1, 2016; each shipowning company signs with Eurobulk a management agreement when a vessel is acquired but the rate and term of these agreements is set in the Master Management Agreement as amended and restated on January 1, 2016; the present term of which expires on January 1, 2019. For years two to five we have3.5% for inflation. We assumed no changes in the number of vessels, an inflation rate of 3.5% per year and no changes in this US Dollar to Euro exchange rate (assumed at 1.081.23 USD/Euro). Also, refersWe further assume that we hold our vessels until they reach 25 years of age, after which they are considered to our obligation for management fees of 685 Euros per day per vessel (approximately $740) starting in December 2014 for Hull No DY 160, in March 2015 for Hull No DY 161, in January 2015 for Hull YZJ1116be scrapped and in January 2016 for Hull YZJ1153 as of the date of steel cutting for each vessel per our Amended and Restated Master Management Agreement in effect as of January 1, 2014. These management fees amount to $807,862, $2,135,211, $2,440,380 and $0 for the periods shown in the table, respectively.no long bear obligations.
(3) Refers to our obligation for management fees of $2,000,000 per year under our Master Management Agreement with Eurobulk for the cost of providing management services to Euroseas as a public company and its subsidiaries. This fee is adjusted for inflation in Greece during the previous calendar year every January 1st. From January 1, 20162019 on, we have assumed an inflation rate of 3.5% per year. The agreement expires on January 1, 2019.2023.
(4) Refers to the remaining contractual obligations to shipyard(s)payments for our vessels under construction.newbuilding contract for the construction of M/V "Ekaterini" which is scheduled to be delivered in May 2018.
See "Forward-Looking Statements" at the beginning of this annual report.
Item 6. | Directors, Senior Management and Employees |
A. | Directors and Senior Management |
The following sets forth the name and position of each of our directors and executive officers.
Name | Age | Position |
Aristides J. Pittas | 5658 | Chairman, President and CEO; Class A Director |
Dr. Anastasios Aslidis | 5657 | CFO and Treasurer; Class A Director |
Aristides P. Pittas | 6466 | Vice Chairman; Class A Director |
Stephania Karmiri | 4850 | Secretary |
Panagiotis Kyriakopoulos | 55 | Class B Director |
George Skarvelis | 5557 | Class B Director |
George Taniskidis | 5557 | Class C Director |
Apostolos Tamvakakis | 6466 | Class C Director (since June 25, 2013) |
Tim GravelyChristian Donohue | 3840 | Series B Director (since January 31, 2014)December 7, 2017) |
Aristides J. Pittas has been a member of our Board of Directors and our Chairman and Chief Executive Officer since our inception on May 5, 2005. He has also been a member of the Board of Managers of Euromar since its inception on March 25, 2010. Since 1997, Mr. Pittas has also been the President of Eurochart, our affiliate. Eurochart is a shipbroking company specializing in chartering and selling and purchasing ships. Since January 1995, Mr. Pittas has been the President and Managing Director of Eurobulk, our affiliated ship management company. He resigned as Managing Director of Eurobulk in June 2005. Eurobulk is a ship management company that provides ocean transportation services. From September 1991 to December 1994, Mr. Pittas was the Vice President of Oceanbulk Maritime SA, a ship management company. From March 1990 to August 1991, Mr. Pittas served both as the Assistant to the General Manager and the Head of the Planning Department of Varnima International SA, a shipping company operating tanker vessels. From June 1987 until February 1990, Mr. Pittas was the head of the Central Planning department of Eleusis Shipyards S.A. From January 1987 to June 1987, Mr. Pittas served as Assistant to the General Manager of Chios Navigation Shipping Company in London, a company that provides ship management services. From December 1985 to January 1987, Mr. Pittas worked in the design department of Eleusis Shipyards S.A. where he focused on shipbuilding and ship repair. Mr. Pittas has a B.Sc. in Marine Engineering from University of Newcastle - Upon-Tyne and a MSc in both Ocean Systems Management and Naval Architecture and Marine Engineering from the Massachusetts Institute of Technology.
Dr. Anastasios Aslidis has been our Chief Financial Officer and Treasurer and member of our Board of Directors since September 2005. He has also been a member of the Board of Managers of Euromar since its inception on March 25, 2010. Prior to joining Euroseas, Dr. Aslidis was a partner at Marsoft, an international consulting firm focusing on investment and risk management in the maritime industry. Dr. Aslidis has more than 25 years of experience in the maritime industry. He also served as consultant to the Boards of Directors of shipping companies (public and private) advising inon strategy development, asset selection and investment timing. Dr. Aslidis holds a Ph.D. in Ocean Systems Management (1989) from the Massachusetts Institute of Technology, M.S. in Operations Research (1987) and M.S. in Ocean Systems Management (1984) also from the Massachusetts Institute of Technology, and a Diploma in Naval Architecture and Marine Engineering from the National Technical University of Athens (1983), M.S. in Ocean Systems Management (1984) and Operations Research (1987) from the Massachusetts Institute of Technology, and a Ph.D. in Ocean Systems Management (1989) also from the Massachusetts Institute of Technology..
Aristides P. Pittas has been a member of our Board of Directors since our inception on May 5, 2005 and our Vice Chairman since September 1, 2005. Mr. Pittas has been a shareholder in over 100 oceangoing vessels during the last 20 years. Since February 1989, Mr. Pittas has been the Vice President of Oceanbulk Maritime SA , a ship management company. From November 1987 to February 1989, Mr. Pittas was employed in the supply department of Drytank SA, a shipping company. From November 1981 to June 1985, Mr. Pittas was employed at Trust Marine Enterprises, a brokerage house as a sale and purchase broker. From September 1979 to November 1981, Mr. Pittas worked at Gourdomichalis Maritime SA in the operation and Freight Collection department. Mr. Pittas has a B.Sc in Economics from Athens School of Economics.
Stephania Karmiri has been our Secretary since our inception on May 5, 2005. Since July 1995, Mrs. Karmiri has been executive secretary to Eurobulk, our affiliated ship management company. Eurobulk is a ship management company that provides ocean transportation services. At Eurobulk, Mrs. Karmiri has been responsible for dealing with sale and purchase transactions, vessel registrations/deletions, bank loans, supervision of office administration and office/vessel telecommunication. From May 1992 to June 1995, she was secretary to the technical department of Oceanbulk Maritime SA, a ship management company. From 1988 to 1992, Mrs. Karmiri served as assistant to brokers for Allied Shipbrokers, a company that provides shipbroking services to sale and purchase transactions. Mrs. Karmiri has taken assistant accountant and secretarial courses from Didacta college.
Panagiotis Kyriakopoulos has been a member of our Board of Directors since our inception on May 5, 2005. Since July 2002, he has been the Chief Executive Officer of STAR INVESTMENTS S.A., one of the leading Mass Media Companies in Greece, running television and radio stations. From July 1997 to July 2002 he was the C.E.O. of the Hellenic Post Group, the Universal Postal Service Provider, having the largest retail network in Greece for postal and financial services products. From March 1996 until July 1997, Mr. Kyriakopoulos was the General Manager of ATEMKE SA, one of the leading construction companies in Greece listed on the Athens Stock Exchange. From December 1986 to March 1996, he was the Managing Director of Globe Group of Companies, a group active in the areas of shipowning and management, textiles and food and distribution. The company was listed on the Athens Stock Exchange. From June 1983 to December 1986, Mr. Kyriakopoulos was an assistant to the Managing Director of Armada Marine S.A., a company active in international trading and shipping, owning and managing a fleet of twelve vessels. Presently he is Chairman of the Hellenic Private Television Owners Association, BoD member of the Hellenic Federation of Enterprises (SEV), BoD member of AGET Heracles and BoD member of Digea S.A. He has also been an investor in the shipping industry for more than 20 years. Mr. Kyriakopoulos has a B.Sc. degree in Marine Engineering from the University of Newcastle upon Tyne, a MSc. degree in Naval Architecture and Marine Engineering with specialization in Management from the Massachusetts Institute of Technology and a Master degree in Business Administration (MBA) from Imperial College, London.
George Skarvelis has been a member of our Board of Directors since our inception on May 5, 2005. He has been active in shipping since 1982. In 1992, he founded Marine Spirit S.A., a ship management company. Between 1999 and 2003, Marine Spirit acted as one of the crewing managers for Eurobulk. From 1986 until 1992, Mr. Skarvelis was operations director at Markos S. Shipping Ltd. From 1982 until 1986, he worked with Glysca Compania Naviera, a management company of five vessels. Over the years Mr. Skarvelis has been a shareholder in numerous shipping companies. He has a B.Sc. in economics from the Athens University Law School.
George Taniskidis has been a member of our Board of Directors since our inception on May 5, 2005. He is the Chairman of Core Capital Partners, a consulting firm specializing in debt restructuring. He was Chairman and Managing Director of Millennium Bank and a member of the Board of Directors of BankEuropa (subsidiary bank of Millennium Bank in Turkey) until May 2010. He was also a member of the Executive Committee and the Board of Directors of the Hellenic Banks Association. From 2003 until 2005, he was a member of the Board of Directors of Visa International Europe, elected by the Visa issuing banks of Cyprus, Malta, Portugal, Israel and Greece. From 1990 to 1998, Mr. Taniskidis worked at XIOSBANK (until its acquisition by Piraeus Bank in 1998) in various positions, with responsibility for the bank's credit strategy and network. Mr. Taniskidis studied Law in the National University of Athens and in the University of Pennsylvania Law School, where he received a L.L.M. After law school, he joined the law firm of Rogers & Wells in New York, where he worked until 1989 and was also a member of the New York State Bar Association. He is also a member of the Young Presidents Organization.
Apostolos Tamvakakishas been a member of our Board of Directors since June 25, 2013. From January 2015 to February 2017 he was independent non-executive Vice Chairman of the Board of Directors of Piraeus Bank. Since July 2012 he participated as a Member of the Board of Directors and Committees in various companies. From December 2009 to June 2012, Mr. Tamvakakis served aswas appointed Chief Executive Officer of the National Bank of Greece. From May 2004 to March 2009, he served as Chairman and Managing Director of Lamda Development, a real estate development company of the Latsis Group and from March 2009 to December 2009, he was responsible for strategic and corporate developmentserved on the management
team of the Geneva-based Latsis Group, in Geneva.as Head of Strategy and Business Development. From October 1998 to April 2004, Mr. Tamvakakishe served as Vice GovernorChairman of the National Bank of Greece. Prior to that, he worked as ViceDeputy Governor inof National Real EstateMortgage Bank of Greece, and Substitute Managing Director in Mobil Oil Hellas,as Deputy General Manager of ABN AMRO Bank, as Manager of Corporate Finance at Hellenic Investment Bank and ABN-AMRO Bank.as Planning Executive at Mobil Oil Hellas. He also served as Vice-Chairman of EXAE,Athens Stock Exchange, Chairman of the Steering Committee of Interalpha Group of Banks, Chairman of Ethnocarta, Ethinki XrimatistiriakiEthnokarta, National Securities, ETEVA and ETEBA as well as of the Southeastern European Board of the Europay Mastercard Group. Mr. Tamvakakis has also served in numerous boards of directors and committees. Mr. TamvakakisHe is Chairman of the BoD of AVIS, member of the Board of QUEST HOLDINGS and GEK TERNA S.A., Chairman of the Liquidations Committee of PQH Single Special Liquidation S.A. and member of the Marketing Commission of the Hellenic Olympic Committee. He is a graduate of the Athens University of Economics and has an M.A. in Economics from the Saskatchewan University in Canada with major in econometrics and economic mathematics.economics.
Tim GravelyChristian Donohue has been a member of ourthe Board of Directors of Euroseas since January 31, 2014.December 7, 2017. Mr. GravelyDonohue was appointed pursuant to the provisions of the Statement of Designation of our Series B Preferred Shares. Mr. GravelyDonahue is a Managing Director of TCP. Prior to joining TCP in 2008, Mr. Gravely2007 he was an Associatea Vice President at RBC Capital Markets in the Leveraged and Syndicated Finance Group where he executed acquisition debt financing for financial sponsors and corporate clients. Prior to that, Mr. Gravely held positions as an Associate with Macquarie Capital Advisors in Toronto and with RBC Capital Markets in the Mergers & Acquisitions Group. Mr. Gravely currently also serves as director of Bluewall Shipping Limited, König & Cie GmbH and Tanker Investments Limited.
Family Relationships
Aristides P. Pittas, Vice Chairman, is the cousin of Aristides J. Pittas, our Chairman, President and CEO.
Executive Compensation
We have no direct employees. The services of our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary are provided by Eurobulk. In July 2005, we entered into a writtenThese services agreementare provided to us under our Master Management Agreement with Eurobulk whereunder which we pay a fee, before bonuses, adjusted annually for Greek inflation to account for the increased management cost associated with us being a public company and other services to our subsidiaries. As of October 1, 2006, these services are now provided to us under our Master Management Agreement with Eurobulk. During 2015 and 2016, under this Master Management Agreement, as amended, we paid Eurobulk $2,000,000 each year for the services of our executives, Mr. Aristides J. Pittas, Dr. Anastasios Aslidis and Mr. Symeon Pariaros, our Secretary, Mrs. Stephania Karmiri, and our Internal Auditor, Mr. Konstantinos Siademas, and for other services associated with us being a public company and other services to our subsidiaries.Auditor. As of January 1, 20162018 this fee remained the same at $2,000,000.
Director Compensation
Our directors who are also our officers or have executive positions or beneficially own greater than 10% of the outstanding common stock will receive no compensation for serving on our Board of Directors or its committees.
Directors who are not our officers, do not have any executive position or do not beneficially own greater than 10% of the outstanding common stock will receive the following compensation: an annual retainer of $12,000, plus $3,000 for attending a quarterly meeting of the Board of Directors, plus an additional retainer of $8,000 if serving as Chairman of the Audit Committee. They also participate in the Company's Equity Incentive Plan.
All directors are reimbursed reasonable out-of-pocket expenses incurred in attending meetings of our Board of Directors or any committee of our Board of Directors.
Equity Incentive Plan
In July 2014, our Board of Directors approved a new equity incentive plan (the "2014 Equity Incentive Plan") to replace the 2010 Equity Incentive Plan. The 2014 Equity Incentive Plan is administered by the Board of Directors which can make awards totaling in aggregate up to 250,000 shares over 10 years after the 2014 Equity Incentive Plan's adoption date. Officers, directors and employees (including any prospective officer or employee) of the Company and its subsidiaries and affiliates and consultants and service providers to (including persons who are employed by or provide services to any entity that is itself a consultant or service provider to) the Company and its subsidiaries and affiliates are eligible to receive awards under the 2014 Equity Incentive Plan. Awards may be made under the 2014 Equity Incentive Plan in the form of incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, unrestricted stock, restricted stock units and performance shares.
On November 21, 2013, the Board of Directors awarded 45,000 shares of restricted stock to the directors, officers and key employees of Eurobulk, 50% of which vested on July 1, 2014, and the remainder which will vestvested on July 1,
2015. On October 31,November 3, 2014, the Board of Directors awarded 45,000 shares of restricted stock to the directors, officers and key employees of Eurobulk, 50% of which will vestvested on November 16, 2015, and the remainder which will vestvested on November 16, 2016. On November 6, 2015, the Board of Directors awarded 68,400 shares of restricted stock to the directors, officers and key employees of Eurobulk, 50% of which will vestvested on July 1, 2016, and the remainder will vest on July 1, 2017. On November 3rd 2016 the Board of Directors awarded 82,080 shares of restricted stock to the directors, officers and key employees of Eurobulk, 50% of which will vest on November 1, 2017, and the remainder will vest on November 1, 2018. Vesting of the awards is conditioned on continuous employment throughout the period to the vesting date. On November 2nd, 2017 an award of 100,270 non-vested restricted shares, was made to the directors, officers and key employees of Eurobulk of which 50% will vest on July 1, 2018 and 50% will vest on July 1, 2019.
The current term of our Class A directors expires in 2017,2020, the term of our Class B directors expires in 2018 and the term of our Class C directors expires in 2016.2019.
There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.
Our Board of Directors does not have separate compensation or nomination committees, and instead, the entire Board of Directors performs those responsibilities.
Audit Committee
We currently have an Audit Committee comprised of three independent members of our Board of Directors. The Audit Committee is responsible for reviewing the Company's accounting controls and the appointment of the Company's outside auditors. The members of the Audit Committee are Mr. Panos Kyriakopoulos (Chairman and "audit committee financial expert" as such term is defined under SEC regulations), Mr. Apostolos Tamvakakis and Mr. George Taniskidis.
Code of Ethics
We have adopted a code of ethics that complies with the applicable guidelines issued by the SEC. Our code of ethics is posted on our website: http://www.euroseas.gr under "Corporate Governance."
Corporate Governance
Our Company's corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, weWe are exempt from many of Nasdaq's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with Nasdaq corporate governance practices, and the establishment and composition of an audit committee and a formal written audit committee charter. The practices that we follow in lieu of Nasdaq's corporate governance rules are described below.
| · | We are not required under Marshall Islands law to maintain a Board of Directors with a majority of independent directors, and we may not be able to maintain a Board of Directors with a majority of independent directors in the future. |
| · | In lieu of a compensation committee comprised of independent directors, our Board of Directors will be responsible for establishing the executive officers' compensation and benefits. Under Marshall Islands law, compensation of the executive officers is not required to be determined by an independent committee. |
| · | In lieu of a nomination committee comprised of independent directors, our Board of Directors will be responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders may also identify and recommend potential candidates to become candidates to become board members in writing. No formal written charter has been prepared or adopted because this process is outlined in our bylaws. |
| · | In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Marshall Islands law requirements, a related party transaction will be permitted if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors and the Board of Directors in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, or, if the votes of the disinterested directors |
| | are insufficient to constitute an act of the Board of Directors as defined in Section 55 of the Marshall Islands Business Corporations Act, by unanimous vote of the disinterested directors; or (ii) the material facts as to his relationship or interest are disclosed and the shareholders are entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a simple majority vote of the shareholders; or (iii) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.transaction |
| · | As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our bylaws provide that shareholders must give us advance notice to properly introduce any business at a meeting of the shareholders. Our bylaws also provide that shareholders may designate in writing a proxy to act on their behalf. |
| · | In lieu of holding regular meetings at which only independent directors are present, our entire Board of Directors, a majority of whom are independent, will hold regular meetings as is consistent with the laws of the Republic of the Marshall Islands. |
| · | The Board of Directors adopted a new Equity Incentive Plan in July 2014. Shareholder approval was not necessary since Marshall Islands law permits the Board of Directors to take such actions. |
| · | As a foreign private issuer, we are not required to obtain shareholder approval if any of our directors, officers, or 5% or greater shareholders has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company, or assets to be acquired, or in the consideration to be paid in the transaction(s) and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common stock or voting power of 5% or more. |
| · | In lieu of obtaining shareholder approval prior to the issuance of designated securities, the Company will comply with provisions of the Marshall Islands Business Corporations Act, providing that the Board of Directors approves share issuances. |
Other than as noted above, we are in full compliance with all other applicable Nasdaq corporate governance standards.
We have no salaried employees, although we pay Eurobulk for the services of our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary: Mr. Aristides J. Pittas, Dr. Anastasios Aslidis, Mr. Symeon Pariaros, Mr. Konstantinos Siademas and Ms. Stephania Karmiri, respectively. Eurobulk also ensures that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions, and that all of our vessels employ experienced and competent personnel. As of December 31, 2015,2017, approximately 80119 officers and 270222 crew members served on board the vessels in our fleet.
With respect to the ownership of our common stock by each of our directors and executive officers, and all of our directors and executive officers as a group, see "Item 7. Major Shareholders and Related Party Transactions".
All of the shares of our common stock have the same voting rights and are entitled to one vote per share.
Equity Incentive Plan
See Item 6.B of this annual report, "Compensation."
Options
No options were granted during the fiscal year ended December 31, 2015.2017. There are currently no options outstanding to acquire any of our shares.
Warrants
We do not currently have any outstanding warrants.
Item 7. | Major Shareholders and Related Party Transactions |
The following table sets forth certain information regarding the beneficial ownership of our voting stock as of April 1, 201625, 2018 by each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of our voting stock, each of our directors and executive officers, and all of our directors and executive officers and 5% owners as a group. All of our shareholders, including the shareholders listed in this table, are entitled to one vote for each share of common stock held.
Name of Beneficial Owner(1) | | Number of Shares of Voting Common Stock Beneficially Owned | | | Percent of Voting of Common Stock (15) | | | Number of Shares of Voting Series B Preferred Stock Beneficially Owned | | | Percent of Voting of Series B Preferred Shares(16) | | | Number of Shares of Voting Common Stock Beneficially Owned Upon Conversion; 50% Voting Before Conversion | | | Percent of Total Voting Securities | |
Friends Investment Company Inc.(2) | | | 2,851,088 | | | | 34.8 | % | | | - | | | | - | | | | | | | 25.9 | % |
Tennenbaum Opportunities Fund VI, LLC (3, 4) | | | - | | | | - | | | | 26,850 | | | | 81.4 | % | | | 2,245,551 | | | | 20.7 | % |
12 West Capital Fund L.P. (5) (**) | | | 759,211 | | | | 9.3 | % | | | - | | | | - | | | | - | | | | 6.9 | % |
Fred H Brenner (***) | | | 1,122,360 | | | | 13.7 | % | | | - | | | | - | | | | - | | | | 10.2 | % |
12 West Capital Offshore Fund L.P. (5) (**) | | | 357,276 | | | | 4.4 | % | | | - | | | | - | | | | - | | | | 3.3 | % |
Family United Navigation Co. | | | 400,000 | | | | 4.9 | % | | | - | | | | - | | | | - | | | | 3.6 | % |
Preferred Friends Investment Company Inc.(4) | | | - | | | | - | | | | 6,352 | | | | 18.6 | % | | | 512,000 | | | | 4.7 | % |
Aristides J. Pittas(6) | | | 127,488 | | | | 1.6 | % | | | - | | | | - | | | | - | | | | 1.2 | % |
George Skarvelis(7) | | | 3,829 | | | | * | | | | - | | | | - | | | | - | | | | * | |
George Taniskidis(8) | | | 9,379 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Panagiotis Kyriakopoulos(9) | | | 41,602 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Aristides P. Pittas(10) | | | 5,400 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Anastasios Aslidis(11) | | | 68,835 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Apostolos Tamvakakis(12) | | | 3,680 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Timothy Gravely | | | - | | | | * | | | | - | | | | - | | | | - | | | | * | |
Stephania Karmiri(13) | | | - | | | | * | | | | - | | | | - | | | | - | | | | * | |
Symeon Pariaros(14) | | | 2,105 | | | | * | | | | - | | | | - | | | | - | | | | * | |
All directors and officers and 5% owners as a group | | | 5,756,463 | | | | 70.2 | % | | | 34,200 | | | | 100 | % | | | 2,757,551 | | | | 77.8 | % |
Name of Beneficial Owner (1) | | Number of Shares of Voting Common Stock Beneficially Owned | | | Percent of Voting of common Stock (13) | | | Number of Shares of Voting Series B Preferred Stock Beneficially Owned (14) | | | Percent of Voting of Series B Preferred Shares (14) | | | Number of Shares of Voting Common Stock Beneficially Owned Upon Conversion; 50% Voting Before Conversion | | | Percent of Total Voting Securities | |
Friends Investment Company Inc(2) | | | 3,857,695 | | | | 34.2 | % | | | - | | | | - | | | | | | | 29.7 | % |
Tennenbaum Opportunities Fund VI, LLC (3, 4) | | | 900,000 | | | | 8.0 | % | | | 30,386 | | | | 81.4 | % | | | 2,819,432 | | | | 17.8 | % |
Tennenbaum Opportunities Fund V, LLC (3, 4) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Family United Navigation Co | | | 390,000 | | | | 6.2 | % | | | - | | | | - | | | | - | | | | 5.4 | % |
Preferred Friends Investment Company Inc(4) | | | - | | | | - | | | | 6,928 | | | | 18.6 | % | | | 642,805 | | | | 2.5 | % |
Aristides J Pittas(5) | | | 58,220 | | | | * | | | | - | | | | - | | | | - | | | | * | |
George Taniskidis(6) | | | 3,318 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Panagiotis Kyriakopoulos(7) | | | 46,393 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Aristides P Pittas(8) | | | 12,955 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Anastasios Aslidis(9) | | | 48,286 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Apostolos Tamvakakis(10) | | | 7,681 | | | | * | | | | - | | | | - | | | | - | | | | * | |
Timothy Gravely | | | - | | | | * | | | | - | | | | - | | | | - | | | | * | |
Stephania Karmiri(11) | | | - | | | | * | | | | - | | | | - | | | | - | | | | * | |
Symeon Pariaros(12) | | | 33,856 | | | | * | | | | - | | | | - | | | | - | | | | * | |
All directors and officers and 5% owners as a group | | | 5,668,404 | | | | 50.3 | % | | | 35,942 | | | | 100 | % | | | 3,462237 | | | | 56.6 | % |
* Indicates less than 1.0%.
** As filed on February 16, 2016.
*** As filed on February 3, 2016.
(1) | Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Securities Exchange Act of 1934, as amended, and generally includes voting or investment power with respect to securities. Except as subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by him/her. |
(2) | Represents 2,851,0883,857,695 shares of common stock held of record by Friends. A majority of the shareholders of Friends are members of the Pittas family. Investment power and voting control by Friends resides in its Board of Directors which consists of five directors, a majority of whom are members of the Pittas family. Actions by Friends may be taken by a majority of the members on its Board of Directors. |
(3) | Tennenbaum Capital Partners, LLC serves as investment advisor to, inter alia, Tennenbaum Opportunities Fund VI, LLC, and has sole voting and investment power with respect to all securities owned of record by Tennenbaum Opportunities Fund VI, LLC. The address for each of Tennenbaum Capital Partners, LLC and Tennenbaum Opportunities Fund VI, LLC is 2951 28th Street, Suite 1000, Santa Monica, CA 90405. |
(4) | Common shares are issuable upon conversion of Series B Preferred Shares (or any convertible notes into which the Series B Preferred Shares may convert) owned by this shareholder (based on the current conversion ratio). |
(5) | 12 West Capital Management LP ("12 West Management") serves as the investment manager to 12 West Capital Fund LP, a Delaware limited partnership ("12 West Onshore Fund"), and 12 West Capital Offshore Fund LP, a Cayman Islands exempted limited partnership ("12 West Offshore Fund"), and possesses the sole power to vote and the sole power to direct the disposition of all securities of the Company held by 12 West Onshore Fund and 12 West Offshore Fund. Joel Ramin, as the sole member of 12 West Capital Management, LLC, the general partner of 12 West Management, possesses the voting and dispositive power with respect to the securities beneficially owned by 12 West Management. The address for each of 12 West Capital Fund LP and 12 West Capital Offshore Fund LP is c/o 12 West Capital Management LP, 90 Park Avenue, 41st Floor, New York, NY 10016. |
(6) | Does not include 359,408506,511 shares of common stock held of record by Friends, by virtue of ownership interest in Friends by Mr. Pittas. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. Does not include 1,694 shares of1,870 Series B Preferred stockShares held of record by Preferred Friends Investment Company Inc., by virtue of ownership interest in Preferred Friends Investment Company Inc. by Mr. Pittas. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. Includes 4,950 shares vesting on November 16, 2016, 7,42511,140 shares vesting on July 1, 2016,2018, 8,910 shares of common stock vesting on November 16, 2018 and 7,42511,140 shares vesting on July 1, 2017.2019. |
(7)(6) | Does not include 96,78717,831 shares of common stock held of record by Friends, by virtue of Mr. Skarvelis' ownership interest in Friends. Mr. Skarvelis disclaims beneficial ownership except to the extent of his pecuniary interest. Includes 525 shares vesting on November 16, 2015, 790 shares vesting on July 1, 2016, and 790 shares vesting on July 1, 2017. |
(8) | Does not include 13,568 shares of common stock held of record by Friends, by virtue of Mr. Taniskidis' ownership in Friends. Mr. Taniskidis disclaims beneficial ownership except to the extent of his pecuniary interest. Does not include 899 shares of184 Series B Preferred stockShares held of record by Preferred Friends Investment Company Inc., by virtue of ownership interest in Preferred Friends Investment Company Inc.byInc. by Mr. Taniskidis and members of his family. Mr. Taniskidis disclaims beneficial ownership except to the extent of his pecuniary interest. Includes 525 shares vesting on November 16, 2015, 7901,185 shares vesting on July 1, 2016,2018, 948 shares of common stock vesting on November 16, 2018 and 7901,185 shares vesting on July 1, 2017.2019. |
(9)(7) | Includes 525 shares vesting on November 16, 2015, 7901,185 shares vesting on July 1, 2016,2018, 948 shares of common stock vesting on November 16, 2018 and 7901,185 shares vesting on July 1, 2017.2019. |
(10)(8) | Does not include 496,985505,189 shares of common stock held of record by Friends and Family United Navigation Co., by virtue of ownership interest in Friends of Mr. Pittas and members of his family. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. Does not include 87091 shares of Series B Preferred stock held of record by Preferred Friends Investment Company Inc., by virtue of ownership interest in Preferred Friends Investment Company Inc.by Mr. Pittas and members of his family. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. Includes 1,350 shares vesting on November 16, 2015, 2,0253,040 shares vesting on July 1, 2016,2018, 2,430 shares of common stock vesting on November 16, 2018 and 2,0253,040 shares vesting on July 1, 2017.2019. |
(11)(9) | Includes 3,375 shares vesting on November 16, 2015, 5,0407,560 shares vesting on July 1, 2016,2018, 6,048 shares of common stock vesting on November 16, 2018 and 5,0407,560 shares vesting on July 1, 2017.2019. |
(12)(10) | Includes 525 shares vesting on November 16, 2015, 7901,185 shares vesting on July 1, 20162018, 948 shares of common stock vesting on November 16, 2018 and 7901,185 shares vesting on July 1, 2017.2019. |
(13)(11) | Does not include 371488 shares of common stock held of records by Friends, by virtue of Mrs. Karmiri's ownership in Friends. Mrs. Karmiri disclaims beneficial ownership except to the extent of her pecuniary interest. |
(14)(12) | Includes 525 shares vesting on November 16, 2015, 7901,185 shares vesting on July 1, 2016,2018, 948 shares of common stock vesting on November 16, 2018 and 7901,185 shares vesting on July 1, 2017.2019. |
(15)(13) | Voting stock includes 90,900140,362 unvested shares for a total of 8,195,76011,274,126 issued and outstanding shares of the Company as of April 29, 2016.25, 2018. |
(16)(14) | As of March 31, 2018, Series B Preferred Shares vote on an as-converted basis weighted by 50%. |
B. | Related Party Transactions |
The operations of our vessels are managed by Eurobulk, an affiliated ship management company owned by our Chairman and CEO and his family, under a Master Management Agreement with us and separate management agreements with each shipowning company. Under our Master Management Agreement, Eurobulk is responsible for all aspects of management and compliance for the Company, including the provision of the services of our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary. Eurobulk is also responsible for all commercial management services, which include obtaining employment for our vessels and managing our relationships with charterers. Eurobulk also performs technical management services, which include managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging and supervising dry docking and repairs, arranging insurance for vessels, purchasing stores, supplies, spares and new equipment for vessels, appointing supervisors and technical consultants and providing technical support and shoreside personnel who carry out the management functions described above and certain accounting services. Eurobulk also currently manages the vessels of Euromar, which are partially owned by us, and four other vessels not owned by us.
Our Master Management Agreement with Eurobulk, which we initially entered in 2008, was most recently amended and restated as of January 1, 20142018 and its term was extended until January 1, 2019.2023. The Master Management Agreement can be terminated by Eurobulk only for cause or under other limited circumstances, such as sale of the Company or Eurobulk or the bankruptcy of either party. The Master Management Agreement will automatically be extended after the initial period for an additional five year period unless terminated on or before the 90th day preceding the preceding termination date. Pursuant to the Master Management Agreement, eachEach new vessel we may acquire in the future will enter into a separate management agreement either with Eurobulk with a rate and term coinciding with the rate and remaining term of the Master Management Agreement pursuant to the Master Management Agreement, or, with Eurobulk FE with a rate and term coinciding with the rate and term of the Master Management Agreement. UnderDuring 2015, 2016 and 2017, under the Master Management Agreement, as amended, we paypaid Eurobulk as of January 1, 2015 a fixed cost of $2,000,000 annually, to bewhich is adjusted for Greek inflation every January 1st, and a per ship per day cost of 685 Euros (or about $740$842.50 based on $1.08/$1.23/Euro exchange rate) also adjusted annually for inflation (everyevery January 1st; there (there was no inflation adjustment on January 1, 2015 and 2016 or January 1, 2017 as the inflation rate was not positive), reflecting a 5% discount if the number of vessels wholly or partially owned by Euroseas and managed by Eurobulk is more than 20, which has been the case sincefrom January 1, 2012 when this discount went into effectto December 2017 as the total number of our vessels andowned by us (including the vessels owned by Euromar isEuromar) was been greater than 20. In absence of this discount, the cost per ship per day iswould have been 720 Euros, or about $792.$885.6. This cost iswould have been reduced by half (342.5 Euros per vessel per day, or 360 Euros per vessel per day as appropriate) for any vessels that are laid up. Vessels under construction start paying the daily management fee after steel cutting. Under the amended and restated Master Management Agreement, as of January 1, 2018, the volume discount has been permanently incorporated into the daily management fee which remained 685 Euros in 2018 to be annually adjusted for Eurozone inflation. The terms and daily fee under the management agreements with Eurobulk FE were similarly adjusted. Eurobulk has received fees for management and executive compensation expenses of $6,791,024, $6,894,559$6,151,335, $5,179,596 and $6,151,335$6,042,353 during, 2013, 20142015, 2016, and 2015,2017, respectively.
As of January 1,its delivery on February 25, 2016, the management of the newly delivered vessel, M/V "Xenia" is performed by Eurobulk FE; M/V "Tasos" is also managed by Eurobulk FE a corporation controlled by members of the Pittas family.since July 1, 2017 as well as M/V "Alexandros P" since its delivery on January 16, 2017.
We receive chartering and sale and purchase services from Eurochart, an affiliate, and pay a commission of 1.25% on charter revenue and 1% on vessel sale price. We pay additional commissions to major charterers and their brokers as well that usually range from 3.75% to 5.00%. During 2015,2017, Eurochart has received chartering andreceived: $70,640 for vessel sale commissions of $552,814. Eurochart also receivessales which is calculated as a 1% commission of the acquisitionvessel sales price and $563,970 for chartering services calculated as 1.25% of chartering revenues. It also received $297,526 for vessel acquisitions we made including newbuildings from the sellersellers of the vessel for the vessels we acquire.vessels.
Technomar S.A., a crewing agent, and Sentinel Marine Services Inc., an insurance brokering company are affiliates to whom we paid a fee of about $60 per crew member per month and pay a commission on premium not exceeding 5%, respectively.
Aristides J. Pittas is currently the Chairman of each of Eurochart Eurotrade and Eurobulk, all of which are our affiliates.
We have entered into a registration rights agreement with Friends, our largest shareholder, pursuant to which we granted Friends the right, under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act shares of our common stock held by Friends. Under the registration rights agreement, Friends has the right to request us to register the sale of shares held by it on its behalf and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, Friends has the ability to exercise certain piggyback registration rights in connection with registered offerings initiated by us.
Eurobulk, Friends Investment Company Inc. and Aristides J. Pittas, our Chairman and Chief Executive Officer, have granted us a right of first refusal to acquire any drybulk vessel or containership which any of them may consider for acquisition in the future. In addition, Mr. Pittas has granted us a right of first refusal to accept any chartering out opportunity for a drybulk vessel or containership which may be suitable for any of our vessels, provided that we have a suitable vessel, properly situated and available, to take advantage of the chartering out opportunity. Mr. Pittas has also agreed to use his best efforts to cause any entity he directly or indirectly controls to grant us this right of first refusal.
On March 25, 2010, we entered into the Joint Venture with companies managed by Eton Park and an affiliate of Rhône, two private investment firms, to form Euromar LLC, or Euromar. Eton Park's investments arewere made through Paros Ltd., a Cayman Islands exempted company, and Rhône's investments arewere made through the Cayman Islands limited companies All Seas Investors I Ltd., All Seas Investors II Ltd., and the Cayman Islands exempted limited partnership All Seas Investors III LP. Euromar will acquire, maintain, manage, operateacquired, maintained, managed, operated and dispose
disposed of shipping vessels. As part of the Joint Venture, Euroseas and its affiliates provideprovided management services to Euromar, Euroseas has granted registration rights to Eton Park and Rhône and Euroseas and certain affiliates have granted Euromar certain rights of first refusal in respect of vessel acquisitions which have expired, and made certain arrangements with respect to vessel dispositions and chartering opportunities presented to Euroseas and its affiliates. As of April 25, 2015, Euromar exercised its right of first refusal 11 times out of 14 that resulted in acquisition of vessels, though the Company's operations have not been affected as the Company would not have proceeded to purchase these ships independently as it lacked sufficient funds to do so and felt much more comfortable investing smaller amounts over a period of time for smaller participations. In addition, there have been several other instances when Euromar exercised its right of first refusal but a vesselThere was not acquired for commercial reasons. There have been one disposition of a Euromar vessel and threesix dispositions of Euroseas containerships vessel, all for scrap, which did not trigger any of the agreed arrangements. Regarding chartering opportunities, the arrangements the Company hashad with Euromar involveinvolved alternating between them in terms of whose vessel iswould be considered first in case of a conflict (in the first conflict, Euromar's vessel was to be chartered first, in the second conflict the Company's and so on). No chartering conflict has arisen so far.arose. In entering into the joint venture of Euromar, the Company's strategy was to establish partners who by co-investing with the Company will allowallowed it to diversify its investment in more vessels and take part in investments requiring larger amounts of capital thatthan the Company would bewas able to do on its own. The right of first refusal regarding investments in drybulk and containerships expired on March 25, 2013, while the arrangements regarding any chartering opportunities will bewere effective for as long as Euromar hashad vessels managed by the Company.
On April 25, 2012, we amended the operating agreement of Euromar to extend the commitment period an additional year to March 25, 2013 and increaseincreased the maximum capital contributions owed by all members of Euromar to $245.0 million, of which the Company had committed an additional $10.0 million. In March 2013, we contributed $6.25 million and the remaining commitment expired uncalled.uncalled (see Note 16 on page F-45 for a discussion of impairment of our investment in Euromar).
In October 2013, we entered into an agreement contributing $5 million into an escrow account to fund an additional capital commitment to Euromar for up to a five-year period in exchange for preferred units if such commitment iswas called. The decision by Euromar to call the funds from escrow into Euromar itself iswould have been taken by Euromar's members other than the Company. In 2014, $1 million of the escrowed funds was contributed to Euromar. The preferred units havehad a preferred rate of return, commencing from the initial date of the commitment. In the event such commitment or a portion of it iswas not called within the five year period, then Euroseas shall bewould have been issued preferred units to make up for any shortfall between the preferred rate of return and any actual amounts earned on the committed capital while in escrow. The preferred units can becould have been redeemed at the option of Euromar, in part or in full, at any time on or after the second anniversary of the issuance of such units, and must bewould have been mandatorily redeemed by Euromar on the earlier of (A) the seventh anniversary of the issuance of the units and (B) a public offering of Euromar; provided, however, that any redemption obligation iswould have been subordinate to, and cannot becould not have been made if it would resulthave resulted in a default under, any obligations under any then existing credit agreement, guarantee, security agreement or similar agreement with any third party and Euromar. The redemption price for each preferred unit will bewould have been equal to the outstanding principal amount plus any outstanding accrual amount. WeAs of April 25, 2018, we have no additional capital commitment to Euromar.Euromar (see Note 16 on page F-45 for a discussion of impairment of this investment).
On November 29, 2016, Euroseas signed an agreement with Colby Trading Ltd, a company affiliated with its CEO, to draw a $2 million loan to finance working capital needs. Interest on the loan was 10% per annum payable quarterly. The Company repaid the loan at the end of the February 28, 2017 and paid $50,556 for interest. In March 2017, the Company received a commitment by Colby Trading Ltd to provide financing of up to $4.00 million on terms to be mutually agreed to fund the Company's working capital requirements and capital commitments for the period through April 2018, if needed (see Item 5.B. "Liquidity and Capital Resources" sub-section "Cash Flows").
On December 23, 2016, the Company acquired M/V "RT Dagr" from entities managed by Tennenbaum Capital Partners, LLC (Tennenbaum Opportunities Fund V, LP and Tennenbaum Opportunities Fund VI, LLC) by issuing 900,000 shares of common stock as consideration for the value of the vessel and fuel on board. The fair value of the shares at issuance was $1.8 million.
In 2016, the Company recorded an impairment of $14.07 million on its investment in Euromar reducing the carrying value of the investment to zero, due to persisting depressed market environment and amended loan agreements based on which the Company concluded that its investment in Euromar was impaired and that the impairment was other than temporary.
On September 7, 2017, Euroseas became the sole owner of Euromar LLC at a nominal price of $1. The Company acquired the 85.714% interest in Euromar it did not already own and Euromar LLC became a wholly-owned subsidiary of the Company. The Company provided no guarantees to Euromar's lenders, and none of the lenders has any recourse against the Company.
In June 2017 we took delivery of the feeder containership M/V "EM Astoria" for $4.75 million. In September 2017 we took delivery of the feeder containership M/V "EM Athens" for $4.2 million. In October 2017 we took delivery of the feeder containership M/V "EM Oinousses" for $4.2 million and the feeder containership M/V "EM Corfu" for $5.7 million. In December 2017 we took delivery of the intermediate containership M/V "Akinada Bridge" for $11 million. All these five containerships were purchased from Euromar LLC for $29.85 million.
C. | Interests of Experts and Counsel |
Not Applicable.
Item 8. | Financial Information |
A. | Consolidated Statements and Other Financial Information |
Legal Proceedings
To our knowledge, there are no material legal proceedings to which we are a party or to which any of our properties are subject, other than routine litigation incidental to our business. In our opinion, the disposition of these lawsuits should not have a material impact on our consolidated results of operations, financial position and cash flows.
Dividend Policy
We paid a quarterly dividend to our common stock for thirty-two consecutive quarters from our inception in 2005 until November 2013 when our Board of Directors decided to suspend our quarterly dividend in order to focus every resource available in exploiting investment opportunities in the market. Our last dividend of $0.15 per share (adjusted for the 1-for-10 reverse stock split effected on July 23, 2015) was declared in August 2013. The exact timing and amount of any future dividend payments to our common stock will be determined by our Board of Directors and will be dependent upon our earnings, financial condition, cash requirement and availability, restrictions in its loan agreements, growth strategy, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors, such as the acquisition of additional vessels.
If reinstated, the payment of dividends to our common stock is not guaranteed or assured, and may again be discontinued at any time at the discretion of our Board of Directors. Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of these subsidiaries and their ability to pay dividends to us. If there is a substantial decline in the drybulk and containership charter market, our earnings would be negatively affected, thus limiting our ability to pay dividends. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividends. Dividends may be declared in conformity with applicable law by, and at the discretion of, our Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, stock or other property of the Company.
The Series B Preferred Shares pay dividends (in cash or in-kind at the option of the Company, subject to certain exceptions) during the first five years at a rate of 0% or 5%, depending on the trading price of the Company's common stock. In addition, if a cash dividend is paid on the Company's common stock during such time, then if the dividend paid on the Series B Preferred Shares is 5%, the holders of Series B Preferred Shares shall receive such dividend in cash and shall also receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. If, however, the dividend on the Series B Preferred Shares is 0%, then the holders of Series B Preferred Shares shall receive a cash dividend equal to the greater of 100% of the common stock dividend it would have received on an as-converted basis, and 5%. If a cash dividend is paid on the Company's common stock after the first five years, the holders of Series B Preferred Shares shall receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. The Series B Preferred Shares' dividend rate will increase to 12% in years six and seven and to 14% thereafter and will be payable in cash. The Company declared $1.44$1.64 million, $1.73 million, and 1.64$1.81 million in dividends on its preferred shares during 20142015, 2016 and 2015,2017, respectively, all of which were paid in kind.
For significant events that occurred after December 31, 2015,2017, please refer to Note 20 of the financial statements on page F-46F-54 below.
Item 9. | The Offer and Listing |
A. | Offer and Listing Details |
The trading market for shares of our common stock is the Nasdaq Capital Market, on which our shares have traded under the symbol "ESEA" since June 26, 2015. Our shares of common stock previously traded on the Nasdaq Global Select Market from January 1, 2008 to June 25, 2015. The following table sets forth the high and low closing prices for shares of our common stock for each of the periods indicated. The prices below have been adjusted to reflect the 1-for-10 reverse stock split that became effective July 22, 2015.
Period | | Low | | High |
Year Ended Dec. 31, 2011 | | 22.60 | | 48.50 |
Year Ended Dec. 31, 2012 | | 8.60 | | 30.50 |
Year Ended Dec. 31, 2013 | | 9.30 | | 17.90 |
Year Ended Dec. 31, 2014 | | 7.50 | | 14.20 |
Year Ended Dec. 31, 2015 | | 2.55 | | 8.40 |
1st quarter 2015 | | 7.10 | | 8.10 |
2nd quarter 2015 | | 6.60 | | 8.40 |
3rd quarter 2015 | | 4.18 | | 7.60 |
4th quarter 2015 | | 2.55 | | 4.81 |
October 2015 | | 4.35 | | 4.81 |
November 2015 | | 2.88 | | 4.63 |
December 2015 | | 2.55 | | 2.97 |
January 2016 | | 1.88 | | 2.68 |
February 2016 | | 1.85 | | 2.19 |
March 2016 | | 1.75 | | 2.11 |
April 2016 | | 1.79 | | 3.09 |
Period | | Low | | | High | |
Year Ended Dec. 31, 2013 | | $ | 9.30 | | | $ | 17.90 | |
Year Ended Dec. 31, 2014 | | | 7.50 | | | | 14.20 | |
Year Ended Dec. 31, 2015 | | | 2.55 | | | | 8.40 | |
Year Ended Dec. 31, 2016 | | | 1.19 | | | | 4.85 | |
Year Ended Dec. 31, 2017 | | | 1.14 | | | | 2.31 | |
| | | | | | | | |
1st quarter 2016 | | | 1.75 | | | | 2.68 | |
2nd quarter 2016 | | | 1.79 | | | | 3.09 | |
3rd quarter 2016 | | | 1.59 | | | | 2.8 | |
4th quarter 2016 | | | 1.19 | | | | 4.85 | |
| | | | | | | | |
1st quarter 2017 | | | 1.35 | | | | 1.91 | |
2nd quarter 2017 | | | 1.14 | | | | 1.48 | |
3rd quarter 2017 | | | 1,25 | | | | 1.77 | |
4th quarter 2017 | | | 1.66 | | | | 2.31 | |
| | | | | | | | |
1st quarter 2018 | | | 1.60 | | | | 2.25 | |
2nd quarter 2018 (through April 27) | | | 2.10 | | | | 2.35 | |
| | | | | | | | |
October 2017 | | | 1.73 | | | | 1.97 | |
November 2017 | | | 1.71 | | | | 2.31 | |
December 2017 | | | 1.66 | | | | 1.87 | |
January 2018 | | | 1.60 | | | | 1.89 | |
February 2018 | | | 1.72 | | | | 1.90 | |
March 2018 | | | 1.90 | | | | 2.25 | |
April 2018 (through April 27) | | | 2.10 | | | | 2.35 | |
Not Applicable.
The trading market for shares of our common stock is the Nasdaq Capital Market, on which our shares have traded under the symbol "ESEA" since June 26, 2015. Our shares began trading on the Nasdaq Global Market on January 31, 2007 and on the Nasdaq Global Select Market on January 1, 2008. Prior thereto, our shares traded on the OTCBB under the symbol "ESEAF.OB" until October 5, 2006 and then under the symbol "EUSEF.OB" until January 30, 2007.
Not Applicable.
Not Applicable.
Not Applicable.
Item 10. | Additional Information |
Not Applicable.
B. | Memorandum and Articles of Association |
Amended and Restated Articles of Incorporation and Bylaws, as amended
Our current amended and restated articles of incorporation were filed with the SEC as Exhibit 1.1 (Amended and Restated Articles of Incorporation) to our Annual Report on Form 20-F on May 27, 2011, and our current bylaws, as amended, were filed with the SEC as Exhibits 1.2 (Bylaws) and 1.4 (Amendment to Bylaws) to our Annual Report on Form 20-F on May 28, 2010.
Purpose
Our purpose, as stated in our amended and restated articles of incorporation, is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Business Corporations Act of the Marshall Islands, or the BCA.
Authorized Capitalization
Under our amended and restated articles of incorporation, our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.03 per share of which 8,195,760 shares are issued and outstanding as of April 1, 2016, and 20,000,000 shares of preferred stock par value $0.01 per share, of which 34,200 shares are issued and outstanding as of April 1, 2016.share. All of our shares of stock are in registered form.
As of April 1, 2016,March 31, 2018, we are authorized to issue up to 200,000,000 shares of common stock, par value $.03$0.03 per share, of which there are 8,195,76011,274,126 shares issued and outstanding. Each outstanding share of common stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the shareholders. Holders of our common stock (i) have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution upon liquidation, dissolution or winding up; and (iii) do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions. All issued shares of our common stock when issued will be fully paid for and non-assessable.
Preferred Stock
As of April 1, 2016,March 31, 2018, we are authorized to issue up to 20,000,000 shares of preferred stock, par value $0.01 per share, of which there are 34,20037,314 shares issued and outstanding. The preferred stock may be issued in one or more series and our Board of Directors, without further approval from our shareholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series. Issuances of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock. On January 27, 2014, the Company entered into an agreement to sell 25,000 shares of its Series B Convertible Perpetual Preferred Shares to a fund managed by TCP and 5,700 shares to Preferred Friends Investment Company Inc., an affiliate of the Company, for net proceeds of approximately $29 million. These shares were issued on January 29, 2014. Additional Series B Convertible Preferred Shares were issued when dividends to preferred shares were paid in-kind (see below).
The Series B Preferred Shares pay dividends quarterly in arrears (in cash or in-kind at the option of the Company, subject to certain exceptions) during the first five years at a rate of 0% or 5% per annum, depending on the trading price of the Company's common stock. The first payment of interest was on March 31, 2014. In addition, if a cash dividend is paid on the Company's common stock during such time, then if the dividend paid on the Series B Preferred Shares is 5%, the holders of Series B Preferred Shares shall receive such dividend in cash and shall also receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. If, however, the dividend on the Series B Preferred Shares is 0%, then the holders of Series B Preferred Shares shall receive a cash dividend equal to the greater of 100% of the common stock dividend it would have received on an as-converted basis, and 5%. If a cash dividend is paid on the Company's common stock after the first five years, the holders of Series B Preferred Shares shall receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. The Series B Preferred Shares dividend rate will increase to 12% per annum in years six and seven and to 14% per annum thereafter. The Series B Preferred Shares can be converted at the option of their holders at any time, and at the option of the Company only if certain share price and liquidity milestones are met, including the Company's common stock trading that a volume-weighted average price of $25.00 (subject to adjustment), the Company having sold its common stock in a public offering at a per share price of at least $25.00 (subject to adjustment) resulting in gross proceeds of at least $40 million and an effective registration statement for the common stock into which the Series B Preferred Shares would convert being effective. Each Series B Preferred Share is convertible into common stock at an initial conversion price of $12.25$10.91 (subject to adjustment, including upon a default). The Series B Preferred Shares are redeemable in cash by the Company at any time after the fifth anniversary of the original issue date. Holders of the Series B Preferred Shares may require the Company to redeem their shares only upon the occurrence of certain corporate events.
Subject to certain ownership thresholds, holders of Series B Preferred Shares have the right to appoint one director to the Company's board of directors and TCP also has consent rights over certain corporate actions including authorizing, creating or issuing any class or series of capital stock that runs senior or in parity with the Series B Preferred Shares, engaging in certain transactions with affiliates or engaging in transactions that increase the leverage of the Company more than a certain level. In addition, the holders of Series B Preferred Shares will vote as one class with the Company's common stock on all matters on which shareholders are entitled to vote, with each Series B Preferred Share having a number of votes equal to 50% of the numbers of shares of common stock of the Company into which such Series B Preferred Share would be convertible on the applicable record date.
The rights and privileges of the Series B Preferred Shares are set forth in the Amended and Restated Statement of Designation of the Rights, Preferences and Privileges of the Series B Convertible Preferred Shares, a copy of which is included as Exhibit 4.444.43 hereto and is incorporated by reference herein.
Directors
Our directors, except the Series B Director (defined below), are elected by a plurality of the votes cast at a meeting of the shareholders by the holders of shares entitled to vote in the election. Cumulative voting may not be used to elect directors.
Our Board of Directors must consist of at least three directors, such number to be determined by the Board of Directors by a majority vote of the entire Board of Directors from time to time. Shareholders may change the number of our directors only by an affirmative vote of the holders of the majority of the outstanding shares of capital stock entitled to vote generally in the election of directors.
Our Board of Directors is divided into three classes as set out below in "Classified Board of Directors." Each director, except the Series B Director, is elected to serve until the third succeeding annual meeting after his election and until his successor shall have been elected and qualified, except in the event of his death, resignation or removal.
Our bylaws were amended on March 25, 2010 in connection with our Joint Venture in order to ensure that for so long as the percentage of ownership interest of Eton Park and Rhône (considered separately) in us, is (x)(i) greater than 35%, the Joint Venture affiliates of Eton Park or Rhône, as applicable, together with their respective permitted transferees, shall each be entitled to select two (2) directors for appointment to our Board of Directors or (y)(ii) between 7.5% and 35%, the Joint Venture affiliates of Eton Park or Rhône, as applicable, together with their respective permitted transferees shall each be entitled to select one (1) director for appointment to the Board of Directors, in each case in addition to the current seven seats on the Board of Directors and adjusted in proportion to any change in the total number of seats on the Board of Directors.
Our Series B Director was appointed pursuant to the provisions of the Statement of Designation of our Series B Preferred Shares. The holders of Series B Preferred Shares have the right, voting separately as a class, to nominate and elect one member of the Board of Directors (the "Series B Director") who shall (i) have no family relationship with any other officer or director of the Corporation; (ii) be independent pursuant to the rules of Nasdaq if the Corporation is required to be subject to the rules of Nasdaq requiring a listed company to maintain a majority independent board; and (iii) be determined by the Board of Directors to meet its nominating standards. The Series B Director shall be elected by the affirmative vote of the holders of a majority of the outstanding Series B Preferred Shares. Any Series B Director elected as provided herein may be removed and replaced at any time by the affirmative vote of the holders of a majority of the outstanding Series B Preferred Shares. Upon any termination of the right of the holders of the Series B Preferred Shares to vote as a class for a Series B Director, the term of office of the Series B Director then in office elected by such holders voting as a class shall terminate immediately and the number of directors constituting the Board of Directors shall automatically be reduced by one. The Series B Director is entitled to one vote on any matter before the Board of Directors. The Series B Director is not entitled to remuneration by the Corporation for acting as director, but is entitled to the reimbursement of reasonable expenses, including all out-of-pocket expenses, incurred in connection therewith. The right of the Holders of Series B Preferred Shares to elect a member of the Board of Directors shall terminate once Tennenbaum Opportunities Fund VI, LLC, a fund managed by TCP, and allowed transferees no longer hold at least 65% of the number of shares of Common Stock (on an as-converted basis) that the Series B Preferred Shares acquired by Tennenbaum Opportunities Fund VI, LLC would have converted into at the time of purchase.
Shareholder Meetings
Under our bylaws, as amended, annual shareholder meetings will be held at a time and place selected by our Board of Directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called at any time by the Board of Directors, the Chairman of the Board or by the President. Notice of every annual and special meeting of shareholders must be given to each shareholder of record entitled to vote at least 15 but no more than 60 days before such meeting.
Dissenters' Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions, including any merger or consolidation or sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a shareholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which the Company's shares are primarily traded on a local or national securities exchange.
Shareholders Derivative Actions
Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder bringing the action is a holder of common stock both at the time the derivative action is commenced and at the time of the transaction to which the action relates.
Limitations on Liability and Indemnification of Officers and Directors
The BCA authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and their shareholders for monetary damages for breaches of directors' fiduciary duties. Our bylaws, as amended, include a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law.
Our bylaws, as amended, provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly authorized to carry directors' and officers' insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our bylaws, as amended, may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Anti-takeover Effect of Certain Provisions of our Amended and Restated Articles of Incorporation and Bylaws, as Amended
Several provisions of our amended and restated articles of incorporation and bylaws, as amended, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change in control and enhance the ability of our Board of Directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Blank Check Preferred Stock
Under the terms of our amended and restated articles of incorporation, our Board of Directors has authority, without any further vote or action by our shareholders, to issue up to 20,000,000 shares of blank check preferred stock. Our Board of Directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change in control of our company or the removal of our management.
Classified Board of Directors
Our amended and restated articles of incorporation provide for the division of our Board of Directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered, three year terms. Approximately one-third of our Board of Directors will be elected each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of us. It could also delay shareholders who do not agree with the policies of our Board of Directors from removing a majority of our Board of Directors for two years.
Election and Removal of Directors
Our amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our bylaws, as amended, require parties other than the Board of Directors to give advance written notice of nominations for the election of directors. Our amended and restated articles of incorporation also provide that our directors may be removed only for cause and only upon the affirmative vote of a majority of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders
Our amended and restated articles of incorporation and our bylaws, as amended, provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders. Our amended and restated articles of incorporation and our bylaws, as amended, provide that, subject to certain exceptions, our Board of Directors, our Chairman of the Board or by the President and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a shareholder may not call a special meeting and shareholder consideration of a proposal may be delayed until the next annual meeting.
Advance Notice Requirements for Shareholder Proposals and Director Nominations
Our bylaws, as amended, provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder's notice must be received at our principal executive
offices not less than 150 days nor more than 180 days prior to the one year anniversary of the immediately preceding annual meeting of shareholders. Our bylaws, as amended, also specify requirements as to the form and content of a shareholder's notice. These provisions may impede shareholders' ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.
Certain Business Combinations
Our amended and restated articles of incorporation also prohibit us, subject to several exclusions, from engaging in any "business combination" with any interested shareholder for a period of three years following the date the shareholder became an interested shareholder.
Shareholders' Rights Plan
We adopted a shareholders' rights plan on May 18, 2009 and declared a dividend distribution of one preferred stock purchase right to purchase one one-thousandth of our Series A Participating Preferred Stock for each outstanding share of our common stock, to shareholders of record at the close of business on May 27, 2009. Each right entitles the registered holder, upon the occurrence of certain events, to purchase from us one one-thousandth of a share of Series A Participating Preferred Stock at an exercise price of $26, subject to adjustment. The rights will expire on the earliest of (i) May 27, 2019 or (ii) redemption or exchange of the rights. The plan was designed to enable us to protect shareholder interests in the event that an unsolicited attempt is made for a business combination with or takeover of the company. We believe that the shareholders' rights plan should enhance the board of directors' negotiating power on behalf of shareholders in the event of a coercive offer or proposal. We are not currently aware of any such offers or proposals and we adopted the plan as a matter of prudent corporate governance. On March 29, 2010, the plan was amended to permit our Euromar Joint Venture partners, Paros Ltd., All Seas Investors I, Ltd., All Seas Investors II, Ltd. and All Seas Investors III LP, to exercise their conversion rights into the Company's shares without violating the plan. In January 2014, the plan was further amended to permit Tennenbaum Opportunities Fund VI, LLC or allowed transferees managed by TCP to exercise their conversion rights without violating the plan; and in March 2014, the plan was amended to permit 12 West Capital Fund LP, 12 West Offshore Fund LP or allowed transferees managed by 12 West to acquire shares of the Company without violating the plan.
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On December 22, 2016, the rights plan was further amended to permit affiliates of Tennenbaum Capital Partners, LLC to purchase the Company's common shares in a private transaction with the Company and to make certain additional purchases of the Company's common shares without violating the rights plan.We have a number of credit facilities with commercial banks. For a discussion of our facilities, please see the section of this annual report entitled "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Financing", and Note 9 of our attached financial statements.
We are a party to a registration rights agreement with Friends, a joint venture agreement to form Euromar, an agreement relating to an additional capital commitment to Euromar.Friends. For a discussion of these agreements, please see the section of this annual report entitled "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions." Furthermore, we are a party to a registration rights agreement with TCP and 12 West Capital Management LP.LP and a registration obligation agreement with two funds managed by TCP. For a discussion of this agreement,these agreements, please see the section of this annual report entitled "Item 3—Key Information—D. Risk Factors—Company Risk Factors—Future sales of our stock could cause the market price of our common stock to decline."
There are no other material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any of its subsidiaries is a party.
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our shares.
The following is a discussion of the material Marshall Islands, Liberian and United States federal income tax considerations applicable to us and U.S. Holders and Non-U.S. Holders, each as discussed below, of our common stock.
Marshall Islands Tax Considerations
We are incorporated in 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 holders of our common stock that are not residents or domiciled or carrying any commercial activity in the Marshall Islands. The holders of our common stock will not be subject to Marshall Islands tax on the sale or other disposition of such common stock.
Liberian Tax Considerations
Certain of our subsidiaries are incorporated in the Republic of Liberia. Under the Consolidated Tax Amendments Act of 2010, our Liberian subsidiaries will be deemed non-resident Liberian corporations wholly exempted from Liberian taxation effective as of 1977, and distributions we make to our shareholders will be made free of any Liberian withholding tax.
United States Federal Income Tax
The following are the material United States federal income tax consequences to us of our activities and to U.S. Holders and Non-U.S. Holders, each as defined below, of our common stock. The following discussion of United States federal income tax matters is based on the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all as of the date of this Annual Report, and all of which are subject to change, possibly with retroactive effect. This discussion is also based in part upon Treasury Regulations promulgated under Section 883 of the Code. The discussion below is based, in part, on the description of our business as described in "Business" above and assumes that we conduct our business as described in that section. References in the following discussion to "we" and "us" are to Euroseas and its subsidiaries on a consolidated basis.
United States Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from United States federal income taxation under the rules discussed below, a foreign corporation is subject to United States 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, code sharing arrangement or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as "shipping income," to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States exclusive of certain U.S. territories and possessions constitutes income from sources within the United States, which we refer to as "U.S.-source shipping income."
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are not permitted by law to engage in transportation that produces income which is considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively between non-United States ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any United States federal income tax.
In the absence of exemption from tax under Section 883 of the Code, our gross U.S.-source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the Treasury Regulations thereunder, we will be exempt from United States federal income taxation on our U.S.-source shipping income if:
| · | we are organized in a foreign country, or our country of organization, that grants an "equivalent exemption" to corporations organized in the United States; and |
either
| · | more than 50% of the value of our stock is owned, directly or indirectly, by "qualified shareholders," individuals who are "residents" of our country of organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States, which we refer to as the "50% Ownership Test," or |
| · | our stock is "primarily and regularly traded on an established securities market" in our country of organization, in another country that grants an "equivalent exemption" to United States corporations, or in the United States, which we refer to as the "Publicly-Traded Test." |
The Marshall Islands, Liberia and Panama, the jurisdictions where we and our shipowning subsidiaries were incorporated during 2015,2017, each grants an "equivalent exemption" to United States corporations. Therefore, we will be exempt from United States federal income taxation with respect to our U.S.-source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.
We do not believe that we can establish that we satisfied the 50% Ownership Test for the 2017 taxable year due to the widely-held nature of our stock.
For the reasons discussed below, we believe that we did not satisfy the Publicly-Traded Test for the 20152017 taxable year and therefore we will not qualify for benefits of Section 883 of the Code and we intend to take this position on our United States federal income tax returns.for the 2017 taxable year.
The Treasury Regulations provide, in pertinent part, that the stock of a foreign corporation will be considered to be "primarily traded" on an established securities market in a country if the number of shares of each class of stock that is traded during the taxable year on all established securities markets in that country exceeds the number of shares in each such class that is traded during that year on established securities markets in any other single country. Our common stock is "primarily traded" on the Nasdaq Capital Market, which is an established securities market for these purposes.
The Treasury Regulations also require that our stock be "regularly traded" on an established securities market. Under the Treasury Regulations, our stock will be considered to be "regularly traded" if one or more classes of our stock representing more than 50% of our outstanding shares, by total combined voting power of all classes of stock entitled to vote and by total combined value of all classes of stock, are listed on one or more established securities markets, which we refer to as the "listing threshold." Our common stock, which is listed on the Nasdaq Capital Market constitutedand is our only class of publicly-traded stock, did not constitute more than 50% of our outstanding shares by voting power and value for most of the 20152017 taxable year, and accordingly, we satisfieddid not satisfy the listing threshold for the 20152017 taxable year. However, it is possible that our common stock may not continuecome to constitute more than 50% of our outstanding shares by value in anya future taxable year. In such ayear in which case we may notbe able to satisfy the listing threshold and therefore may not satisfypossibly the Publicly Traded Test.
The Treasury Regulations further require that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or 1/6 of the days in a short taxable year, which is referred to as the "trading frequency test"; and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year (as appropriately adjusted in the case of a short taxable year), which is referred to the "trading volume test". Even if we do not satisfy both the trading frequency and trading volume tests, the Treasury Regulations provide that the tests will be deemed satisfied if our common stock is traded on an established securities market in the United States and such stock is regularly quoted by dealers making a market in our common stock. We believe that our common stock will be deemed to satisfy the trading frequency and trading volume tests during the 2015 taxable year.
Notwithstanding the foregoing, we will not satisfy the Publicly-Traded Test if 50% or more of the vote and value of our common stock is owned (or is treated as owned under certain stock ownership attribution rules) by persons each of whom owns (or is treated as owning under certain stock ownership attribution rules) 5% or more of the value of our common stock, or 5% Shareholders, for more than half the days during the taxable year, to which we refer to as the "5% override rule". In order to determine the persons who are 5% Shareholders, we are permitted to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the United States Securities and Exchange Commission as having a 5% or more beneficial interest in our common stock.
In the event the 5% override rule is triggered, the 5% override rule will nevertheless not apply if we can establish that among the closely-held group of 5% Shareholders, there are sufficient 5% Shareholders that are considered to be "qualified shareholders" for purposes of Section 883 of the Code to preclude non-qualified 5% Shareholders in the closely-held group from owning 50% or more of our common stock for more than half the number of days during the taxable year. To establish this exception to the 5% override rule, 5% Shareholders owning a sufficient number of shares of our common stock would have to provide us with certain information in order to substantiate their status as qualified shareholders.
During our 2015 taxable year, our 5% Shareholders may have owned more than 50% of our common stock for more than half the number of days during the year. Therefore, the 5% override may have been triggered for the 2015 taxable year. Nevertheless, we believe that we can establish that a sufficient number of shares of our common stock owned by 5% Shareholders during the 2015 taxable year were owned by qualified shareholders to preclude non-qualified 5% Shareholders from owning 50% or more of our common stock for more than half the number of days during the 2015 taxable year. However, there can be no assurance that we will be able to continue to satisfy the substantiation requirements in any future taxable year.
Taxation in Absence of Exemption
To the extentBecause the benefits of Section 883 of the Code are unavailable for the 2017 taxable year, our U.S.-source shipping income, to the extent not considered to be "effectively connected" with the conduct of a United States trade or business, as described below, would bewas subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions which we refer to as the "4% gross basis tax regime". Since under the sourcing rules described above, no more than 50% of our shipping income would beis treated as being derived from United States sources, the maximum effective rate of United States federal income tax on our shipping income would neverwill not exceed 2% under the 4% gross basis tax regime. The amount of this tax for the 2016 taxable year was approximately $28,475, while for the 2017 taxable year the amount was approximately $44,268.
To the extent the benefits of the Section 883 of the Code are unavailable and our U.S.-source shipping income is considered to be "effectively connected" with the conduct of a United States trade or business, as described below, any such "effectively connected" U.S.-source shipping income, net of applicable deductions, would be subject to the United States federal corporate income tax currently imposed at rates of up to 35%21%. In addition, we may be subject to the 30% United States federal "branch profits" taxes on earnings effectively
connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of such United States trade or business.
Our U.S.-source shipping income would be considered "effectively connected" with the conduct of a United States trade or business only if:
| · | We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and |
| · | substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. |
We do not intend to have, or permit circumstances that would result in having, any vessel operating to the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S.-source shipping income is or will be "effectively connected" with the conduct of a United States trade or business.business for the 2017 taxable year.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of common stock that is a United States citizen or resident, United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.
This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as dealers in securities, investors whose functional currency is not the United States dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of our common stock, may be subject to special rules. This discussion deals only with holders who hold the common stock 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 United States federal, state, local or foreign law of the ownership of common stock. This discussion does not address the tax consequences of owning our preferred stock.
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common stock, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common stock to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder's tax basis in his common stock on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, U.S. Holders that are corporations generally will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common stock will generally be treated as "passive category income" or, in the case of certain types of U.S. Holders, "general category income" for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate, or a U.S. Individual Holder, will generally be treated as "qualified dividend income" that is taxable to such U.S. Individual Holders at preferential tax rates provided that (1) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be), (2) our common stock is readily tradable on an established securities market in the United States (such as the Nasdaq Capital Market, on which our common stock is listed), (3) the U.S. Individual Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend, and (4) the U.S. Individual Holder is not under an obligation (whether pursuant to a short sale or otherwise) to make payments with respect to positions in similar or related property. There is no assurance that any dividends paid on our common stock will be eligible for these preferential rates in the hands of a U.S. Individual Holder. Dividends paid on our stock prior to the date on which our common stock became listed on the Nasdaq Capital Market were not eligible for these preferential rates. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.
Special rules may apply to any "extraordinary dividend" generally, a dividend paid by us in an amount which is equal to or in excess of ten percent of a shareholder's adjusted tax basis (or fair market value in certain circumstances) in a share of our common stock. If we pay an "extraordinary dividend" on our common stock that is treated as "qualified dividend income," then any loss derived by a U.S. Individual Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common Stock
Assuming we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's tax basis in such stock. Such gain or loss will generally be treated as long-term capital gain or loss if the U.S. Holder's holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as U.S.-source income or loss, as applicable, for United States foreign tax credit purposes. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held our common stock, either:
| · | at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or |
| · | at least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income, which we refer to as "passive assets". |
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute "passive income" unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, and we are not relying upon an opinion of counsel on this issue, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and United States Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage
charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Moreover, in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year which included a U.S. Holder's holding period in our common stock, then such U.S. Holder would be subject to different U.S. federal income taxation rules depending on whether the U.S. Holder makes an election to treat us as a "qualified electing fund," which election we refer to as a "QEF election". As an alternative to making a QEF election, a U.S. Holder should be able to make a "mark-to-market" election with respect to our common stock, as discussed below. In addition, if we were to be treated as a PFIC, a U.S. Holder of our common stock would be required to file annual information returns with the IRS.
In addition, if a U.S. Holder owns our common stock and we are a PFIC, such U.S. Holder must generally file IRS Form 8621 with the IRS.
U.S. Holders Making a Timely QEF Election
A U.S. Holder who makes a timely QEF election with respect to our common stock, or an Electing Holder, would report for U.S. federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder. Our net operating losses or net capital losses would not pass through to the Electing Holder and will not offset our ordinary earnings or net capital gain reportable to the Electing Holder in subsequent years (although such losses would ultimately reduce the gain, or increase the loss, if any, recognized by the Electing Holder on the sale of his common stock). Distributions received from us by an Electing Holder are excluded from the Electing Holder's gross income to the extent of the Electing Holder's prior inclusions of our ordinary earnings and net capital gain. The Electing Holder's tax basis in his common stock would be increased by any amount included in the Electing Holder's income. Distributions received by an Electing Holder, which are not includible in income because they have been previously taxed, would decrease the Electing Holder's tax basis in the common stock. An Electing Holder would generally recognize capital gain or loss on the sale or exchange of common stock.
U.S. Holders Making a Timely Mark-to-Market Election
A U.S. Holder who makes a timely mark-to-market election with respect to our common stock would include annually in the U.S. Holder's income, as ordinary income, any excess of the fair market value of the common stock at the close of the taxable year over the U.S. Holder's then adjusted tax basis in the common stock. The excess, if any, of the U.S. Holder's adjusted tax basis at the close of the taxable year over the then fair market value of the common stock would be deductible in an amount equal to the lesser of the amount of the excess or the net mark-to-market gains that the U.S. Holder included in income in previous years with respect to the common stock. A U.S. Holder's tax basis in his common stock would be adjusted to reflect any income or loss amount recognized pursuant to the mark-to-market election. A U.S. Holder would recognize ordinary income or loss on a sale, exchange or other disposition of the common stock; provided, however, that any ordinary loss on the sale, exchange or other disposition may not exceed the net mark-to-market gains that the U.S. Holder included in income in previous years with respect to the common stock.
U.S. Holders Not Making a Timely QEF Election or Mark-to-Market Election
A U.S. Holder who does not make a timely QEF Election or a timely mark-to-market election, which we refer to as a "Non-Electing Holder", would be subject to special rules with respect to (i) any "excess distribution" (generally, the portion of any distributions received by the Non-Electing Holder on the common stock in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder's holding period for the common stock), and (ii) any gain realized on the sale or other disposition of the common stock. Under these rules, (i) the excess distribution or gain would be allocated ratably over the Non-Electing Holder's holding period for the common stock; (ii) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, would be taxed as ordinary income; and (iii) the amount allocated to each of the other prior taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to
each such other taxable year. If a Non-Electing Holder dies while owning the common stock, the Non-Electing Holder's successor would be ineligible to receive a step-up in the tax basis of that common stock.
United States Federal Income Taxation of "Non-U.S. Holders"
A beneficial owner of common stock (other than a partnership) that is not a U.S. Holder is referred to herein as a "Non-U.S. Holder."
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to our common stock, unless that income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common stock, unless:
| · | such gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States, if the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or |
| · | the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met. |
If the Non-U.S. Holder is engaged in a United States trade or business for United States federal income tax purposes, the income from the common stock, 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 regular United States 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, its earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional United States federal "branch profits" tax at a rate of 30%, or at a lower rate as may be specified by an applicable United States income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. Such payments will also be subject to backup withholding tax if a U.S. Individual Holder:
| · | fails to provide an accurate taxpayer identification number; |
| · | is notified by the IRS that he failed to report all interest or dividends required to be shown on your United States federal income tax returns; or |
| · | in certain circumstances, fails 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 appropriate IRS Form W-8.
If a shareholder sells our common stock to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless the shareholder certifies that it is a non-U.S. person, under penalties of perjury, or the shareholder otherwise establishes an exemption. If a shareholder sells our common stock through a non-United States office of a non-United States broker and the sales proceeds are paid outside the United States then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not
backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if a shareholder sells our common stock through a non-United States office of a broker that is a United States person or has some other contacts with the United States.
Backup withholding is not an additional tax. Rather, a shareholder generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the shareholder's United States federal income tax liability by filing a refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in the applicable Treasury Regulations, certain individuals who are Non-U.S. Holders and certain United States entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code and the applicable Treasury Regulations) are required to file IRS Form 8938 (Statement of Specified Foreign Financial Assets) with information relating to each such asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year. Specified foreign financial assets would include, among other assets, our common stock, unless the common stock were held through an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, the statute of limitations on the assessment and collection of United States federal income tax with respect to a taxable year for which the filing of IRS Form 8938 is required may not close until three years after the date on which IRS Form 8938 is filed. U.S. Holders (including United States entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under Section 6038D of the Code.
We encourage each shareholder to consult with his, her or its own tax advisor as to particular tax consequences to it of holding and disposing of our common stock, including the applicability of any state, local or foreign tax laws and any proposed changes in applicable law.
F. | Dividends and paying agents |
Not Applicable.
Not Applicable.
We file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC's website: http://www.sec.gov. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates.
Not Applicable.
Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
In the normal course of business, we face risks that are non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk. Our operations may be affected from time to time in varying degrees by these risks but their overall effect on us is not predictable. We have identified the following market risks as those which may have the greatest impact upon our operations:
Interest Rate Fluctuation Risk
The international drybulk and containership shipping industry is capital intensive, requiring significant amounts of investment. Much of this investment is financed by long term debt. Our debt usually contains interest rates that fluctuate with LIBOR.
We are subject to market risks relating to changes in interest rates because we have floating rate debt outstanding, which is based on U.S. dollar LIBOR plus, in the case of each credit facility, a specified margin. Our objective is to manage the impact of interest rate changes on our earnings and cash flow in relation to our borrowings and to this effect, when we deem appropriate, we use derivative financial instruments. The total notional principal
amount of our swaps as of December 31, 20152017 and 20142016 was $30$15 million and $45.0$10 million, respectively. The swaps have specified rates and durations. Refer to the table in Note 1615 of our financial statements included at the end of this annual report, which summarizes the interest rate swaps in place as of December 31, 20152017 and December 31, 2014. In July 2013, a swap contract with a notional value of $252016. On September 30, 2016, we terminated the $10 million expired; in September 2013, we entered into a new forward swap contract for a notional amount of $10 million.1.29% swap with Eurobank which began in July 2014. We paid $32,000 for this termination. In July 2014,August 2017 we signed a $5 million 5 year step-up swap contract with a notional value of $25 million expired; in October 2014, we entered into a new forwardHSBC. The swap contract for a notional amount of $10 million. There were no swap contracts in 2015.rate is 1.4% until its first anniversary, 1.75% until the second, 1.85% until the third and 2.32% until its maturity. With these developments the effective coverage of our debt was about 77% for the first half of 2014, dropping to about 37% by December 2014 and then increasing to about 43%19% by the end of 2015. 2016. During 2016,2017, our average debt coverage will bewas approximately 24% assuming debt advances as per current values for5% and by the newbuilding vessels.
87
end of 2017 approximately 18%.As at December 31, 2015,2017, we had $40.52$74.41 million of floating rate debt outstanding with margins over LIBOR ranging from 0.80%2.70% to 6.00%. Our interest expense is affected by changes in the general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase of 100 basis points would have increased our net loss and decreasedecreased our cash flows in the twelve-month period ended December 31, 20152017 by approximately $476,235$29,888 assuming the same debt profile throughout the year.
The following table sets forth the sensitivity of our loans and the interest rate swaps as of December 31, 20152017 in U.S. dollars to a 100 basis points increase in LIBOR during the next five years. Specifically, the interest we will have to pay for our loans will increase but net payments we will have to make under our interest rate swap contracts will decrease.
Year Ended December 31, | | Amount in $ (loans) | | | Amount in $ (swap) | |
2018 | | | 42,600 | | | | (150,000 | ) |
2019 | | | 30,470 | | | | (90,548 | ) |
2020 | | | 19,967 | | | | (50,137 | ) |
2021 | | | 12,821 | | | | (50,000 | ) |
2022 and thereafter | | | 6,152 | | | | (30,137 | ) |
Year Ended December 31, | | Amount in $ (loans) | | | Amount in $ (swap) | |
2016 | | | 246,510 | | | | (205,479 | ) |
2017 | | | 141,315 | | | | (100,000 | ) |
2018 | | | 97,000 | | | | (100,000 | ) |
2019 | | | 32,875 | | | | (40,548 | ) |
2020 and thereafter | | | 0 | | | | 0 | |
Charter Rate Fluctuation Risk
We are subject to market risks related to changes in market charter rates when we are to renew or replace the charters of our vessels. The following table sets forth the sensitivity of our annual revenues of our fleet as of December 31, 2015 to a $1,000/day change in charter rates for our vessel assuming our current charters are renewed or replaced at the earliest possible contractual date based on 350 days of charter hire per annum.
Year Ended December 31, | | Amount in $ (revenues) | |
2016 | | | 2,112,256 | |
2017 | | | 3,560,030 | |
2018 and thereafter | | | 3,911,644 | |
Inflation Risk
The general rate of inflation has been relatively low in recent years and as such its associated impact on costs has been minimal. We do not believe that inflation has had, or is likely to have in the foreseeable future, a significant impact on expenses. Should inflation increase, it will increase our expenses and subsequently have a negative impact on our earnings.
Foreign Exchange Rate Risk
The international drybulk and containership shipping industry's functional currency is the U.S. Dollar. We generate all of our revenues in U.S. dollars, but incur approximately 38%35% of our vessel operating expenses (excluding depreciation and other operating income) in 20152017 in currencies other than U.S. dollars. In addition, our vessel management fee is denominated in Euros and certain general and administrative expenses (about 8%5% in 2015)2017) are mainly in Euros and some other currencies. On December 31, 2015,2017, approximately 25%36% of our outstanding trade accounts payable were denominated in currencies other than the U.S. dollar, mainly in Euros. We do not use currency exchange contracts to reduce the risk of adverse foreign currency movements but we believe that our exposure from market rate fluctuations is unlikely to be material. Net foreign exchange gainloss for the year ended December 31, 20152017 was $22,421,$0.04 million, and for the year ended December 31, 20142016 we had a net foreign exchange gainloss of $40,022.$0.04 million.
A hypothetical 10% immediate and uniform adverse move in all currency exchange rates from the rates in effect as of December 31, 2015,2017, would have increased our operating expenses by approximately $1.1$0.93 million and the fair value of our outstanding trade accounts payable by approximately $35,000.$0.19 million.
Item 12. | Description of Securities Other than Equity Securities |
Not Applicable.
PART II
Item 13. | Defaults, Dividend Arrearages and Delinquencies |
None.
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
We adopted a shareholders' rights plan on May 18, 2009 and declared a dividend distribution of one preferred stock purchase right to purchase one one-thousandth of our Series A Participating Preferred Stock for each outstanding share of our common stock, to shareholders of record at the close of business on May 27, 2009. Each right entitles the registered holder, upon the occurrence of certain events, to purchase from us one one-thousandth of a share of Series A Participating Preferred Stock at an exercise price of $26, subject to adjustment. The rights will expire on the earliest of (i) May 27, 2019 or (ii) redemption or exchange of the rights. The plan was designed to enable us to protect shareholder interests in the event that an unsolicited attempt is made for a business combination with or takeover of the company. We believe that the shareholders' rights plan should enhance the board of directors' negotiating power on behalf of shareholders in the event of a coercive offer or proposal. We are not currently aware of any such offers or proposals and we adopted the plan as a matter of prudent corporate governance. On March 29, 2010, the plan was amended to permit our Euromar joint venture partners, Paros Ltd., All Seas Investors I, Ltd., All Seas Investors II, Ltd. and All Seas Investors III LP, to exercise their conversion rights into the Company's shares without violating the plan. On January 27, 2014, the rights plan was further amended to permit Tennenbaum Opportunities Fund VI, LLC to exercise its conversion rights into the Company's common shares without violating the rights plan. On March 14, 2014, the rights plan was further amended to permit 12 West Capital Fund LP and 12 West Capital Offshore Fund LP to purchase the Company's common shares in a private transaction with the Company that closed on that day and to make certain additional purchases of the Company's common shares without violating the rights plan. On December 22, 2016, the rights plan was further amended to permit affiliates of Tennenbaum Capital Partners, LLC to purchase the Company's common shares in a private transaction with the Company and to make certain additional purchases of the Company's common shares without violating the rights plan.
Item 15. | Controls and Procedures |
(a) | (a) Evaluation of Disclosure Controls and Procedures |
Pursuant to Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Company's management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, 2015.2017. The term disclosure controls and procedures is defined under SEC rules as controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2015,2017, our disclosure controls and procedures, which include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to the management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure, were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
(b) |
(b) Management's Annual Report on Internal Control over Financial Reporting |
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on its consolidated financial statements.
Our management, with the participation of Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2015.2017. In making this assessment, the Company used the control criteria framework of the Committee of Sponsoring Organizations of the Treadway Commission, or COSO 2013, published in its report entitled 2013 Internal Control-Integrated Framework. As a result of its assessment, the Chief Executive Officer and Chief Financial Officer concluded that the Company's internal controls over financial reporting are effective as of December 31, 2015. Deloitte Hadjipavlou, Sofianos & Cambanis S.A. ("Deloitte"),2017.
(c) Attestation Report of the Registered Public Accounting Firm
This annual report does not contain an attestation report of our independent registered public accounting firm has audited the Financial Statements included herein and our internal control over financial reporting and has issued an attestation report on the effectiveness of our internal control over financial reporting which is reproduced in its entirety in Item 15(c) below.
(c) | Attestation Report of the Registered Public Accounting Firm |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Euroseas Ltd. and Subsidiaries, Majuro, Republic of the Marshall Islands
We have audited the internal control over financial reporting of Euroseas Ltd and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management's Annual Report on Internal Control over Financial Reporting." Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015 of the Company is a non-accelerated filer and our report dated May 2, 2016 expressed an unqualified opinion on those financial statements.is exempt from this requirement.
/s/ Deloitte Hadjipavlou, Sofianos, & Cambanis S.A.
Athens, Greece
May 2, 2016
(d) | (d) Changes in Internal Control over Financial Reporting |
No change in the Company's internal control over financial reporting occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 16A. | Audit committee financial expert |
Item 16A. Audit Committee Financial Expert Our Board of Directors has determined that all the members of our Audit Committee qualify as financial experts and they are all considered to be independent according to Nasdaq and SEC rules. Mr. Panos Kyriakopoulos serves as the Chairman of our Audit Committee and as the Audit Committee's financial expert with Mr. Apostolos Tamvakakis and Mr. George Taniskidis as members.
We have adopted a code of ethics that applies to officers and employees. Our code of ethics is posted in our website, http://www.euroseas.gr, under "Corporate Governance".
Item 16C. | Item 16C. Principal Accountant Fees and Services |
Our principal auditors, Deloitte Hadjipavlou, Sofianos & CambanisCertified Public Accountants, S.A. have charged us for audit, audit-related and non-audit services as follows:
| | 2014 (dollars in thousands) | | | 2015 (dollars in thousands) | |
Audit Fees | | $ | 340 | | | $ | 325 | |
Audit related fees | | _ | | | _ | |
Tax fees | | _ | | | _ | |
All other fees / expenses | | _ | | | _ | |
Total | | $ | 340 | | | $ | 325 | |
91
| | 2016 (dollars in thousands) | | | 2017 (dollars in thousands) | |
Audit Fees | | $ | 304 | | $ | 290 | |
Audit related fees | | | - | | | | - | |
Tax fees | | | - | | | | - | |
All other fees / expenses | | | - | | | | - | |
Total | | $ | 304 | | $ | 290 | |
Audit fees relate to compensation for professional services rendered for the integrated audit of the consolidated financial statements of the Company and for the review of the quarterly financial information as well as in connection with any other audit services required for SEC or other regulatory filings.filings or offerings.
The Audit Committee is responsible for the appointment, replacement, compensation, evaluation and oversight of the work of the independent registered public accounting firm. As part of this responsibility, the Audit Committee pre-approves the audit and non-audit services performed by the independent registered public accounting firm in order to assure that they do not impair the auditor's independence from the Company. The Audit Committee has adopted a policy which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent registered public accounting firm may be pre-approved.
All audit services and other services provided by Deloitte Hadjipavlou, Sofianos & CambanisCertified Public Accountants, S.A., were pre-approved by the Audit Committee.
Item 16D. | Item 16D. Exemptions from the Listing Standards for Audit Committees |
Not Applicable.
Item 16E. | Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
On September 25, 2014 the Company announced that its Board of Directors approved a share repurchase program for up to a total of $5 million of the Company's common stock. The Board will review the program after a period of 12 months. Share repurchases will be made from time to time for cash in open market transactions at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined by management based upon market conditions and other factors. The program does not require the Company to purchase any specific number or amount of shares and may be suspended or reinstated at any time in the Company's discretion and without notice. During 2014, the Company repurchased and cancelled 168,060 common shares. There were no shares repurchased during 2015 or in 2016 as of April 1, 2016.Not Applicable.
Item 16F. | Item 16F. Change in Registrant's Certifying Accountant |
None.
Item 16G. | Item 16G. Corporate Governance |
Our Company's corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we are exempt from many of Nasdaq's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with Nasdaq corporate governance practices, and the establishment and composition of an audit committee and a formal written audit committee charter. The practices followed by us in lieu of Nasdaq's corporate governance rules are described below.
We are not required under Marshall Islands law to maintain aPlease see Item 6.C. Board of Directors with a majority of independent directors, and we may not maintain a Board of Directors with a majority of independent directors in the future.
In lieu of a compensation committee comprised of independent directors, our Board of Directors will be responsible for establishing the executive officers' compensation and benefits. Under Marshall Islands law, compensation of the executive officers is not required to be determined by an independent committee.
In lieu of a nomination committee comprised of independent directors, our Board of Directors will be responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders may also identify and recommend potential candidates to become candidates to become board members in writing. No formal written charter has been prepared or adopted because this process is outlined in our bylaws.
In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Marshall Islands law requirements, a related party transaction will be permitted if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors and the Board of Directors in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, or, if the votes of the disinterested directors are insufficient to constitute an act of the Board of Directors as defined in Section 55 of the Marshall Islands Business Corporations Act, by unanimous vote of the disinterested directors; or (ii) the material facts as to his relationship or interest are disclosed and the shareholders are entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a simple majority vote of the shareholders; or (iii) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our bylaws provide that shareholders must give us advance notice to properly introduce any business at a meeting of the shareholders. Our bylaws also provide that shareholders may designate in writing a proxy to act on their behalf.
In lieu of holding regular meetings at which only independent directors are present, our entire Board of Directors, a majority of whom are independent, will hold regular meetings as is consistent with the laws of the Republic of the Marshall Islands.
We currently have an equity incentive plan and in the future may amend or terminate this plan or approve a new incentive plan. Shareholder approval will not be required to amend or terminate the existing equity incentive plan or to establish a new equity incentive plan since Marshall Islands law permits the Board of Directors to take these actions.
As a foreign private issuer, we are not required to obtain shareholder approval if any of our directors, officers or 5% or greater shareholders has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction(s) and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common stock or voting power of 5% or more.
In lieu of obtaining shareholder approval prior to the issuance of securities, the Company will comply with provisions of the Marshall Islands Business Corporations Act, providing that the Board of Directors approves share issuances.Practices - Corporate Governance.
OTHER THAN AS NOTED IN THE SECTION ABOVE, WE ARE IN FULL COMPLIANCE WITH ALL OTHER APPLICABLE NASDAQ CORPORATE GOVERNANCE STANDARDS.
Item 16H. | Item 16H. Mine Safety Disclosure |
Not Applicable.
PART III
Item 17. | Financial Statements |
See Item 18.
Item 18. | Financial Statements |
The financial statements set forth on pages F-1 through F-46,F-54, together with the report of independent registered public accounting firm, are filed as part of this annual report.
1.1 | | |
1.2 | | |
1.3 | | |
2.1 | | |
2.2 | | |
2.3 | | |
2.4 | | |
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2.6 | | |
2.7 | | |
2.8 | |
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4.1 | | |
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4.5 | | |
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4.9 | | |
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4.29 | | |
4.30 | | |
4.31 | | |
4.32 | | |
4.33 | | |
4.34 | | |
4.35 | | |
4.36 | | Amendment to Loan Agreement between Tiger Navigation Corp., as borrower, and EFG Eurobank Ergasias S.A., as lender, dated October 29, 2012 (previously filed as Exhibit 4.35 to Euroseas Ltd. Registration Statement on Form 20-F (File No. 001-33283) on April 30, 2013 and incorporated by reference herein)
|
4.37 | | |
4.38 | 4.37 | |
4.39 | 4.38 | |
4.40 | 4.39 | |
4.41 | 4.40 | |
4.42 | 4.41 | Amendment to Registration Rights Agreement, dated as of March 14, 2014 to the Registration Rights Agreement, dated as of January 26, 2014, as amended by and among Euroseas Ltd., Tennenbaum Opportunities Fund VI, LLC, and Friends Investment Company, Inc. (previously filed as Exhibit 99.4 on Form 6-K (File No. 001-33283) on March 18, 2014 and incorporated by reference herein) |
4.43 | | herein) |
4.42 | |
4.44 | 4.43 | |
4.45 | 4.44 | |
4.46 | 4.45 | |
4.47 | 4.46 | |
4.48 | 4.47 | |
4.494.48 | | |
4.504.49 | | |
4.514.50 | | |
4.524.51 | | |
4.534.52 | | |
4.544.53 | | |
4.54 | |
4.55 | |
4.56 | |
8.1 | | |
12.1 | | |
12.2 | | |
13.1 | | |
13.2 | | |
15.1 | | |
101.INS* | | XBRL Instance Document |
101.SCH* | | XBRL Taxonomy Extension Schema Document |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
________________
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
(1) | (1) Filed as an Exhibit to the Company's Registration Statement (File No. 333-129145) on October 20, 2005. |
(2) | Filed as an Exhibit to the Company's Amendment No.1 to Registration Statement (File No. 333-129145) on December 5, 2005. |
(3) | Filed as an Exhibit to the Company's Post-Effective Amendment No. 1 to Registration Statement (File No. 333-12945)333-129145) on September 12, 2006. |
(4) | Filed as an Exhibit to the Company's Registration Statement (File No. 333-138780) on November 17, 2006. |
(5) | Filed as an Exhibit to the Company's Amendment No. 4 to Registration Statement (File No. 333-138780) on January 29, 2007. |
(6) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 13, 2008. |
(7) | Filed as an Exhibit to the Company's Registration Statement (File No. 333-152089) on July 2, 2008. |
(8) | Filed as an Exhibit to the Company's Post-Effective Amendment No. 1 to Registration Statement (File No. 333-148124) on July 17, 2008. |
(9) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 18, 2009. |
(10) | Filed as an Exhibit to the Company's Form 6-K (File No. 001-33283) on May 18, 2009. |
(11) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 28, 2010. |
(12) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 27, 2011. |
(13) | Filed as an Exhibit to the Company's Form 6-K (File No. 001-33283) on May 25, 2012. |
(14) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on April 27, 2012. |
(15) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 2, 2016. |
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | EUROSEAS LTD.
(Registrant) |
| | (Registrant) |
| | |
| | |
| |
| By: | /s/ Aristides J. Pittas |
| | | Aristides J. Pittas
|
| | | Chairman, President and CEO |
| | |
Date: April 30, 2018 | | |
| | |
| | |
Date: May 2, 2016
Euroseas Ltd. and Subsidiaries
Consolidated financial statements
Index to consolidated financial statements
Pages
| Pages |
| |
Report of Independent Registered Public Accounting Firm | F-2 |
| |
Consolidated Balance Sheets as of December 31, 20142016 and 20152017 | F-3 |
| |
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2016 and 2017 | F-5 |
December 31, 2013, 2014 and 2015 | F-5 |
| |
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2015, 2016 and 2017 | F-6 |
December 31, 2013, 2014 and 2015 | F-6 |
| |
Consolidated Statements of Cash Flows for the Years Ended | |
December 31, 2013, 20142015, 2016 and 20152017 | F-7 |
| |
Notes to the Consolidated Financial Statements | F-9 |
| |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Euroseas Ltd. and Subsidiaries,
Majuro, Republic of the Marshall Islands
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Euroseas Ltd. and subsidiaries (the "Company") as of December 31, 20152017 and 2014, and2016, the related consolidated statements of operations, shareholders' equity andcash flows for each of the three years in the period ended December 31, 2017 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015. 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Euroseas Ltd. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.Athens, Greece
April 30, 2018
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),served as the Company's internal control over financial reporting as of December 31, 2015, based on the criteria establishedauditor since at least 2004, in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 2, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte Hadjipavlou, Sofianos, & Cambanis S.A.
Athens, Greece
May 2, 2016connection with its initial public offering.
Euroseas Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, 20142016 and 20152017
(All amounts, except share data, expressed in U.S. Dollars)
| | Notes | | | 2014 | | | 2015 | | | Notes | | | 2016 | | | 2017 | |
Assets | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | 25,411,420 | | | | 8,715,636 | | | | | | | 3,208,092 | | | | 4,115,985 | |
Restricted cash | | | 9 | | | | 655,739 | | | | 1,998,452 | |
Trade accounts receivable, net | | | | | | 2,189,986 | | | | 1,408,272 | | | | | | | 1,432,114 | | | | 1,479,282 | |
Other receivables | | | | | | 844,720 | | | | 1,231,391 | | | | | | | 870,415 | | | | 1,609,099 | |
Inventories | | | 3 | | | | 1,758,930 | | | | 1,464,940 | | | 3 | | | | 1,291,279 | | | | 1,645,209 | |
Restricted cash | | | 9 | | | | 294,093 | | | | 5,916,743 | | |
Prepaid expenses | | | | | | | 348,231 | | | | 175,506 | | | | | | | 172,398 | | | | 319,559 | |
Vessel held for sale | | | 5 | | | | - | | | | 2,671,811 | | | 5 | | | | 2,814,046 | | | | 4,914,782 | |
Total current assets | | | | | | | 30,847,380 | | | | 21,584,299 | | | | | | | 10,444,083 | | | | 16,082,368 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Fixed assets | | | | | | | | | | | | | |
Long-term assets | | | | | | | | | | | | |
Vessels, net | | | 5 | | | | 111,150,227 | | | | 88,957,752 | | | 5 | | | | 105,584,633 | | | | 134,111,715 | |
Advances for vessels under construction | | | 4 | | | | 15,687,490 | | | | 32,701,867 | | |
Long-term assets | | | | | | | | | | | | | |
Advances for vessels under construction and vessel acquisition deposits | | | 4 | | | | 17,753,737 | | | | 5,051,211 | |
Restricted cash | | | 9 | | | | 7,700,000 | | | | 4,550,000 | | | 9 | | | | 5,484,268 | | | | 7,084,267 | |
Deferred charges, net | | | 6 | | | | 335,621 | | | | 700,606 | | | 6 | | | | 426,783 | | | | - | |
Other investments | | | 17 | | | | 6,183,800 | | | | 7,396,738 | | |
Investment in joint venture | | | 17 | | | | 18,674,094 | | | | 16,515,701 | | |
Total long-term assets | | | | | | | 159,731,232 | | | | 150,822,664 | | |
Other investment | | | 16 | | | | 4,000,000 | | | | - | |
Total assets | | | | | | | 190,578,612 | | | | 172,406,963 | | | | | | | 143,693,504 | | | | 162,329,561 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and shareholders' equity | | | | | | | | | | | | | |
Liabilities, Mezzanine equity and shareholders' equity | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt, current portion | | | 9 | | | | 19,512,000 | | | | 14,810,000 | | |
Long-term bank loans, current portion | | | 9 | | | | 5,549,218 | | | | 12,170,528 | |
Loan from related party | | | 8, 9 | | | | 2,000,000 | | | | - | |
Trade accounts payable | | | | | | | 2,369,983 | | | | 1,394,874 | | | | | | | 1,864,263 | | | | 1,869,441 | |
Accrued expenses | | | 7 | | | | 1,060,797 | | | | 1,203,070 | | | 7 | | | | 1,312,293 | | | | 2,154,137 | |
Liabilities from assets held for sale | | | 5 | | | | - | | | | 1,122,208 | | |
Deferred revenues | | | | | | | 803,649 | | | | 462,124 | | | | | | | 437,322 | | | | 879,916 | |
Due to related company | | | 8 | | | | 1,145,808 | | | | 322,703 | | |
Due to related companies | | | 8 | | | | 11,539 | | | | 1,280,577 | |
Derivatives | | | 15, 16 | | | | 297,992 | | | | 50,402 | | | 15, 18 | | | | - | | | | 177,998 | |
Total current liabilities | | | | | | | 25,190,229 | | | | 19,365,381 | | | | | | | 11,174,635 | | | | 18,532,597 | |
(Consolidated balance sheets continuescontinue on the next page)
Euroseas Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, 20142016 and 20152017
(All amounts, except share data, expressed in U.S. Dollars)
(continued)
| | Notes | | | December 31, 2014 | | | December 31, 2015 | |
| | | | | | | | | |
Long-term liabilities | | | | | | | | | |
Long-term debt, net of current portion | | | 9 | | | | 34,745,000 | | | | 25,711,040 | |
Derivatives | | | 15, 16 | | | | 779 | | | | 202,700 | |
Total long-term liabilities | | | | | | | 34,745,779 | | | | 25,913,740 | |
Total liabilities | | | | | | | 59,936,008 | | | | 45,279,121 | |
Commitments and contingencies | | | 11 | | | | | | | | | |
Mezzanine Equity | | | | | | | | | | | | |
Preferred shares (par value $0.01, 20,000,000 shares authorized, 32,140 and 33,779 issued and outstanding, respectively) | | | 18 | | | | 30,440,100 | | | | 32,079,249 | |
Shareholders' equity | | | | | | | | | | | | |
Common stock (par value $0.03, 200,000,000 shares authorized, 5,715,731 and 8,195,760 issued and outstanding) | | | | | | | 171,472 | | | | 245,873 | |
Additional paid-in capital | | | | | | | 268,374,336 | | | | 278,833,156 | |
Accumulated deficit | | | | | | | (168,343,304 | ) | | | (184,030,436 | ) |
Total shareholders' equity | | | | | | | 100,202,504 | | | | 95,048,593 | |
Total liabilities and shareholders' equity | | | | | | | 190,578,612 | | | | 172,406,963 | |
| | Notes | | | December 31, 2016 | | | December 31, 2017 | |
| | | | | | | | | |
Long-term liabilities | | | | | | | | | |
Long-term bank loans, net of current portion | | | 9 | | | | 44,366,976 | | | | 60,175,276 | |
Derivatives | | | 15, 18 | | | | 240,181 | | | | 16,631 | |
Vessel profit participation liability | | | 9 | | | | - | | | | 1,297,100 | |
Total long-term liabilities | | | | | | | 44,607,157 | | | | 61,489,007 | |
Total liabilities | | | | | | | 55,781,792 | | | | 80,021,604 | |
Commitments and contingencies | | | 11 | | | | | | | | | |
Mezzanine Equity | | | | | | | | | | | | |
Preferred shares (par value $0.01, 20,000,000 shares authorized, 35,505 and 37,314 issued and outstanding, respectively) | | | 17 | | | | 33,804,948 | | | | 35,613,759 | |
Shareholders' equity | | | | | | | | | | | | |
Common stock (par value $0.03, 200,000,000 shares authorized, 10,876,112 and 11,274,126 issued and outstanding) | | | 19 | | | | 326,283 | | | | 338,230 | |
Additional paid-in capital | | | | | | | 283,757,739 | | | | 284,236,597 | |
Accumulated deficit | | | | | | | (229,977,258 | ) | | | (237,880,629 | ) |
Total shareholders' equity | | | | | | | 54,106,764 | | | | 46,694,198 | |
Total liabilities, mezzanine equity and shareholders' equity | | | | | | | 143,693,504 | | | | 162,329,561 | |
The accompanying notes are an integral part of these consolidated financial statements.
Euroseas Ltd. and Subsidiaries
Consolidated statements of operations
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts, except for share data, expressed in U.S. Dollars)
| | Notes | | | 2013 | | | 2014 | | | 2015 | |
| | | | | | | | | | | | |
Revenues | | | | | | | | | | | | |
Voyage revenue | | | | | | 40,850,051 | | | | 42,586,963 | | | | 39,656,670 | |
Related party revenue | | | 17 | | | | 240,000 | | | | 240,000 | | | | 240,000 | |
Commissions (including, $474,466 $517,828 and $475,792, respectively, to related party) | | | 8, 14 | | | | (1,936,381 | ) | | | (2,192,626 | ) | | | (2,216,836 | ) |
Net revenue | | | | | | | 39,153,670 | | | | 40,634,337 | | | | 37,679,834 | |
Operating expenses | | | | | | | | | | | | | | | | |
Voyage expenses | | | 14 | | | | 1,537,898 | | | | 3,963,181 | | | | 2,312,513 | |
Vessel operating expenses (including, $399,665, $347,363 and $305,150, respectively, to related party) | | | 8, 14 | | | | 25,191,250 | | | | 25,279,087 | | | | 25,204,593 | |
Dry-docking expenses | | | | | | | 3,816,699 | | | | 1,975,590 | | | | 1,912,407 | |
Vessel depreciation | | | 5 | | | | 19,983,772 | | | | 12,137,445 | | | | 10,995,023 | |
Related party management fees | | | 8 | | | | 4,891,024 | | | | 4,894,559 | | | | 4,151,335 | |
Other general and administrative expenses (including $1,900,000, $2,000,000 and $2,000,000, respectively, to related party) | | | 8, 12 | | | | 3,542,619 | | | | 3,514,636 | | | | 3,327,061 | |
Net loss/(gain) on sale of vessels (including $76,183 and $77,022 to related party) | | | 5 | | | | 1,935,019 | | | | - | | | | (461,586 | ) |
Impairment loss and loss on write-down of vessel held for sale | | | 5 | | | | 78,207,462 | | | | 3,500,000 | | | | 1,641,885 | |
Total operating expenses | | | | | | | 139,105,743 | | | | 55,264,498 | | | | 49,083,231 | |
Operating loss | | | | | | | (99,952,073 | ) | | | (14,630,161 | ) | | | (11,403,397 | ) |
Other income/(expenses) | | | | | | | | | | | | | | | | |
Interest and other financing costs | | | | | | | (1,845,776 | ) | | | (2,152,187 | ) | | | (1,486,534 | ) |
Loss on derivatives, net | | | 16 | | | | (177,132 | ) | | | (44,648 | ) | | | (261,674 | ) |
Foreign exchange gain / (loss) | | | | | | | (10,143 | ) | | | 40,022 | | | | 22,421 | |
Investment income | | | 17 | | | | 196,196 | | | | 987,604 | | | | 1,212,938 | |
Interest income | | | | | | | 387,292 | | | | 422,240 | | | | 26,656 | |
Other expenses, net | | | | | | | (1,449,563 | ) | | | (746,969 | ) | | | (486,193 | ) |
Equity loss in joint venture | | | 17 | | | | (2,023,191 | ) | | | (2,541,775 | ) | | | (2,158,393 | ) |
Net loss | | | | | | | (103,424,827 | ) | | | (17,918,905 | ) | | | (14,047,983 | ) |
Dividends to Series B preferred shares | | | 18 | | | | - | | | | (1,440,100 | ) | | | (1,639,149 | ) |
Net loss attributable to common shareholders | | | | | | | (103,424,827 | ) | | | (19,359,005 | ) | | | (15,687,132 | ) |
Loss per share attributable to common shareholders - basic and diluted | | | 13 | | | | (22.76 | ) | | | (3.53 | ) | | | (2.45 | ) |
Weighted average number of shares outstanding during the year, basic and diluted | | | 13 | | | | 4,544,284 | | | | 5,479,418 | | | | 6,410,794 | |
| | Notes | | | 2015 | | | 2016 | | | 2017 | |
Revenues | | | | | | | | | | | | |
Voyage revenue | | | | | | 39,656,670 | | | | 29,789,036 | | | | 45,117,582 | |
Related party revenue | | | 16 | | | | 240,000 | | | | 240,000 | | | | 240,000 | |
Commissions (including, $475,792, $372,806 and $563,970, respectively, to related party) | | | 8, 14 | | | | (2,216,836 | ) | | | (1,604,747 | ) | | | (2,440,444 | ) |
Net revenue | | | | | | | 37,679,834 | | | | 28,424,289 | | | | 42,917,138 | |
Operating expenses | | | | | | | | | | | | | | | | |
Voyage expenses | | | 14 | | | | 2,312,513 | | | | 1,291,712 | | | | 3,960,807 | |
Vessel operating expenses (including, $305,150, $233,077 and $292,854, respectively, to related party) | | | 8, 14 | | | | 25,204,593 | | | | 18,161,862 | | | | 21,911,730 | |
Other operating income | | | | | | | - | | | | - | | | | (499,103 | ) |
Dry-docking expenses | | | | | | | 1,912,407 | | | | 2,204,784 | | | | 698,800 | |
Vessel depreciation | | | 5 | | | | 10,995,023 | | | | 8,788,121 | | | | 8,372,237 | |
Related party management fees | | | 8 | | | | 4,151,335 | | | | 3,179,596 | | | | 4,042,353 | |
Other general and administrative expenses (including $2,000,000, $2,000,000 and $2,000,000, respectively, to related party) | | | 8, 12 | | | | 3,327,061 | | | | 3,472,422 | | | | 3,419,363 | |
Net gain on sale of vessels (including $77,022, $27,741 and $46,238 to related party) | | | 5 | | | | (461,586 | ) | | | (10,597 | ) | | | (803,811 | ) |
Loss on termination and impairment of shipbuilding contracts | | | 4 | | | | - | | | | 7,050,179 | | | | - | |
Loss on write-down of vessels held for sale (including $28,055, $29,469 and $0, respectively, to related party) | | | 5 | | | | 1,641,885 | | | | 5,924,668 | | | | 4,595,819 | |
Total operating expenses | | | | | | | 49,083,231 | | | | 50,062,747 | | | | 45,698,195 | |
Operating loss | | | | | | | (11,403,397 | ) | | | (21,638,458 | ) | | | (2,781,057 | ) |
Other income/(expenses) | | | | | | | | | | | | | | | | |
Interest and other financing costs | | | | | | | (1,486,534 | ) | | | (2,531,999 | ) | | | (3,372,269 | ) |
(Loss)/gain on derivatives, net | | | 15 | | | | (261,674 | ) | | | (119,154 | ) | | | 61,556 | |
Other investment income | | | 16 | | | | 1,212,938 | | | | 1,024,714 | | | | - | |
Impairment of other investment | | | 16 | | | | - | | | | (4,421,452 | ) | | | - | |
Foreign exchange gain / (loss) | | | | | | | 22,421 | | | | (41,402 | ) | | | (40,762 | ) |
Interest income | | | | | | | 26,656 | | | | 22,330 | | | | 37,972 | |
Other expenses, net | | | | | | | (486,193 | ) | | | (6,066,963 | ) | | | (3,313,503 | ) |
Equity loss in joint venture | | | 16 | | | | (2,158,393 | ) | | | (2,444,627 | ) | | | - | |
Impairment in joint venture | | | 16 | | | | - | | | | (14,071,075 | ) | | | - | |
Net loss | | | | | | | (14,047,983 | ) | | | (44,221,123 | ) | | | (6,094,560 | ) |
Dividends to Series B preferred shares | | | 17 | | | | (1,639,149 | ) | | | (1,725,699 | ) | | | (1,808,811 | ) |
Net loss attributable to common shareholders | | | | | | | (15,687,132 | ) | | | (45,946,822 | ) | | | (7,903,371 | ) |
Loss per share attributable to common shareholders - basic and diluted | | | 13 | | | | (2.45 | ) | | | (5.63 | ) | | | (0.71 | ) |
Weighted average number of shares outstanding during the year, basic and diluted | | | 13 | | | | 6,410,794 | | | | 8,165,703 | | | | 11,067,524 | |
The accompanying notes are an integral part of these consolidated financial statements.
Euroseas Ltd. and Subsidiaries
Consolidated statements of shareholders' equity
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts, except share data, expressed in U.S. Dollars)
| | Number of Shares | | | Common Stock Amount | | | Additional Paid - in Capital | | | Accumulated Deficit | | | Total | |
Balance, January 1, 2013 | | | 4,531,961 | | | | 135,959 | | | | 252,982,089 | | | | (43,491,902 | ) | | | 209,626,146 | |
Net loss | | | | | | | | | | | | | | | (103,424,827 | ) | | | (103,424,827 | ) |
Issuance of restricted shares for stock incentive award and share-based compensation | | | 40,365 | | | | 1,211 | | | | 567,122 | | | | - | | | | 568,333 | |
Dividends declared ($0.45 per share) | | | | | | | - | | | | | | | | (2,067,570 | ) | | | (2,067,570 | ) |
Balance, December 31, 2013 | | | 4,572,326 | | | | 137,170 | | | | 253,549,211 | | | | (148,984,299 | ) | | | 104,702,082 | |
Net loss | | | | | | | | | | | | | | | (19,359,005 | ) | | | (19,359,005 | ) |
Issuance of shares from private placement, net of issuance costs | | | 1,116,487 | | | | 33,495 | | | | 14,466,505 | | | | - | | | | 14,500,000 | |
Issuance of restricted shares for stock incentive award and share-based compensation | | | 43,724 | | | | 1,312 | | | | 508,802 | | | | - | | | | 510,114 | |
Canceled shares due to repurchase program | | | (16,806 | ) | | | (505 | ) | | | (150,182 | ) | | | - | | | | (150,687 | ) |
Balance, December 31, 2014 | | | 5,715,731 | | | | 171,472 | | | | 268,374,336 | | | | (168,343,304 | ) | | | 100,202,504 | |
Net loss | | | | | | | | | | | | | | | (15,687,132 | ) | | | (15,687,132 | ) |
Issuance of shares from rights offering, net of issuance costs | | | 2,343,335 | | | | 70,300 | | | | 10,156,810 | | | | - | | | | 10,227,110 | |
Rounding of stock split | | | 794 | | | | 24 | | | | (24 | ) | | | - | | | | - | |
Issuance of restricted shares for stock incentive award and share-based compensation | | | 135,900 | | | | 4,077 | | | | 302,034 | | | | - | | | | 306,111 | |
Balance December 31, 2015 | | | 8,195,760 | | | | 245,873 | | | | 278,833,156 | | | | (184,030,436 | ) | | | 95,048,593 | |
| | Number of Shares Outstanding | | | Common Stock Amount | | | Additional Paid - in Capital | | | Accumulated Deficit | | | Total | |
Balance, January 1, 2015 | | | 5,715,731 | | | | 171,472 | | | | 268,374,336 | | | | (168,343,304 | ) | | | 100,202,504 | |
Net loss attributable to common shareholders | | | | | | | | | | | | | | | (15,687,132 | ) | | | (15,687,132 | ) |
Issuance of shares from rights offering, net of issuance costs | | | 2,343,335 | | | | 70,300 | | | | 10,156,810 | | | | - | | | | 10,227,110 | |
Rounding of stock split | | | 794 | | | | 24 | | | | (24 | ) | | | - | | | | - | |
Issuance of restricted shares for stock incentive award and share-based compensation | | | 135,900 | | | | 4,077 | | | | 302,034 | | | | - | | | | 306,111 | |
Balance December 31, 2015 | | | 8,195,760 | | | | 245,873 | | | | 278,833,156 | | | | (184,030,436 | ) | | | 95,048,593 | |
Net loss attributable to common shareholders | | | - | | | | - | | | | - | | | | (45,946,822 | ) | | | (45,946,822 | ) |
Issuance of shares from private placement, net of issuance costs | | | 719,425 | | | | 21,583 | | | | 978,417 | | | | - | | | | 1,000,000 | |
Issuance of shares for vessel acquisition, net of issuance costs | | | 900,000 | | | | 27,000 | | | | 1,773,000 | | | | - | | | | 1,800,000 | |
Issuance of shares sold at the market (ATM), net of issuance costs | | | 978,847 | | | | 29,365 | | | | 1,881,287 | | | | - | | | | 1,910,652 | |
Issuance of restricted shares for stock incentive award and share-based compensation | | | 82,080 | | | | 2,462 | | | | 291,879 | | | | - | | | | 294,341 | |
Balance December 31, 2016 | | | 10,876,112 | | | | 326,283 | | | | 283,757,739 | | | | (229,977,258 | ) | | | 54,106,764 | |
Net loss attributable to common shareholders | | | - | | | | - | | | | - | | | | (7,903,371 | ) | | | (7,903,371 | ) |
Issuance of shares sold at the market (ATM), net of issuance costs | | | 301,780 | | | | 9,060 | | | | 365,183 | | | | - | | | | 374,243 | |
Issuance of restricted shares for stock incentive award and share-based compensation | | | 100,270 | | | | 3,008 | | | | 113,554 | | | | - | | | | 116,562 | |
Shares forfeited | | | (4,036 | ) | | | (121 | ) | | | 121 | | | | - | | | | - | |
Balance December 31, 2017 | | | 11,274,126 | | | | 338,230 | | | | 284,236,597 | | | | (237,880,629 | ) | | | 46,694,198 | |
Euroseas Ltd. and Subsidiaries
Consolidated statements of cash flows
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
| | | | | | | | | |
| | 2013 | | | 2014 | | | 2015 | |
Cash flows from operating activities: | | | | | | | | | |
Net loss | | | (103,424,827 | ) | | | (17,918,905 | ) | | | (14,047,983 | ) |
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities: | | | | | | | | | | | | |
Depreciation of vessels | | | 19,983,772 | | | | 12,137,445 | | | | 10,995,023 | |
Impairment loss and loss on write-down of vessel held for sale | | | 78,207,462 | | | | 3,500,000 | | | | 1,641,885 | |
Amortization of deferred charges | | | 145,825 | | | | 137,032 | | | | 150,189 | |
Loss / (gain) on sale of vessels | | | 1,935,019 | | | | - | | | | (461,586 | ) |
Share-based compensation | | | 568,334 | | | | 510,114 | | | | 306,111 | |
Unrealized gain on derivatives | | | (1,375,820 | ) | | | (718,977 | ) | | | (45,669 | ) |
Other income accrued | | | (196,196 | ) | | | (987,604 | ) | | | (1,212,938 | ) |
Loss in investment in joint venture | | | 2,023,191 | | | | 2,541,775 | | | | 2,158,393 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
(Increase) / decrease in: | | | | | | | | | | | | |
Trade accounts receivable | | | (453,980 | ) | | | (316,841 | ) | | | 781,714 | |
Prepaid expenses | | | (22,168 | ) | | | (52,983 | ) | | | 172,725 | |
Other receivables | | | 869,278 | | | | 596,113 | | | | (386,671 | ) |
Inventories | | | 338,522 | | | | (284,816 | ) | | | 293,990 | |
Due from related company | | | 4,948,443 | | | | - | | | | - | |
Increase / (decrease) in: | | | | | | | | | | | | |
Due to related company | | | 903,478 | | | | 242,330 | | | | (823,105 | ) |
Trade accounts payable | | | (101,764 | ) | | | 466,139 | | | | (1,262,798 | ) |
Accrued expenses | | | (219,962 | ) | | | (394,155 | ) | | | 54,673 | |
Deferred revenue | | | (96,718 | ) | | | (186,944 | ) | | | (341,525 | ) |
Net cash provided by / (used in) operating activities | | | 4,031,889 | | | | (730,277 | ) | | | (2,027,572 | ) |
Cash flows from investing activities: | | | | | | | | | | | | |
Advances for vessels under construction | | | (37,820 | ) | | | (15,637,368 | ) | | | (16,628,889 | ) |
Advance received for vessel held for sale | | | - | | | | - | | | | 1,122,208 | |
Contributions to joint venture | | | (6,250,000 | ) | | | - | | | | - | |
Purchase of a vessel | | | (5,978,062 | ) | | | (21,323,935 | ) | | | - | |
Other investments | | | (5,000,000 | ) | | | - | | | | - | |
Release of Restricted Cash | | | 2,063,596 | | | | 168,322 | | | | 4,102,364 | |
Increase in restricted cash | | | - | | | | (300,000 | ) | | | (6,575,014 | ) |
Proceeds from sale of vessels | | | 7,322,818 | | | | - | | | | 7,345,342 | |
Net cash used in investing activities | | | (7,879,468 | ) | | | (37,092,981 | ) | | | (10,633,989 | ) |
| | | | | | | | | | | | |
| | 2015 | | | 2016 | | | 2017 | |
Cash flows from operating activities: | | | | | | | | | |
Net loss | | | (14,047,983 | ) | | | (44,221,123 | ) | | | (6,094,560 | ) |
Adjustments to reconcile net loss to net cash (used in)/ provided by operating activities: | | | | | | | | | | | | |
Depreciation of vessels | | | 10,995,023 | | | | 8,788,121 | | | | 8,372,237 | |
Other operating income | | | - | | | | - | | | | (499,103 | ) |
Loss on write-down of vessels held for sale | | | 1,641,885 | | | | 5,924,668 | | | | 4,595,819 | |
Amortization and write off of deferred charges | | | 150,189 | | | | 613,326 | | | | 322,475 | |
Amortization of debt discount | | | - | | | | - | | | | 60,988 | |
Net gain on sale of vessels | | | (461,586 | ) | | | (10,597 | ) | | | (803,811 | ) |
Share-based compensation | | | 306,111 | | | | 294,341 | | | | 116,562 | |
Loss on termination and impairment of shipbuilding contracts | | | - | | | | 7,050,179 | | | | - | |
Unrealized gain on derivatives | | | (45,669 | ) | | | (12,921 | ) | | | (45,552 | ) |
Other investment income | | | (1,212,938 | ) | | | (1,024,714 | ) | | | - | |
Impairment of other investment | | | - | | | | 4,421,452 | | | | - | |
Equity loss and impairment of investment in joint venture | | | 2,158,393 | | | | 16,515,702 | | | | - | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
(Increase) / decrease in: | | | | | | | | | | | | |
Trade accounts receivable | | | 781,714 | | | | (23,842 | ) | | | (47,168 | ) |
Prepaid expenses | | | 172,725 | | | | 3,108 | | | | (147,161 | ) |
Other receivables | | | (386,671 | ) | | | 360,976 | | | | (738,684 | ) |
Inventories | | | 293,990 | | | | 245,079 | | | | 145,173 | |
Increase / (decrease) in: | | | | | | | | | | | | |
Due to related companies | | | (823,105 | ) | | | (311,164 | ) | | | 1,269,038 | |
Trade accounts payable | | | (1,262,798 | ) | | | 588,420 | | | | 235,412 | |
Accrued expenses | | | 54,673 | | | | (8,447 | ) | | | 779,053 | |
Deferred revenue | | | (341,525 | ) | | | (24,802 | ) | | | 442,594 | |
Net cash (used in)/provided by operating activities | | | (2,027,572 | ) | | | (832,238 | ) | | | 7,963,312 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Cash paid for vessels under construction, capitalized expenses and vessel acquisition | | | (16,628,889 | ) | | | (27,329,824 | ) | | | (39,698,984 | ) |
Advance received for vessel held for sale | | | 1,122,208 | | | | - | | | | - | |
Cash released from other investment | | | - | | | | - | | | | 4,000,000 | |
Proceeds from sale of vessels | | | 7,345,342 | | | | 4,196,268 | | | | 9,552,260 | |
Net cash used in investing activities | | | (8,161,339 | ) | | | (23,133,556 | ) | | | (26,146,724 | ) |
| | | | | | | | | | | | |
(Consolidated statements of cash flows continues on the next page)
Euroseas Ltd. and Subsidiaries
Consolidated statements of cash flows
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
(Continued)
| | | | | | | | | |
| | 2013 | | | 2014 | | | 2015 | |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from issuance of preferred stock, net of commissions paid | | | - | | | | 29,700,000 | | | | - | |
Proceeds from issuance of common stock, net of commissions paid | | | - | | | | 14,550,000 | | | | 10,545,007 | |
Funds used for common stock buyback | | | - | | | | (150,687 | ) | | | - | |
Offering expenses paid | | | (99,200 | ) | | | (564,922 | ) | | | (400,696 | ) |
Dividends paid | | | (2,090,944 | ) | | | (13,050 | ) | | | - | |
Loan arrangement fees paid | | | - | | | | (299,900 | ) | | | (442,574 | ) |
Proceeds from long-term debt | | | - | | | | 23,300,000 | | | | 8,400,000 | |
Repayment of long-term debt | | | (15,937,000 | ) | | | (14,687,000 | ) | | | (22,135,960 | ) |
Net cash (used in) / provided by financing activities | | | (18,127,144 | ) | | | 51,834,441 | | | | (4,034,223 | ) |
| | | | | | | | | | | | |
Net (decrease) / increase in cash and cash equivalents | | | (21,974,723 | ) | | | 14,011,183 | | | | (16,695,784 | ) |
Cash and cash equivalents at beginning of year | | | 33,374,960 | | | | 11,400,237 | | | | 25,411,420 | |
Cash and cash equivalents at end of year | | | 11,400,237 | | | | 25,411,420 | | | | 8,715,636 | |
Supplemental cash flow information Cash paid for interest, net of capitalized expenses | | | 1,734,967 | | | | 2,000,850 | | | | 1,352,737 | |
Financing and investing activities fees: | | | | | | | | | | | | |
Loan arrangement fees accrued | | | - | | | | - | | | | 72,600 | |
Offering expenses accrued | | | 66,478 | | | | 86,078 | | | | 3,279 | |
Payment-in-kind dividends | | | - | | | | 1,440,100 | | | | 1,639,149 | |
Capital expenditures included in liabilities | | | - | | | | - | | | | 385,488 | |
(Continued)
| | 2015 | | | 2016 | | | 2017 | |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from issuance of common stock, net of commissions paid | | | 10,545,007 | | | | 3,168,058 | | | | 549,495 | |
Offering expenses paid | | | (400,696 | ) | | | (82,377 | ) | | | (341,072 | ) |
Loan arrangement fees paid | | | (442,574 | ) | | | (790,042 | ) | | | (229,762 | ) |
Proceeds from long-term bank loans | | | 8,400,000 | | | | 28,300,000 | | | | 33,112,500 | |
Repayment of long-term bank loans | | | (22,135,960 | ) | | | (18,464,125 | ) | | | (9,057,144 | ) |
Proceeds from related party loan | | | - | | | | 2,000,000 | | | | - | |
Repayment of related party loan | | | - | | | | - | | | | (2,000,000 | ) |
Net cash (used in) / provided by financing activities | | | (4,034,223 | ) | | | 14,131,514 | | | | 22,034,017 | |
| | | | | | | | | | | | |
Net (decrease) / increase in cash, cash equivalents and restricted cash | | | (14,223,134 | ) | | | (9,834,280 | ) | | | 3,850,605 | |
Cash, cash equivalents and restricted cash at beginning of year | | | 33,405,513 | | | | 19,182,379 | | | | 9,348,099 | |
Cash, cash equivalents and restricted cash at end of year | | | 19,182,379 | | | | 9,348,099 | | | | 13,198,704 | |
Cash Breakdown | | | | | | | | | | | | |
Cash and cash equivalents | | | 8,715,636 | | | | 3,208,092 | | | | 4,115,985 | |
Restricted cash, current | | | 5,916,743 | | | | 655,739 | | | | 1,998,452 | |
Restricted cash, long term | | | 4,550,000 | | | | 5,484,268 | | | | 7,084,267 | |
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | | | 19,182,379 | | | | 9,348,099 | | | | 13,198,704 | |
Supplemental cash flow information | | | | | | | | | | | | |
Cash paid for interest, net of capitalized expenses | | | 1,352,737 | | | | 1,727,186 | | | | 2,637,715 | |
Financing, and investing activities fees: | | | | | | | | | | | | |
Loan arrangement fees accrued | | | 72,600 | | | | 38,400 | | | | 74,863 | |
Offering expenses accrued | | | 3,279 | | | | 178,308 | | | | 12,488 | |
Payment-in-kind dividends | | | 1,639,149 | | | | 1,725,699 | | | | 1,808,811 | |
Capital expenditures included in liabilities | | | 385,488 | | | | 218,909 | | | | 64,476 | |
Shares issued as consideration for vessel acquisition including inventory on-board | | | - | | | | 1,800,000 | | | | - | |
The accompanying notes are an integral part of these consolidated financial statements.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2012, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
1.Basis of Presentation and General Information
Euroseas Ltd. (the "Company") was formed on May 5, 2005 under the laws of the Republic of the Marshall Islands to consolidate the beneficial owners of certain ship-owning companies. On June 28, 2005, the beneficial owners exchanged all their shares in the ship-owning companies for shares in Friends Investment Company Inc., a newly formed Marshall Islands company. On June 29, 2005, Friends Investment Company Inc. then exchanged all the shares in the ship-owning companies for shares in Euroseas Ltd., thus, becoming the sole shareholder of Euroseas Ltd.
The operations of the vessels are managed by Eurobulk Ltd. (the("Eurobulk" or "Manager" or "Management Company") and Eurobulk (Far East) Ltd. Inc. ("Eurobulk FE"), collectively the "Managers", a corporationcorporations controlled by members of the Pittas family. The Pittas family is the controlling shareholders of Friends Investment Company Inc. which owns 34.8% of the Company's shares.
The ManagerEurobulk has an office in Greece located at 4 Messogiou & Evropis Street, Maroussi, Athens, Greece. The Manager providesGreece; Eurobulk FE has an office at Manilla, Philippines Suite 1003, 10th Floor Ma. Natividad Building, 470 T.M. Kalaw cor. Cortada Sts., Ermita. Both provide the Company with a wide range of shipping services such as technical support and maintenance, insurance consulting, chartering, financial and accounting services, as well aswhile Eurobulk also provides executive management services, in consideration for fixed and variable fees (see Note 8).
On July 22, 2015,The Pittas family is the controlling shareholder of Friends Investment Company effected a one-to-ten reverse stock split on its issued and outstanding common stock (Note 19). In connection withInc. which, in turn, owns 33.3% of the reverse stock split 794 fractionalCompany's shares were issued. All share and per share amounts disclosed in the consolidated financial statements and notes give effect to this reverse stock split retroactively, for all periods presented.as of December 31, 2017.
The Company is engaged in the ocean transportation of dry bulk and containers through ownership and operation of dry bulk and container carrier ship-owning companies. For the periods under review the Company's wholly owned subsidiaries are set out below:
· | Allendale Investment S.A. incorporated in Panama on January 22, 2002, owner of the Panama flag 18,154 deadweight tons ("DWT") / 1,169 twenty-foot equivalent ("TEU" – a measure of carrying capacity in containers) container carrier M/V "Kuo Hsiung", which was built in 1993 and acquired on May 13, 2002. |
· | Alterwall Business Inc. incorporated in Panama on January 15, 2001, owner of the Panama flag 18,253 DWT / 1,169 TEU container carrier M/V "Ninos" (previously named M/V "Quingdao I") which was built in 1990 and acquired on February 16, 2001. |
· | Diana Trading Ltd. incorporated in the Marshall Islands on September 25, 2002, owner of the Marshall Islands flag 69,734 DWT bulk carrier M/V "Irini", which was built in 1988 and acquired on October 15, 2002. M/V "Irini" was sold on July 10, 2013. |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
1.Basis of Presentation and General Information- Continued
· | Xenia International Corp., incorporated in the Marshall Islands on April 6, 2006, owner of the Marshall Islands flag 22,568 DWT / 950 TEU multipurpose M/V "Tasman Trader", which was built in 1990 and acquired on April 27, 2006. On March 7, 2012, the vessel was renamed M/V "Anking". On June 4, 2013 the vessel was sold. |
· | Prospero Maritime Inc., incorporated in the Marshall Islands on July 21, 2006, owner of the Marshall Islands flag 69,268 DWT dry bulk M/V "Aristides N.P.", which was built in 1993 and acquired on September 21, 2006. The vessel was sold on January 15, 2016. |
· | Xingang Shipping Ltd., incorporated in Liberia on October 16, 2006, owner of the Liberian flag 23,596 DWT / 1,599 TEU container carrier M/V "YM Xingang I" , which was built in February 1993 and acquired on November 15, 2006. On July 11, 2009, the vessel was renamed M/V "Mastro Nicos" and on November 5, 2009, it was renamed M/V "YM Port Kelang". On October 25, 2011 the vessel was renamed M/V "Marinos". The vessel was sold on November 26, 2015. |
· | Manolis Shipping Ltd., incorporated in the Marshall Islands on March 16, 2007, owner of the Marshall Islands flag 20,346 DWT / 1,452 TEU container carrier M/V "Manolis P", which was built in 1995 and acquired on April 12, 2007. |
· | Eternity Shipping Company, incorporated in the Marshall Islands on May 17, 2007, owner of the Marshall Islands flag 30,007 DWT / 1,742 TEU container carrier M/V "Clan Gladiator", which was built in 1992 and acquired on June 13, 2007. On May 9, 2008, M/V "Clan Gladiator" was renamed M/V "OEL Transworld" and on August 31, 2009 the vessel was renamed M/V "Captain Costas". The vessel was sold on May 10, 2016. |
· | Pilory Associates Corp., incorporated in Panama on July 4, 2007, owner of the Panamanian flag 33,667 DWT / 1,932 TEU container carrier M/V "Despina P", which was built in 1990 and acquired on August 13, 2007. The vessel was sold inon December 28, 2015. |
· | Tiger Navigation Corp., incorporated in Marshall Islands on August 29, 2007, owner of the Marshall Islands flag 31,627 DWT / 2,228 TEU container carrier M/V "Tiger Bridge", which was built in 1990 and acquired on October 4, 2007. The vessel was sold inon November 9, 20152015. |
· | Noumea Shipping Ltd, incorporated in Marshall Islands on May 14, 2008, owner of the Marshall Islands flag 34,677 DWT / 2,556 TEU container carrier M/V "Maersk Noumea", renamed "Evridiki G", which was built in 2001 and acquired on May 22, 2008. |
· | Saf-Concord Shipping Ltd., incorporated in Liberia on June 8, 2008, owner of the Liberian flag 46,667 DWT bulk carrier M/V "Monica P", which was built in 1998 and acquired on January 19, 2009. |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
1.Basis of Presentation and General Information - Continued
· | Eleni Shipping Ltd., incorporated in Liberia on February 11, 2009, owner of the Liberian flag 72,119 DWT bulk carrier M/V "Eleni P", which was built in 1997, and acquired on March 6, 2009.2009 and sold on January 26, 2017. |
· | Pantelis Shipping Ltd., incorporated in the Republic of Malta on July 2, 2009, owner of the Maltese flag 74,020 DWT bulk carrier M/V "Pantelis" which was built in 2000 and acquired on July 23, 2009. On December 15, 2009, ownership of the vessel was transferred to Pantelis Shipping Corp., incorporated in Liberia, and the vessel changed its flag to the Liberian flag. |
· | Aggeliki Shipping Ltd., incorporated in the Republic of Liberia on May 21, 2010, owner of the Liberian flag 30,306 DWT / 2008 TEU container carrier M/V "Aggeliki P" which was built in 1998, and acquired on June 21, 2010.2010 and sold on December 6, 2017. |
· | Joanna Maritime Ltd., incorporated in Liberia on June 10, 2013, owner of the Liberian flag 22,301 DWT / 1,732 TEU container carrier M/V "Joanna" which was built in 1999 and acquired on July 4, 2013. TheOn January 8, 2016, the vessel has been renamed VentoM/V "Vento di Grecale.Grecale". On March 17, 2017 the vessel was again renamed to M/V "Joanna". |
· | Eirini Shipping Ltd., incorporated in the Republic of Liberia on February 2, 2014, owner of the Liberian flag 76,466 DWT bulk carrier M/V "Eirini P" which was built in 2004 and acquired on May 26, 2014. |
· | Ultra One Shipping Ltd., incorporated in the Republic of Liberia on November 21, 2013, entered on November 29, 2013, into a shipbuilding contract with Yangzhou Dayang Shipbuilding Co., Ltd. and Sumec Marine Co., Ltd., for the construction of a 63,500 DWT bulk carrier (Hull No. DY160, to be renamed 'Alexandros'named M/V "Alexandros P"). The shipbuilding contract was cancelled on June 29, 2016 due to excessive construction delays. On December 21, 2016, an agreement was reached to acquire the vessel is expected to bewhich was delivered within the second quarter of 2016.on January 16, 2017. |
· | Ultra Two Shipping Ltd., incorporated in the Republic of Liberia on November 21, 2013, entered on November 29, 2013, into a shipbuilding contract with Yangzhou Dayang Shipbuilding Co., Ltd. and Sumec Marine Co., Ltd., for the construction of a 63,500 DWT bulk carrier (Hull No. DY161). The vessel is expectedshipbuilding contract was cancelled on September 2, 2016 due to be delivered within the third quarter of 2016.excessive construction delays. |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
1. Basis of Presentation and General Information - Continued
· | Kamsarmax One Shipping Ltd., incorporated in the Republic of the Marshall Islands on April 4, 2014, agreed to acquire from Klaveness Bulk AS, the 82,000 DWT bulk carrier Hull No. YZJ2013-1116 (renamed 'Xenia'(named M/V "Xenia"). The vessel is a new-building and was delivered on February 25, 2016. |
· | Kamsarmax Two Shipping Ltd., incorporated in the Republic of the Marshall Islands on April 4, 2014, entered on April 4, 2014, into a shipbuilding contract with Jiangsu Tianyuan Marine Import & Export Co., Ltd., and Jiangsu Yangzijiang Shipbuilding Co., Ltd. and Jiangsu New Yangzi Shipbuilding Co., Ltd., for the construction of a 82,000 DWT bulk carrier (Hull No. YZJ2013-1153). TheIn July 2016, Kamsarmax Two Shipping Ltd. signed and amended agreement which provides it with an option to terminate the contract by December 31, 2016 (subsequently, extended to March 31, 2017) without any additional cost. In March 2017, the Company decided not to exercise the option to terminate the contract but proceed with construction of the vessel (to be named M/V "Ekaterini") which is expected to be delivered withinby June 2018. |
F-11· | Jonathan John Shipping Ltd., incorporated in the Republic of the Marshall Islands on August 19, 2016, owner of the Panamanian flag 18,581 DWT / 1,439 TEU container carrier M/V "Aegean Express" which was built in 1997 and delivered on September 29, 2016. |
· | Areti Shipping Ltd., incorporated in the Republic of the Marshall Islands on November 15, 2016, owner of the Cypriot flag 75,100 DWT bulk carrier M/V "Tasos" which was built in 2000 and delivered on January 9, 2017. |
· | Hull 2 Shipping Ltd., incorporated in the Republic of the Marshall Islands on December 30, 2013, owner of the Marshall Islands flag 20,976 DWT / 1,645 TEU container carrier M/V "RT Dagr" which was built in 1998 and delivered on December 23, 2017. The vessel was sold on January 31, 2017. |
· | Gregos Shipping Ltd., incorporated in the Republic of Liberia on May 25, 2017, owner of the Liberian flag 35,600 DWT / 2,788 TEU container carrier M/V "EM Astoria" which was built in 2004 and delivered on June 20, 2017. |
· | Athens Shipping Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Islands flag 32,350 DWT / 2,506 TEU container carrier M/V "EM Athens" which was built in 2000 and delivered on September 29, 2017. |
· | Corfu Navigation Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Islands flag 34,654 DWT / 2,556 TEU container carrier M/V "EM Corfu" which was built in 2001 and delivered on October 29, 2017. |
· | Oinousses Navigation Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Islands flag 32,350 DWT / 2,506 TEU container carrier M/V "EM Oinousses" which was built in 2000 and delivered on October 23, 2017. |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
1. Basis of Presentation and General Information - Continued
· | Bridge Shipping Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Island's flag 71,366 DWT / 5,610 TEU container carrier M/V "Akinada Bridge" which was built in 2001 and delivered on December 21, 2017. |
Eurocan Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, is a non-vessel owning subsidiary of Euroseas Ltd.
As of December 31, 2017, the Company had a working capital deficit of $2.45 million and has been incurring losses. The Company's cash balance amounted to $4.12 million and cash in restricted retention accounts amounted to $9.08 million as of December 31, 2017. As of December 31, 2017, the Company had committed to pay an additional $18.0 million in relation to the construction of M/V "Ekaterini". An amount of $2.25 million was paid on February 28, 2018 with the balance payable upon delivery of the vessel, which is expected in May 2018. The Company intends to fund its working capital requirements and capital commitments via cash at hand, cash flow from operations, new mortgage debt financing for the vessel under construction, debt balloon payment refinancing and equity offerings. The Company has signed a term sheet to draw a loan up to $18.4 million for its newbuilding M/V "Ekaterini." In the unlikely event that these are not sufficient the Company may also draw down up to $4.00 million under a commitment from COLBY Trading Ltd., a company controlled by the Pittas family and affiliated with the Company's Chief Executive Officer, and possible vessel sales (where equity will be released) or sale of the shipbuilding contract itself, if required, among other options. The Company believes it will have adequate funding through the sources described above and, accordingly, it believes it has the ability to continue as a going concern and finance its obligations as they come due over the next twelve months following the date of the issuance of these financial statements. Consequently, the consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the years ended December 31, 2015, 2016 and 2017, the following charterers individually accounted for more than 10% of the Company's revenues as follows:
| | Year ended December 31, | |
Charterer | | 2015 | | 2016 | | 2017 |
CMA CGM, Marseille | | | 17 | % | | | 14 | % | | | 19 | % |
New Golden Sea Shipping Pte. Ltd., Singapore | | | 16 | % | | | 22 | % | | | 17 | % |
A/S Klaveness Chartering | | | - | | | | 15 | % | | | 11 | % |
MSC Geneva | | | 13 | % | | | 16 | % | | | 10 | % |
Dampskibsselskabet Norden A/S | | | - | | | | - | | | | 10 | % |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
1.Basis of Presentation and General Information – Continued
During the years ended December 31, 2013, 2014 and 2015, the following charterers individually accounted for more than 10% of the Company's voyage and time charter revenues as follows:
| | Year ended December 31, | |
Charterer | | 2013 | | | 2014 | | | 2015 | |
CMA | | | 7.13 | % | | | 12.61 | % | | | 17.41 | % |
GSS | | | 2.21 | % | | | 3.84 | % | | | 16.14 | % |
MSC | | | 10.16 | % | | | 10.62 | % | | | 12.92 | % |
2.Significant Accounting Policies
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. The following are the significant accounting policies adopted by the Company:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Euroseas Ltd. and its subsidiaries. Inter-company balances and transactions are eliminated on consolidation.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
2.Significant Accounting Policies - Continued
Use of estimates
The preparation of the accompanying consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the stated amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other comprehensive income / (loss)
The Company has no other comprehensive income / (loss) and accordingly comprehensive income / (loss) equals net income / (loss) for all periods presented. As such, no statement of comprehensive income / (loss) has been presented.
Foreign currency translation
The Company's functional currency as well as the functional currency of all its subsidiaries is the U.S. dollar. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet date. Income and expenses denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the date of the transaction. The resulting exchange gains and/or losses on settlement or translation are included in the accompanying consolidated statements of operations.
Cash equivalents
Cash equivalents are cash in bank accounts, time deposits or other certificates purchased with an original maturity of three months or less.
Restricted cash
Restricted cash reflects deposits with certain banks that can only be used to pay the current loan installments or are required to be maintained as a certain minimum cash balance per mortgaged vessel.vessel and amounts that are pledged, blocked or held as cash collateral.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
2. Significant Accounting Policies - Continued
Trade accounts receivable
The amount shown as trade accounts receivable, at each balance sheet date, includes estimated recoveries from each voyage or time charter. At each balance sheet date, the Company provides for doubtful accounts on the basis of specific identified doubtful receivables.
Inventories
Inventories are stated at the lower of cost and marketnet realizable value. Inventories are valued using the FIFO (First-In First-Out) method.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
2.Significant Accounting Policies - Continued
Vessels
Vessels are stated at cost, which comprises the vessel contract price, costs of major repairs and improvements upon acquisition, direct delivery and other acquisition expenses, less accumulated depreciation and impairment, if any. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels; otherwise these amounts are charged to expense as incurred. Vessels under construction are presented at cost, which includes shipyard installment payments and other vessel costs incurred during the construction period that are directly attributable to the construction of the vessels, including borrowinginterest costs incurred during the construction period.
Expenditures for vessel repair and maintenance are charged against income in the period incurred.
Depreciation
Depreciation is calculated on a straight line basis over the estimated useful life of the vessel with reference to the cost of the vessel, and estimated scrap value. Remaining useful lives of vessels are periodically reviewed and revised to recognize changes in conditions and such revisions, if any, are recognized over current and future periods. The Company estimates that its vessels have a useful life of 25 years from the completion of its construction (see Note 5).
Assets Held for Sale
The Company may dispose of certain of its vessels when suitable opportunities occur, including prior to the end of their useful lives. The Company classifies assets as being held for sale when the following criteria are met: (i) management is committed to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (iv) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale within one year; (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Long-lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less the cost to sell the asset. These assets are no longer depreciated once they meet the criteria of being held for sale.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
2.Significant Accounting Policies - Continued
Depreciation
Depreciation is calculated on a straight line basis over the estimated useful life of the vessel with reference to the cost of the vessel, and estimated scrap value. Remaining useful lives of vessels are periodically reviewed and revised to recognize changes in conditions and such revisions, if any, are recognized over current and future periods. The Company estimates that its vessels have a useful life of 25 years from the completion of its construction.
Insurance claims and insurance proceeds
Claims receivable are recorded on the accrual basis and represent the amounts to be received, net of deductibles, incurred through each balance sheet date, for which recovery from insurance companies is probable and the claim is not subject to litigation. Any remaining costs to complete the claims are included in accrued liabilities. Insurance proceeds are recorded according to type of claim that gives rise to the proceeds in the consolidated statements of operations and the consolidated statements of cash flow.
Revenue and expense recognition
Revenues are generated from voyage charters and time charters and chartering pool arrangements.charters. If a charter agreement exists, the price is fixed, service is provided and the collection of the related revenue is reasonably assured, revenues are recorded over the term of the charter as service is provided and recognized on a pro-rata basis over the duration of the voyage or time charter adjusted for the off-hire days that a vessel spends undergoing repairs, maintenance or upgrade work. A voyage is deemed to commence upon the later of the completion of discharge of the vessel's previous cargo or the time it receives a contract that is not cancelable and is deemed to end upon the completion of discharge of the current cargo. A time charter contract is deemed to commence from the time of the delivery of the vessel to an agreed port and is deemed to end upon the re-delivery of the vessel at an agreed port. Demurrage income, which is included in voyage revenues, represents revenue earned from the charterer when loading or discharging time exceeded the stipulated time in the voyage charter and is recognized when earned.
For the Company's vessels operating in chartering pools, pool profits are allocated to each pool participant on a time charter equivalent basis in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel's age, design and other performance characteristics. Pool income is recognized during the period services are performed, the collectability is reasonably assured, an agreement with the pool exists and price is determinable. Pool income may be subject to future adjustments by the pool however, the effect on the Company's income resulting from a subsequent reallocation of pool income on the results for the year historically has not been significant.
Charter fees received in advance are recorded as a liability (deferred revenue) until charter services are rendered.
Vessel operating expenses are comprised of all expenses relating to the operation of the vessels, including crewing, insurance, repairs and maintenance, stores, lubricants, spares and consumables, professional and legal fees and miscellaneous expenses. Vessel operating expenses are recognized as incurred; payments in advance of services or use are recorded as prepaid expenses. Voyage expenses relate to bunkers, port charges, canal tolls, and agency fees which are incurred when the vessel is chartered under a voyage charter or during off-hire or idle periods. Voyage expenses are expensed as incurred.
Dry-dockingRevenue is recognized when a charter agreement exists, the vessel is made available to the charterer and special survey expenses
Dry-dockingcollection of the related revenue is reasonably assured. Commissions (address and special survey expensesbrokerage), regardless of charter type, are expensedalways paid by the Company, are deferred and amortized over the related charter period and are presented as incurred.a separate line item in revenues to arrive at net revenues in the accompanying consolidated statements of operations.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
2. | Significant Accounting Policies - Continued |
Dry-docking and special survey expenses
Dry-docking and special survey expenses are expensed as incurred.
Pension and retirement benefit obligations – crew
The ship-owning companies contract the crews on board the vessels under short-term contracts (usually up to 9 months). Accordingly, they are not liable for any pension or post-retirement benefits.
Financing costs
Loan arrangement fees are deferred and amortized to interest expense over the duration of the underlying loan using the effective interest method. Unamortized fees relating to loans repaid or refinanced are expensed in the period the repayment or refinancing occurs. Deferred offering expenses are charged against paid-in capital when financing is completed or expensed to other general and administrative expenses when financing efforts are terminated.
Fair value of time charter acquired
The Company records all identified tangible and intangible assets or any liabilities associated with the acquisition of a vessel at fair value. Where vessels are acquired with existing time charters, the Company determines the present value of the difference between: (i) the contractual charter rate and (ii) the prevailing market rate for a charter of equivalent duration. In discounting the charter rate differences in future periods, the Company uses its Weighted Average Cost of Capital (WACC) adjusted to account for the credit quality of the charterer. The capitalized above-market (assets) and below-market (liabilities) charters are amortized as a reduction and increase, respectively, to voyage revenues over the remaining term of the charter.
Stock incentive plan awards
Share-based compensation represents vested and non-vested restricted shares granted to employeesofficers and directors as well as to non-employees and are included in "Other general and administrative expenses" in the "Consolidated statements of operations." The shares to employees and directors are measured at their fair value equal to the market value of the Company's common stock on the grant date. The shares that do not contain any future service vesting conditions are considered vested shares and the total fair value of such shares is expensed on the grant date. The shares that contain a time-based service vesting condition are considered non-vested shares on the grant date and the total fair value of such shares is recognized on a straight-line basis over the requisite service period. In addition, non-vested awards granted to non-employees are recognized on a straight-line basis over the remaining period service is provided. The fair value of the awards granted to non-employees are measured at the fair value at each reporting period until the non-vested shares vest and performance is complete.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
2. | Significant Accounting Policies - Continued |
Investment in Joint Venture
Investments in companies over which the Company believes it exercises significant influence over operating and financial policies, are accounted for using the equity method. Under this method the investment is carried at cost, and is adjusted to recognize the investor's share of the earnings or losses of the investee after the date of acquisition and is adjusted for impairment whenever facts and circumstances determine that a decline in fair value below the cost basis is other than temporary. The amount of the adjustment is included in the determination of net income.income / (loss). The investment is also adjusted to reflect the Company's share of changes in the investee's capital.
Impairment of long-lived assets
The Company reviews its long-lived assets "held and used" for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of future undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company evaluates the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset. In this respect, management regularly reviews the carrying amount of the vessels in connection with the estimated recoverable amount for each of the Company's vessels.
Other investments
Investments over which the Company believes it does not exercise any influence are carried at the book value and are adjusted to recognize accrued income and are adjusted for impairment whenever facts and circumstances determine that they are not recoverable. The amount of the adjustment is included in the determination of net income / (loss) (Note 17).
Derivative financial instruments
Derivative instruments are recorded in the balance sheet as either an asset or liability measured at its fair value with changes in the instruments' fair value recognized as either a component in other comprehensive income if specific hedge accounting criteria are met in accordance with guidance relating to "Derivatives and Hedging" or in earnings if hedging criteria are not met.
Preferred shares
Preferred shares are recorded at the initial consideration received less offering expenses and adjusted by including the fairredemption value of dividends paid in-kind. The Company recognizes changes in the redemption value of the preferred shares immediately as they occur and adjusts the carrying amount of the preferred shares to equal the redemption value at the end of each reporting period to that effect.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
2. | Significant Accounting Policies - Continued |
Earnings/Earnings / (loss) per common share
Basic earnings/(loss) per share is computed by dividing net income/(loss) attributable to common shareholders, after the deduction of dividends paid to preferred shareholders, by the weighted-average number of common shares outstanding during the period. The weighted-average number of common shares outstanding does not include any potentially dilutive securities or any non-vested restricted shares of common stock. These non-vested restricted shares, although classified as issued and outstanding as of December 31, 20142016 and 2015,2017, are considered contingently returnable until the restrictions lapse and will not be included in the basic net income per share calculation until the shares are vested.
Diluted earnings/earnings / (loss) per share gives effect to all potentially dilutive securities to the extent that they are dilutive, using the treasury stock method. The Company uses the treasury stock method for non-vested restricted shares, while for the preferred shares issued the Company uses the if-converted method to assess the dilutive effect.
Segment reporting
The Company reports financial information and evaluates its operations by charter revenue and not by the lengthtype of ship employment for its customers, i.e. voyage or time charters. The Company does not use discrete financial information to evaluate the operating results for each such type of charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability or other financial information for these charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus the Company has determined that it operates under one reportingoperating segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographical information is impracticable.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
2. | Significant Accounting Policies - Continued |
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards BoardFASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("FASB"ASU 2014-09") issued Accounting Standard Update ("ASU") No 2014-09, Revenue From Contracts With Customers,, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most currentnearly all existing revenue recognition guidance including industry-specific guidance.under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2015-14 states2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016. Subsequent to the issuance of ASU 2014-09, the FASB issued the following regarding application that should be considered as part of the disclosure requirements under SAB Topic 11M: An entity shall apply one of the following two methods: (i).retrospectively to each prior reporting period presented in accordance with theASU's which amend or provide additional guidance on accounting changestopics addressed in ASC 250-10-45-5 through 45-10 (retrospective method) or (ii) retrospectively withASU 2014-09. In March 2016, the cumulative effect recognized atFASB issued ASU No. 2016-08, "Revenue Recognition - Principal versus Agent" (reporting revenue gross versus net). In April 2016, the date of initial application (cumulative effect transition method). ThisFASB issued ASU No. 2016-10, "Revenue Recognition - Identifying Performance Obligations and Licenses." Lastly, in May 2016, the FASB issued No. ASU 2016-12, "Revenue Recognition - Narrow Scope Improvements and Practical Expedients." The standard is effective for public entities with reportingannual periods beginning after December 15, 2017. Early application is permitted only2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative effect adjustment as of annual reporting periods (including interim reporting periods within those periods) beginning afterthe date of adoption. Early adoption of the standard, but not before December 15, 2016.2016 is permitted. The Company has not yet evaluatedadopted this standard as of January 1, 2018 and elected to use the impact, if any,modified retrospective transition method for the implementation of this standard. As a result of the adoption of this new standard.standard revenues generated under voyage charter agreements will be recognized on a pro-rata basis from the date of loading to discharge of cargo. Prior to the adoption of this standard, revenues generated under voyage charter agreements were recognized on a pro-rata basis over the period of the voyage which was deemed to commence upon the later of the completion of discharge of the vessel's previous cargo or the time it receives a contract that is not cancelable, and was deemed to end upon the completion of discharge of the current cargo. The financial impact on the Company's financial statements will derive from voyage charters which do not commence and end in the same reporting period due to the timing of recognition of revenue, as well as the timing of recognition of certain voyage related costs. As no vessels of the Company had voyage charters that were in progress as of December 31, 2017, management believes that the implementation of this standard will not have any material impact on its financial statements.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
2. | Significant Accounting Policies - Continued |
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” This ASU establishes specific guidance to an organization's management on their responsibility to evaluate whether there is substantial doubt about the organization's ability to continue as a going concern. The provisions of this ASU are effective for interim and annual periods ending after December 15, 2016. The Company is evaluating the potential impact of the adoption of this standard on its consolidated financial statements.
In April, 2015, FASB issued ASU No 2015-03, Simplifying the Presentation of Debt Issuance Costs, which outlines a simplified approach to present debt issuance costs and debt discount and premium by requiring debt issuance costs to be presented as deduction from the corresponding liability. This standard is effective for public entities with reporting periods beginning after December 15, 2015 and should be applied on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued. The Company’s adoption of this standard will result in the “Deferred charges, net” of $700,606 as of December 31, 2015 to be presented against the related debt liability.
In July 2015, the FASB issued ASU 2015-11, Simplifying"Simplifying the Measurement of InventoryInventory" to simplify the measurement of inventory using first-in, first out (FIFO) or average cost method. According to this ASU an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices less reasonably predictable costs of completion, disposal and transportation. This update is effective for public entities with reporting periods beginning after December 15, 2016. Early adoption is permitted. Management believes thatThe Company adopted this ASU for the implementation of this update will not have anyfiscal year ended December 31, 2017 with no material impact on its financial statements and has not elected the early adoption.statements.
In February 2016, the FASB issued ASU 2016-02, Leases.Leases (Topic 842). The standard amendsmain provision of this ASU is the existing accounting standards forrecognition of lease accounting and adds additional disclosures about leasing arrangements. The ASU requires lessees to recognize on the balance sheet the assets and lease liabilities by lessees for those leases classified as operating leases. Accounting by lessors will remain largely unchanged from current U.S. GAAP but require the rightslessors to separate lease and obligations created by most leases, while lessor accounting remains largely unchanged.non-lease components. The requirements of this standard include an increase in required disclosures. The Company expects that its time charter arrangements will be subject to the requirements of the new Leases standard as the Company will be regarded as the lessor. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. This update is effective for public entities with reporting periods beginning after December 15, 2018.2018, including interim periods within those years. Early adoption is permitted for all entities. The Company is currently evaluating the impact, if any, of the adoption of this new standard and will evaluate any amendments that may be issued.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Stock Compensation. The new guidance is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company adopted this ASU for the fiscal year ended December 31, 2017 with no material impact on its financial statements.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
2. | Significant Accounting Policies - Continued |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has not yet evaluated the impact, if any, of the adoption of this new standard.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has elected early adoption of this update. The Company evaluated the impact of this ASU on its financial statements and determined that there is no impact as the classification of the related cash payments and cash receipts has always been reported as described in the ASU.
In November 2016 the FASB issued the ASU 2016-18 – Restricted cash. This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. This update is effective for public entities with reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has elected early adoption of this update as of January 1, 2017 and the statements of cash flows for the years ended December 31, 2016 and 2017 explain the change during the respective periods in the total cash, cash equivalents and restricted cash. This presentation was applied retrospectively to all periods presented as required under the guidance.
F-19
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 provides greater clarity on the definition of a business to assist entities in evaluating whether transactions should be accounted for as an acquisition or disposal of assets or businesses. ASU 2017-01 is effective for us on January 1, 2018, with early adoption permitted. Because all of the Company's acquisitions have been asset acquisitions, the Company does not expect the adoption of this new standard to have an impact on its consolidated financial statements.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
Inventories consisted of the following:
| | 2014 | | | 2015 | | | 2016 | | | 2017 | |
Lubricants | | | 1,226,172 | | | | 990,440 | | | | 788,426 | | | | 1,526,221 | |
Victualing | | | 186,188 | | | | 105,369 | | | | 140,716 | | | | 118,988 | |
Bunkers | | | 346,570 | | | | 369,131 | | | | 362,137 | | | | 394 | |
Total | | | 1,758,930 | | | | 1,464,940 | | | | 1,291,279 | | | | 1,645,209 | |
4. | Advances for Vessels under Construction and Vessel Acquisition Deposits |
| | Costs | |
Balance, January 1, 2016 | | | 32,701,867 | |
Advances for vessels under construction | | | 23,254,692 | |
Vessel acquisition deposit | | | 678,796 | |
New building vessel delivered during the period | | | (31,831,439 | ) |
Loss on termination and impairment of shipbuilding contracts | | | (7,050,179 | ) |
Balance, December 31, 2016 | | | 17,753,737 | |
Advances for vessels under construction | | | 5,784,204 | |
Vessel acquisition deposit | | | 3,824,668 | |
New building vessel delivered during the period | | | (17,807,934 | ) |
Vessel delivered during the period | | | (4,503,464 | ) |
Balance, December 31, 2017 | | | 5,051,211 | |
The balance as of December 31, 2016 represents advances for the acquisition of M/V "Alexandros P" (Hull No. DY160) of $17.1 million and a deposit of $0.7 million relating to M/V "Tasos".
4. Advances for Vessels under Construction
On November 29, 2013, the Company concluded an agreement with an established Chinese shipyard formade by Kamsarmax One Shipping Ltd. related to M/V "Xenia" amounted to $10.0 million as of January 1, 2016 and additional advances of $21.8 million were made in 2016 or total of $31.8 million. Kamsarmax One Shipping Ltd. took delivery of M/V "Xenia" on February 25, 2016. Additionally, advances made related to the construction of two Ultramax fuel efficient drybulk carriers. Hull No. DY160 and Hull No. DY161 (see Note 1) amounted to $1.4 million in 2016.
The vessels will have a carrying capacity of 63,500 dwt eachshipbuilding contracts for Hull No. DY160 and will be built atHull No. DY161, both with Yangzhou Dayang Shipbuilding Co., Ltd. and Sumec Marine Co., memberLtd., and originally scheduled for delivery in the second and third quarters of Sinopacific Shipbuilding Group. Delivery2016, respectively, were cancelled on June 29, 2016 and September 2, 2016, respectively, due to excessive construction delays. As a result, Ultra One Shipping Ltd. and Ultra Two Shipping Ltd. recognized a receivable of the vessels is scheduled during the third quarter of 2016. The aggregate purchase price of the two newbuilding vessels is approximately $54.4 million. See Note 11 for schedule of outstanding payments to the yard.
On April, 2014, the Company concluded an agreement with an established Chinese shipyard for the resale and construction of two Kamsarmax fuel efficient drybulk carriers. The vessels will have a carrying capacity of 82,000 dwt each and will be built at Jiangsu Yangzijiang$17.1 million from Yangzhou Dayang Shipbuilding Co., Ltd. The first vessel was delivered toand Sumec Marine Co., Ltd. representing the Company on February, 2016. Deliveryshipyard instalments paid and costs of other spares/supplies incorporated into the second vessel is scheduled for the first quarter of 2018. The aggregate purchase price of the two newbuilding vessels is approximately $59.2 million. See Note 11 for schedule of payments to the yard.
As of December 31, 2015 the amount of the advances for vessels under construction amounts to $32,004,819 mainly representing progress payments according to the agreement entered intoin accordance with the shipyard as well as legalshipbuilding contracts and, other costs related to the construction and another $697,048 for capitalized interest costs for a total of $32,701,867.in
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
4. Advances for Vessels under Construction and Vessel Acquisition Deposits - continued
addition, recorded a $3.2 million loss on the termination of the shipbuilding contracts representing other capitalized expenses which were considered would not be recoverable under the shipbuilding contracts.
On December 21, 2016, Ultra One Shipping Ltd. signed an agreement to acquire from Yangzhou Dayang Shipbuilding Co., Ltd. and Sumec Marine Co., Ltd. Hull No. DY160 for $16.9 million. The Company recognized as part of the cost of Hull No. DY160 the amount of $0.4 million representing the additional spares/supplies acquired for Hull No. DY160, which had been originally included in the receivable of $17.1 million, noted above. As a result, the receivable was reduced to $16.7 million. In accordance with the agreement, the Company applied the remaining $16.7 million receivable, representing the shipyard instalments paid and cost of spares/supplies incorporated into Hull No. DY161 against the cost of Hull No. DY 160, and paid the remaining amount in cash. Additional advances of $0.5 million were made in 2017 representing capitalized expenses or total of $17.8 million. Hull No. DY160 was delivered to the Company on January 16, 2017 and was named M/V "Alexandros P".
Also, in December 2016, Kamsarmax Two Shipping Ltd. took an impairment charge on Hull No. YZJ2013-1153 as it considered it likely at that time that it would exercise its option to terminate the shipbuilding contract without any additional penalty. The Company recognized an impairment of $3.8 million representing the deposit paid to the shipyard as well as legal and other costs related to the shipbuilding contract. In March 2017, the Company decided not to exercise the option to terminate the contract but to proceed with the construction of Hull No. YZJ2013-1153, which is expected to be delivered by June 2018. The balance as of December 31, 2017 represents advances made by Kamsarmax Two Shipping Ltd. during 2017 for the construction of Hull No. YZJ2013-1153 (to be named "Ekaterini") amounting to $5.1 million.
On November 11, 2016, Areti Shipping Ltd. signed a memorandum of agreement to purchase M/V "Tasos" for approximately $4.4 million. The deposit made under the memorandum of agreement and other capitalized costs amounted to $0.7 million as of December 31, 2016. The balance of the amount payable under the memorandum of agreement and other capitalized costs paid during 2017 amounted to $3.8 million or a total of $4.5 million together with the amount paid in 2016. M/V "Tasos" was delivered to the Company on January 9, 2017.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
The amounts in the accompanying consolidated balance sheets are as follows:
| | Costs | | | Accumulated Depreciation | | | Net Book Value | |
| | | | | | | | | |
Balance, January 1, 2014 | | | 137,960,194 | | | | (32,496,457 | ) | | | 105,463,737 | |
- Depreciation for the year | | | - | | | | (12,137,445 | ) | | | (12,137,445 | ) |
- Purchase of vessel | | | 21,323,935 | | | | - | | | | 21,323,935 | |
- Impairment loss | | | (18,894,213 | ) | | | 15,394,213 | | | | (3,500,000 | ) |
Balance, December 31, 2014 | | | 140,389,916 | | | | (29,239,689 | ) | | | 111,150,227 | |
- Depreciation for the year | | | - | | | | (10,995,023 | ) | | | (10,995,023 | ) |
- Sale of vessels | | | (10,550,000 | ) | | | 3,666,244 | | | | (6,883,756 | ) |
- Vessel held for sale | | | (5,091,539 | ) | | | 777,843 | | | | (4,313,696 | ) |
Balance, December 31, 2015 | | | 124,748,377 | | | | (35,790,625 | ) | | | 88,957,752 | |
| | Costs | | | Accumulated Depreciation | | | Net Book Value | |
| | | | | | | | | |
Balance, January 1, 2016 | | | 124,748,377 | | | | (35,790,625 | ) | | | 88,957,752 | |
- Depreciation for the year | | | - | | | | (8,788,121 | ) | | | (8,788,121 | ) |
- New building vessel delivered during the period | | | 31,831,439 | | | | - | | | | 31,831,439 | |
- Vessel Acquisitions | | | 4,958,345 | | | | - | | | | 4,958,345 | |
- Sale of vessel | | | (3,749,135 | ) | | | 1,113,067 | | | | (2,636,068 | ) |
- Vessel held for sale | | | (18,410,922 | ) | | | 9,672,208 | | | | (8,738,714 | ) |
Balance, December 31, 2016 | | | 139,378,104 | | | | (33,793,471 | ) | | | 105,584,633 | |
- Depreciation for the year | | | - | | | | (8,372,237 | ) | | | (8,372,237 | ) |
- New building vessel delivered during the period | | | 17,807,934 | | | | - | | | | 17,807,934 | |
- Vessel delivered during the period | | | 4,503,464 | | | | - | | | | 4,503,464 | |
- Capitalized expenses | | | 15,252 | | | | - | | | | 15,252 | |
- Vessel Acquisitions | | | 30,015,188 | | | | - | | | | 30,015,188 | |
- Sale of vessels | | | (9,318,842 | ) | | | 2,110,762 | | | | (7,208,080 | ) |
- Vessels held for sale | | | (18,081,755 | ) | | | 9,847,316 | | | | (8,234,439 | ) |
Balance, December 31, 2017 | | | 164,319,345 | | | | (30,207,630 | ) | | | 134,111,715 | |
During 2014The Company considers the Company acquired one bulk carrier vessel. M/V "Eirini P" was acquiredpotential sale of its vessels, for scrap or further trading, depending on May 26, 2014 for a purchase price plus costsvessel's age, any additional capital expenditures required, the expected revenues from continuing to makeown the vessel availableand the overall market prospects.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for use of $21,323,935. In Novemberthe
Years ended December 31, 2015, 2016 and December 20152017
(All amounts expressed in U.S. Dollars)
5. | Vessels, net - Continued |
On May 10, 2016, the Company sold for scrap threeM/V "Captain Costas", one of itsthe Company's containership vessels, M/V Tiger Bridge, M/V Marinos and M/V Despina P, for a net price of $2,728,440, $ 2,090,010 and $2,526,892 respectively.$2.65 million. After sales commissions of 4%, which includes the 1% payable to Eurochart, and other sale expenses, the Company recordedrealized a gain of $535,169,$10,597.
On September 29, 2016, the Company acquired M/V "Aegean Express", a loss1,439 teu containership vessel, for a purchase price plus costs required to make the vessel available for use of $280,373 and$3,151,940. On December 23, 2016, the Company signed a gainmemorandum of $206,790, respectively from the saleagreement to purchase M/V "RT Dagr", a 1,645 teu feeder containership vessel built in 1998 in Germany, for approximately $1.81 million by issuing 864,292 shares of the vessels. In December 2015,Company's common stock and payment of acquisition expenses of $77,821 with another 35,708 common shares issued as payment for the amount of fuel that was acquired along with the vessel. On January 13, 2017, the Company agreed to sell for scrap M/V Aristides NP"RT Dagr", for an amounta net price of $2,805,521.$2.3 million. The vessel was classified as held for sale, for the year ended Decemberdelivered to its buyers on January 31, 2015.2017. The Company receivedrecorded a deposit for thegain on sale of $1,122,208 which was classified as "Liability for asset held for sale"approximately $0.5 million presented in the "Net gain on sale of vessels" line in the "Operating Expenses" section of the "Consolidated Balance Sheets"Statements of Operations".
In the fourth quarter of 2013, management reassessed the estimated useful life of its container vessels based on the further decrease in charter rates and the decrease in the age of vessels scrapped including the container vesselsOn December 20, 2016, the Company scrappedagreed to sell for scrap M/V "Eleni P", a 72,119 dwt 1997-built drybulk carrier. The vessel was written down to its fair market value less costs to sell resulting in the second quartera non-cash loss of 2013. Market reports indicated that from 2000 till 2011 the scrapping age of containerships was close to thirty years while during 2012 and 2013, when charter rates and secondhand values of the containership market remain at the bottom of the market cycle, the average scrapping age of containership carriers scrapped was approximately 24 and 22 years, respectively. Based on the latter data, the Company decided to revise its estimate of the useful life of its containerships from 30 years to 25 years to reflect mid-cycle conditions effective October 1, 2013. The effect of this change of estimate on the depreciation of the Company's vessels increased depreciation charge by approximately $2.5$5.92 million, in each of 2014 and 2015 or $0.46 and $0.38$0.73 loss per share basic and diluteddiluted. These amounts are presented in the "Loss on write-down of vessels held for sale" line in the year ended"Operating Expenses" section of the "Consolidated Statements of Operations". As of December 31, 2014 and 2015, respectively.2016, "Eleni P" is presented as "Vessel held for sale" at $2.81 million. The vessel was delivered to its buyers on January 26, 2017.
On January 9, 2017, the Company acquired M/V "Tasos", a 75,100 dwt 2000-built drybulk carrier, for a purchase price plus costs required to make the vessel available for use of $4,503,464.
On September 30, 2017 the Company decided to sell for scrap M/V "Aggeliki P." a 2,008 teu 1998-built container carrier and M/V "Monica P" a 46,667 dwt 1998-built drybulk carrier. Both vessels were written down to their fair market value, resulting in a non-cash loss of $4.6 million, or $0.42 loss per share basic and diluted. These amounts are presented in the "Loss on write-down of vessels held for sale" line in the "Operating Expenses" section of the "Consolidated Statements of Operations". The Company recorded a gain on sale of approximately $0.3 million presented in the "Net gain on sale of vessels" line in the "Operating Expenses" section of the "Consolidated Statements of Operations". M/V "Aggeliki P" was sold on December 6, 2017. M/V "Monica P" was still held for sale as of December 31, 2017 with a value of $4.9 million.
F-21
On June 20, 2017 the Company acquired the feeder containership (2,788 teu, 2004 built) M/V "EM Astoria" for a purchase price of $4.75 million.
On September 29, 2017 the Company acquired the feeder containership (2,506 teu, 2000 built) M/V "EM Athens" for a purchase price of $4.24 million.
On October 23, 2017 the Company acquired the feeder containership (2,506 teu, 2000 built) M/V "EM Oinousses" for a purchase price of $4.25 million.
On October 29, 2017 the Company acquired the feeder containership (2,556 teu, 2001 built) M/V "EM Corfu" for a purchase price of $5.66 million.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
5. | Vessels, net - continuedContinued |
The Company's impairment analysis asOn December 21, 2017 the Company acquired the intermediate containership (5,610 teu, 2001 built) M/V "Akinada Bridge" for a purchase price of December 31, 2014 indicated that the carrying amount of one of its bulk-carriers (M/V Aristides NP) was not recoverable and thus, a non-cash impairment loss of $3.5 million, or $0.64 loss per share basic and diluted, was recorded in its books (please see Note 15). $11.12 million.
The Company performed the undiscounted cash flow test as of December 31, 20152016 and December 31, 2017 and determined that the carrying amountsnet book value of its vessels not held for saleuse were recoverable. M/V Aristides NP, held for sale as of December 31, 2015, was written-down to its fair value resulting in a non-cash loss of $1.64 million, or $0.26 loss per share basic and diluted, recorded in its books. These amounts are presented in the "Impairment loss and loss on write-down of vessel held for sale" line in the "Operating Expenses" section of the "Consolidated Statements of Operations".
Vessels with a carrying value of $82.58$134.1 million (2014: $111.15(2016: $103.78 million) have been mortgaged as security for the loans.
"Deferred charges, net" consist of loan arrangement fees which are amortized over the duration of the loan and deferred offering expenses. The deferred offering expenses in 2014 related to the costs incurred in 2013 of filing the Company's shelf registration which was charged against the proceeds of the offering of the Company's securities completed in 2014.
| | 2014 | | | 2015 | |
Balance, beginning of year | | | 338,431 | | | | 335,621 | |
Amortization of loan arrangement fees | | | (137,032 | ) | | | (150,189 | ) |
Deferred offering expenses | | | (165,678 | ) | | | - | |
Loan arrangement fees | | | 299,900 | | | | 515,174 | |
Balance, end of year | | | 335,621 | | | | 700,606 | |
7.Accrued ExpensesF-27
| | As of December 31, 2014 | | | As of December 31, 2015 | |
| | | | | | |
Accrued payroll expenses | | | 218,887 | | | | 319,443 | |
Accrued interest | | | 96,894 | | | | 153,102 | |
Accrued general and administrative expenses | | | 181,593 | | | | 112,570 | |
Accrued commissions | | | 94,778 | | | | 36,189 | |
Other accrued expenses | | | 468,645 | | | | 581,766 | |
Total | | | 1,060,797 | | | | 1,203,070 | |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 2014 and 2015, 2016and 2017
(All amounts expressed in U.S. Dollars)
Deferred charges, net consist of loan commitment fees which are presented against the loan balance upon drawdown of the loan. In 2016, there were $420,391 of new commitment fees incurred for the loans intended to finance the acquisition of Hull No. DY160 and Hull No. DY161 upon delivery of the vessels. The Company wrote off the commitment fees related to the loan intended to finance the acquisition of Hull No. DY161 as a result of the cancellation of the shipbuilding contract (see Note 4). The commitment fees as of December 31, 2016 relate to the loan that was originally intended to finance the acquisition of Hull No. DY160 (M/V "Alexandros P"). Within the first quarter of 2017, another $13,700 of loan commitment fees were incurred for the loan intended to finance the acquisition of Hull No. DY160. The loan was drawn in January 2017.
| | 2016 | | | 2017 | |
Balance, beginning of year | | | 418,034 | | | | 426,783 | |
Write-off of loan commitment fees | | | (411,642 | ) | | | - | |
Loan commitment fees | | | 420,391 | | | | 13,700 | |
Reclassification as contra to loan upon drawdown | | | - | | | | (440,483 | ) |
Balance, end of year | | | 426,783 | | | | - | |
7. Accrued Expenses
The accrued expenses consisted of:
| | As of December 31, 2016 | | | As of December 31, 2017 | |
| | | | | | |
Accrued payroll expenses | | | 230,917 | | | | 329,308 | |
Accrued interest expense | | | 310,389 | | | | 661,480 | |
Accrued deferred charges | | | - | | | | 74,863 | |
Accrued general and administrative expenses | | | 278,826 | | | | 209,161 | |
Accrued commissions | | | 54,173 | | | | 100,793 | |
Other accrued expenses | | | 437,988 | | | | 778,532 | |
Total | | | 1,312,293 | | | | 2,154,137 | |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
8. | Related Party Transactions |
The Company's vessel owning companies are parties to management agreements with the ManagerManagers whereby the ManagerManagers provided technical and commercial vessel management for a fixed daily fee of an average of Euro 685 for 2013, 20142015, 2016 and 2015,2017, under the Company's Master Management Agreement (see below). An additional fixed management fee (see below) is paid to the ManagerManagers for the provision of various management services. Vessel management fees paid to the ManagerManagers amounted to $4,891,024, $4,894,559$4,151,335, $3,179,596 and $4,151,335$4,042,353 in 2013, 20142015, 2016 and 2015,2017, respectively. The fixed management fee paid to the Manager amounted to, $1,900,000 and $2,000,000 in 2013, 2014 and 2015, respectively.
The management agreement provides for an annual adjustment of the daily management fee due to inflation to take effect January 1 of each year. Laid-upThe vessel management fee for laid-up vessels are billed foris half of the daily fee for the period they are laid-up. The Company's Master Management Agreement ("MMA") with the Manager –Eurobulk was originally effective as of January 1, 2011 and with an initial term of five years until January 1, 2016. In the case of newbuilding vessel contracts, the same management fee of 685 Euros becomes effective when construction of the vessels actually begins. The Master Management Agreement, as periodically amended and restated, Master Management Agreement will automatically be extended after the initial five-year period for an additional five yearfive-year period unless terminated on or before the 90th day preceding the initial termination date. Pursuant to the Master Management Agreement, each ship owning company has signed – and each future ship owning company when a vessel is acquired will sign - with the ManagerManagers a management agreement with the rate and term of these agreements set in the Master Management Agreement effective at such time.
The new agreementMMA was amended and restated as of January 1, 2012 to reflect a 5% discount of the daily vessel management fee for the period during which the number of the Euroseas owned vessels (including vessels in which Euroseas is a part owner) managed by the Manager is greater than 20 ("volume discount"); it was further renewed as of January 1, 2014 for a new five year term until January 1, 2019. As of December 31, 2015, there are 11 vessels in the Company's fleet and 11 vessels in the fleet of the Company's Euromar LLC joint venture.
Starting January 1, 2013, the daily vessel management fee was adjusted to 720 Euros per vesselday per dayvessel in operation and 360 Euros per vesselday per dayvessel in lay-up before the 5% discount. The fee remained unchanged for the subsequent years starting January 1, 2014,2015, 2016 and 2017.
The MMA was further renewed on January 1, 2018 for an additional five year term until January 1, 2023 with the 5% volume discount permanently incorporated in the daily management fee. The daily management fee remained unchanged at Euros 685 for the year 2018 and will be adjusted annually for inflation in the Eurozone. The terms and daily fee of the vessels managed by Eurobulk FE were similarly adjusted. The fee remained unchanged for the subsequent years starting January 1, 2015, 2016, 2017 and January 1, 2016 as well. After the 5% discount, Euroseas pays to the Manager a fee of 685 Euros per vessel per day in operation and 342.5 Euros per vessel per day in lay-up, as the number of vessels wholly or partly owned by Euroseas and managed by the Manager has been in excess of 20.2018. These fees are recorded under "Related party management fees" in the "Consolidated statements of operations".
In addition to the vessel management services, the Manager provides management services for the Company's needs as a public company. In 2013,2015, 2016 and 2017 compensation for such services to the Company as a public company was $1,900,000$2,000,000 remaining unchanged and at $2,000,000it remains unchanged for 2014 and 2015; the fee was agreed to remain at $2,000,000 for 2016.2018. These amounts are recorded in "Other general and administrative expenses" in the "Consolidated statements of operations."
Amounts due to or from related companycompanies represent net disbursements and collections made on behalf of the vessel-owning companies by the Management Company during the normal course of operations for which a right of off-set exists. As of December 31, 20142016 and 2015,2017, the amounts due to related companycompanies were $1,145,808$11,539 and $322,703,$1,280,577 respectively. Based on the Master Management AgreementMMA between Euroseas Ltd. and Euroseas' ship owning subsidiaries and the Manager an estimate of the quarter's operating expenses, expected dry-dock expenses, vessel management fee and fee for management executive services are to be advanced in the beginning of the quarter to the Manager.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
8. | Related Party Transactions - Continued |
The Company in November 2016 reached an agreement with a related party, COLBY Trading Ltd a company controlled by the Pittas family and affiliated to its CEO, to draw a $2 million loan to finance working capital needs with an interest rate of 10% per annum. Interest on the loan was payable quarterly, there were no principal repayments until January 2018 when the loan would mature and there would be no prepayment penalty. The Company fully repaid this loan along with the first interest payment of $50,556 earlier than scheduled at the end of February 2017.
The Company uses brokers for various services, as is industry practice. Eurochart S.A., an affiliated company controlled by certain members of the Pittas family, provides vessel sale and purchase services, and chartering services to the Company whereby the Company pays commission of 1% of the vessel sales price and 1.25% of charter revenues. Commissions to Eurochart S.A. for vessel sales were $77,022, $55,796 and $70,640 in 2015, 2016 and 2017, respectively. A commission of 1% of the purchase price is also paid to Eurochart S.A. by the seller of the vessel for the acquisitions the Company makes. Commission expensesThe Company withheld, on behalf of Eurochart, commissions of $141,700, $243,500 and $297,526 in 2015, 2016 and 2017, respectively, for vessel purchases for the year ended December 31, 2014 of $204,500 were recorded for the acquisition of M/V "Eirini P." This commission expense was paid to Eurochart S.A. in 2014. Eurochart S.A. also received 1% commission for vessel acquisitions from the sellers of the vessels that the Company acquired. For the year 2015 Eurochart received a 1% from the sale of vessels M/V "Tiger Bridge", M/V "Marinos" and M/V "Despina P" for a total of $77,022, all of which was paid within 2015.acquired including payments made under its shipbuilding contracts. Commissions to Eurochart S.A. for chartering services were, $474,466, $517,828$475,792, $372,806 and $475,792$563,970 in 2013, 20142015, 2016 and 2015,2017, respectively.
Certain members of the Pittas family, together with another unrelated ship management company, have formed a joint venture with the insurance broker Sentinel Maritime Services Inc. ("Sentinel"); and with a crewing agent Technomar Crew Management Services Corp ("Technomar"). Technomar is a company owned by certain members of the Pittas family, together with two other unrelated ship management companies. Sentinel is paid a commission on premium not exceeding 5%; Technomar is paid a fee of about $50 per crew member per month. Total fees charged by Sentinel and Technomar were, $128,742 and $270,923 in 2013 and $131,448 and $215,915 in 2014 and $129,564 and $175,586 in 2015, $104,708 and $128,369 in 2016 and $131,750 and $161,104 in 2017, respectively. These amounts are recorded in "Vessel operating expenses" in the "Consolidated statements of operations."
As of February 25, 2016, the management of the newly delivered vessel, M/V "Xenia" is performed by Eurobulk (Far East) Ltd.,FE, Inc. ThisM/V "Alexandros P." since its delivery on January 16, 2017 is an affiliate company controlledalso managed by members of the Pittas family. Eurobulk (Far East) Ltd., Inc. is located in Manilla, the Philippines and providesAdditionally M/V "Xenia" with"Tasos" since July 1, 2017, is also managed by Eurobulk FE, which provides technical, commercial and accounting services. The terms of the management agreement between Kamsarmax One Shipping Ltd., Ultra One Shipping Ltd. and Areti Shipping Ltd., the ownerowners of M/V "Xenia", M/V "Alexandros P." and M/V "Tasos" and Eurobulk (Far East) Ltd., Inc. are similar to agreements that our other vessel-owning subsidiaries have with the Manager.
On December 23, 2016, the Company acquired M/V "RT Dagr" from entities managed by Tennenbaum Capital Partners (Tennenbaum Opportunities Fund V, LP and Tennenbaum Opportunities Fund VI, LLC) by issuing 900,000 shares of common stock as consideration for the value of the vessel and fuel on board. The fair value of the shares at issuance was $1.8 million.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
This consists of bank loans of the ship-owning companies and is as follows:
Borrower | | | December 31, 2014 | | | December 31, 2015 | |
Joanna Maritime Ltd | (a) | | | 4,200,000 | | | | 1,276,040 | |
Manolis Shipping Ltd. | (b) | | | 5,200,000 | | | | 4,500,000 | |
Saf-Concord Shipping Ltd. | (c) | | | 4,250,000 | | | | 3,250,000 | |
Pantelis Shipping Corp. | (d) | | | 6,240,000 | | | | 5,120,000 | |
Aggeliki Shipping Ltd. | (e) | | | 3,652,000 | | | | - | |
Noumea Shipping Ltd. | (f) | | | 9,240,000 | | | | 7,800,000 | |
Eirini Shipping Ltd. / Eleni Shipping Ltd. | (g) | | | 14,600,000 | | | | 13,200,000 | |
Euroseas Ltd. | (h) | | | 6,875,000 | | | | 5,375,000 | |
| | | | 54,257,000 | | | | 40,521,040 | |
Less: Current portion | | | | (19,512,000 | ) | | | (14,810,000 | ) |
Long-term portion | | | | 34,745,000 | | | | 25,711,040 | |
Borrower | | | December 31, 2016 | | | December 31, 2017 | |
Xingang Shipping Ltd. / Joanna Maritime Ltd. | (a) | | | 1,103,915 | | | | - | |
Pantelis Shipping Corp. | (b) | | | 4,840,000 | | | | 4,440,000 | |
Noumea Shipping Ltd. | (c) | | | 6,360,000 | | | | 5,640,000 | |
Eirini Shipping Ltd. / Areti Shipping Ltd. | (d) | | | 11,600,000 | | | | 11,600,000 | |
Allendale Investments S.A. / Alterwall Business Inc. / Manolis Shipping Ltd. / Saf Concord Shipping Ltd. / Aggeliki Shipping Ltd. /Eternity Shipping Company / Jonathan John Shipping Ltd. / Joanna Maritime Ltd. | (e) | | | 13,120,000 | | | | 7,900,000 | |
Kamsarmax One Shipping Ltd | (f) | | | 13,333,000 | | | | 12,399,000 | |
Ultra One Shipping Ltd. | (g) | | | - | | | | 10,383,271 | |
Gregos Shipping Ltd. | (h) | | | - | | | | 4,550,000 | |
Oinousses Navigation Ltd. / Corfu Navigation Ltd. / Bridge Shipping Ltd. / Athens Shipping Ltd. | (i) | | | - | | | | 17,500,000 | |
| | | | 50,356,915 | | | | 74,412,271 | |
Less: Current portion | | | | (5,697,915 | ) | | | (12,862,000 | ) |
Long-term portion | | | | (44,659,000 | ) | | | (61,550,271 | ) |
Deferred charges, current portion | | | | 148,697 | | | | 338,472 | |
Deferred charges, long-term portion | | | | 292,024 | | | | 491,883 | |
Debt discount, current portion | | | | - | | | | 353,000 | |
Debt discount, long-term portion | | | | - | | | | 883,112 | |
Long-term debt, current portion net of deferred charges and debt discount | | | | 5,549,218 | | | | 12,170,528 | |
Long-term debt, long-term portion net of deferred charges and debt discount | | | | 44,366,976 | | | | 60,175,276 | |
Loan from related party
Euroseas Ltd. | (j) | | | 2,000,000 | | | | - | |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
9. Long-Term Debt - continued
None of the above loans is registered in the U.S. The future annual loan repayments are as follows:
To December 31: | | | | | | |
2016 | | | 14,810,000 | | |
2017 | | | 7,629,373 | | |
2018 | | | 2,653,333 | | | | 12,862,000 | |
2019 | | | 15,428,334 | | | | 23,434,972 | |
2020 | | | | 14,851,327 | |
2021 | | | | 14,601,000 | |
2022 | | | | 934,000 | |
Thereafter | | | | 7,728,972 | |
Total | | $ | 40,521,040 | | | | 74,412,271 | |
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
9.Long-Term Debt - continued
9. | Long-Term Debt - continued |
(a) | ThisOn September 30, 2016, the Company signed a Supplemental Agreement with HSBC Bank PLC to defer the six remaining consecutive quarterly instalments of $75,000 each (being $450,000 in aggregate) to be payable together with the balloon payment of $653,915 in one bullet payment of $1,103,915 in November, 2017. The asset coverage ratio was reduced from 130% to 75% until the maturity of this agreement. A cash sweep mechanism was put into place until the entire deferred amount was repaid. The loan was fully repaid in May 2017. |
(b) | On September 30, 2016, the Company signed a Supplemental Agreement with HSBC Bank PLC to defer the six remaining consecutive quarterly instalments of $280,000 each (being $1,680,000 in aggregate) until (a) 29 September 2017 (being the initial final repayment date together with the balloon payment of $3,160,000 in one bullet payment of $4,840,000) or (b) to extend the final repayment date of the deferred amount and the balloon payment until 29 December 2018 if Euroseas agrees with the current lender of M/V "Evridiki G" (being Credit Agricole) or any other bank the extension of the repayment date of her balloon instalment at least until her current charter matures in the first quarter of 2018, which was finally agreed. In this case, the outstanding amount of $4,840,000 will be paid in four quarterly instalments, the first two instalments of $280,000 each, the third instalment in the amount of $560,000 and the fourth instalment of $3,720,000 comprised by $560,000 and the balloon payment. The first instalment will be paid in March 2018 and the following instalments at quarterly intervals thereafter and the last one in December 2018. The asset coverage ratio was reduced from 130% to 75% until December 31, 2017. A cash sweep mechanism was put into place until the entire deferred amount is a $20,000,000 loan drawn by Xingang Shipping Ltd. on November 15, 2006; Joanna Maritime Ltd,repaid. A cash collateral amount of $300,000 (corresponding to the minimum cash balance requirement) is to be pledged in the cash collateral account of the owner of M/V "Vento di Grecale""Eirini P" / M/V "Tasos" or Euroseas as corporate guarantor. For the avoidance of doubt the aforementioned cash collateral is a guarantorin addition to this loan. Thethe cash collateral required to be maintained in the cash collateral account pursuant to the M/V "Eirini P" / MV "Tasos" loan is payable in eight consecutive quarterly installmentsagreement (see (d) below). A prepayment of $1.0$0.4 million each,was also made within 2017 for the firstloan of whichPantelis Shipping Corp. This prepayment was due in February 2007, followed by four consecutive quarterly installments of $750,000 each, followed by sixteen consecutive installments of $250,000 each and adeducted from balloon payment of $5.0 million payable with the final quarterly installment due in November 2013. The interest was based on LIBOR plus a margin of 0.935% initially; after Alcinoe Shipping Ltd. became a guarantor the rate became 0.90%.
On April 5, 2013, an Addendum was signed by which the balloon payment of $5.0 million will be repaid by eight consecutive quarterly instalments of $200,000 each starting in February 2014 plus a balloon payment of $3,400,000 payable with the final quarterly instalment in November 15, 2015. The interest is based on LIBOR plus a margin of 5.30%. As of the November 1, 2013 and thereafter at any time throughout the repayment of the vessel's loan a minimum deposit of $400,000 is to be maintained with the bank. The loan is secured with the following: (i) first priority mortgage over M/V "Marinos" owned by Xingang Shipping Ltd, (ii) first assignment of earningsafter an agreement between Euroseas and insurance, (iii) a corporate guarantee of Euroseas Ltd. and (iv) a mortgage on M/V "Vento di Grecale".HSBC Bank PLC. |
On November 12, 2015, a $3,400,000 loan was drawn part of which was used to refinance the balloon payment of the above loan term. The facility would be repaid by eight consecutive quarterly instalments of $200,000 each starting in February 2016 plus a balloon payment of $1,800,000 payable with the final quarterly instalment in November, 2017. The interest is based on LIBOR plus a margin of 5.30%. At any time throughout the repayment of the loan a minimum deposit of $400,000 is to be maintained with the bank. The loan is secured with the following: (i) first priority mortgage over M/V "Marinos" owned by Xingang Shipping Ltd, (ii) first assignment of earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd. and (iv) a mortgage on M/V "Vento di Grecale".
On November 26, 2015, the Company sold M/V Marinos and prepaid $2,123,961 of the facility outstanding amount and the $400,000 minimum deposit requirement was cancelled. The remaining balance of $1,276,039 will be repaid by eight consecutive quarterly instalments of $75,000 plus a balloon payment of $676,039 payable with the final quarterly instalment in November, 2017.
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
9.Long-Term Debt - continued9. | Long-Term Debt - continued |
(c) | On December 22, 2016, the supplemental agreement with Noumea Shipping Ltd., owner of M/V "Evridiki G" was signed in order to refinance the final quarterly instalment of $720,000 and the balloon payment of $6,360,000 originally due in December 2016. The borrower and the lender agreed to amend the repayment profile in respect of the loan of which $7,080,000 remained outstanding as of the date of the supplemental agreement and to extend the final maturity date to January 2018. The loan will be repaid with three repayments of $720,000 each, due in December 2016, in July 2017 and in January 2018 together with the balloon payment of $4,920,000 due in January 2018. The security cover ratio covenant has been waived until November 15, 2017, when it was restored to 110%. The loan was refinanced in February 2018 (see Note 20-(a)). |
(d) | (b)On September 30, 2016, the Company signed a Supplemental Agreement with HSBC Bank PLC. The outstanding balance of the "Eirini Loan" of $12,850,000 prior to the closing of the Supplemental Agreement was reduced to $11,600,000 via prepayment of the cash collateral of $1,250,000 (which was effected after the signing of the Supplemental Agreement). In addition, seven principal instalments of $350,000 each, from June 2016 to December 2017 were deferred. Repayment of the loan will resume in March 2018 and the outstanding balance of $11,600,000 will be repaid in two quarterly instalments of $350,000 each, four of $725,000 each plus a balloon payment of $8,000,000 due in May 2019. The asset coverage ratio was reduced from 130% to 75% until December 31, 2017. A cash sweep mechanism was put into place until the entire deferred amount is repaid. A cash collateral amount of $600,000 (corresponding to the minimum cash balance requirement) is to be pledged in the cash collateral account of the owner of M/V "Eirini P" / M/V "Tasos" or of Euroseas as corporate guarantor. For the avoidance of doubt the aforementioned, cash collateral is in addition to the cash collateral required to be maintained in the cash collateral account pursuant to the loan agreement of Pantelis Shipping Corp. M/V "Eleni P" was sold on January 26, 2017 and the proceeds from the sale were contributed to the Company during 2017 and were used to partly pay for the acquisition of M/V "Tasos". HSBC Bank Plc. agreed to the sale of M/V "Eleni P" and the subsidiaries of such vessel with M/V "Tasos" as collateral for the loan. |
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
9. | Long-Term Debt - continued |
(e) | On February 12, 2016, the Company signed and drew a term loan facility with Eurobank Ergasias S.A in order to refinance all of its existing facilities with the bank. This is a $10,000,000$14,500,000 loan drawn by Saf-Concord Shipping Ltd, Eternity Shipping Company, Allendale Investments S.A., Manolis Shipping Limited, Alterwall Business Inc., Aggeliki Shipping Ltd and Jonathan John Shipping Ltd. on June 11, 2007.(which was cross-collateralized as per supplemental agreement dated September 27, 2016 replacing Eternity Shipping Company, the owner of M/V "Captain Costas" that was sold in 2016) as Borrowers. The loan is payable in thirty-twotwelve equal consecutive quarterly instalments of $160,000$460,000 each, the first of which was due in September 2007, pluswith a balloon payment of $4,880,000 payable$8,980,000 to be paid together with the final quarterlylast instalment in June 2015.February 2019. The interest iswas based on LIBOR plus a margin of 0.80% if the ratio of the outstanding loan to the vessel value is below 55%, otherwise the margin is 0.90%6.00%. The loan is secured with the following: (i) first priority mortgagemortgages over M/V "Monica P", M/V "Captain Costas" replaced by M/V "Aegean Express" after her sale, M/V "Kuo Hsuing", M/V "Manolis P", M/V "Ninos", M/V "Aggeliki P", (ii) first assignment of earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd.Ltd and other covenants and guarantees similar to the rest of the loans of the Company, and (iv) a minimum$2,800,000 cash balance equal tocollateral deposit pledged in favor of the bank. The Company paid loan arrangement fees of $247,500 for this loan. In August 2017, the Company applied $1 million from the pledged amount against the loan and prepaid an amount of no less than $300,000 in an account Manolis Shipping Ltd. maintains$540,000 deducted from the balloon payment and made a prepayment of $460,000 that referred to the installment of the fourth quarter of 2017. In November 2017, the Company agreed with the bank.lender to release M/V "Monica P." from the mortgage and substitute it with M/V "Joanna". In connection with this substitution, the Company prepaid an amount of $460,000 referring to the installment due in the first quarter of 2018 and another $280,000 deducted from the balloon payment. In December 2017, M/V "Aggeliki P." was sold for scrap. An amount of $2,100,000 from the sale of the vessel was prepaid, from which an amount of $1,840,000 was applied against the final four instalments and an amount of $260,000 was deducted from the balloon payment of the loan, and M/V "Aggeliki P" was released from its mortgage. After all the above prepayment, the balloon payment was reduced to $7.9 million with the repayment of the loan resuming in February 2019. |
On October 29, 2012, a supplemental agreement was signed under which Tiger Navigation Corp., owner of M/V Tiger Bridge, SAF-Concord Shipping Ltd., owner of M/V Monica P, and Alterwall Business Inc., owner of M/V Ninos, provided additional guarantees to this loan. This loan was fully repaid on of February 12, 2016 with part of the proceeds of a new loan (see Note 20-(b)).
(f) | (c) | ThisOn February 17, 2016, the Company signed a term loan facility with Nord LB and on February 25, 2016 a loan of $13,800,000 was drawn by Kamsarmax One Shipping Ltd. to partly finance the purchase of M/V "Xenia". The loan is a $10,000,000 loan drawn by SAF-Concord Shipping Ltd. on January 19, 2009. The loan was payableto be repaid in twentyfourteen consecutive quarterly instalmentsequal semi-annual installments of $250,000 each, the first of which was due in April 2009,$467,000 plus a balloon paymentamount of $5,000,000 payable with the final quarterly instalment in January 2014.$7,262,000. The interest was based on LIBOR plus a margin of 2.50%.the loan is 2.95% above LIBOR. The loan wasis secured with the following:with (i) first priority mortgagemortgages over M/V "Monica P""Xenia", (ii) first assignment of earnings and insurance of M/V "Xenia", (iii) a corporate guarantee of Euroseas Ltd.Ltd and (iv) a minimum cash balance equalother covenants and guarantees similar to an amountthe rest of no less than $300,000 in an account SAF-Concord Shipping Ltd. maintains with the bank.loans of the Company. The Company paid loan arrangement fees of $187,335 for this loan. |
On October 29, 2012, a supplemental agreement was signed that extended the loan by eight consecutive quarterly instalments of $250,000 each, plus a balloon payment of $3,000,000 payable with the final quarterly instalment on January, 15 2016. Under the same supplemental agreement, Tiger Navigation Corp., owner of M/V Tiger Bridge and Alterwall Business Inc., owner of M/V OEL Bengal, provided additional guarantees to this loan. The interest is based on LIBOR plus a margin of 5.00%. This loan was fully repaid on of February 12, 2016 with part of the proceeds of a new loan (see Note 20-(b)).
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
9.Long-Term Debt - continued
| (d) | This loan is a $13,000,000 loan drawn by Pantelis Shipping Corp. on December 15, 2009. The loan is payable in 32 consecutive quarterly instalments, four in the amount of $500,000 and twenty-eight in the amount of $280,000, with a $3.16 million balloon payment to be paid together with the last instalment in December 2017. The margin of the loan is 2.70% above LIBOR. The loan is secured with the following: (i) first priority mortgage over M/V "Pantelis", (ii) first assignment of earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd. and (iv) a minimum cash balance equal to an amount of no less than $300,000 in an account Pantelis Shipping Corp. maintains with the bank. |
9. | (e) | This loan was an $8,500,000 loan drawn by Aggeliki Shipping Ltd. on November 5, 2010. The loan was repaid in 20 equal consecutive quarterly instalments of $303,000 each, with a $2.44 million balloon payment paid together with the last instalment in November 2015. The margin of the loan was 2.85% above LIBOR. The loan was secured with the following: (i) first priority mortgage over M/V "Aggeliki P.", (ii) first assignment of earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd.Long-Term Debt - continued |
| (f) | This loan is a $20,000,000 loan drawn by Noumea Shipping Ltd. on December 28, 2010. The loan consists of two tranches: Tranche A of $15,000,000 payable in 12 equal consecutive six-monthly instalments of $720,000 each with a $6.36 million balloon payment to be paid together with the last instalment in December 2016; and, Tranche B of $5,000,000 payable in 8 equal consecutive six-monthly instalments of $625,000 each running in parallel with Tranche A. The margin of both tranches is 2.65% above LIBOR, however, if the collateral vessel, M/V "Maersk Noumea", does not have a charter, the margin of Tranche B becomes 4% above LIBOR and any balance remaining thereof, to be repaid not later that the original Tranche B Maturity, as an Interim Balloon. The loan is secured with the following: (i) first priority mortgage over M/V "Maersk Noumea", (ii) first assignment of earnings and insurance, (iv)a corporate guarantee of Euroseas Ltd. |
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
9.Long-Term Debt - continued
| (g) | This loan is a $15,300,000 loan drawn by Eirini Shipping Ltd. and Eleni Shipping Ltd. jointly, on June 25, 2014. The loan is payable in 20 equal consecutive quarterly instalments of $350,000 each, with an $8.3 million balloon payment to be paid together with the last instalment in June 2019. The margin of the loan is 3.75% above LIBOR. The loan is secured with the following: (i) first priority mortgage over M/V "Eirini P." and M/V "Eleni P.", (ii) first assignment of earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd. |
On November 12, 2015, the Company signed a supplemental agreement and agreed to pledge $1,250,000 as cash collateral and fully cross collateralized this loan facility with loan facilities described under (a) and (d) above via the registration of second and third mortgages. The cash collateral amount will be released as soon as the aggregate market value of the M/V Eirini and M/V Eleni is at least one hundred thirty per cent (130%) of the aggregate of the outstanding amount under the facility.
| (h) | This loan is an $8,000,000 loan drawn by Euroseas Ltd., on February 3, 2014. The loan is payable in 12 equal consecutive quarterly instalments of $375,000 each, with a $3.5 million balloon payment to be paid together with the last instalment in February 2017. The margin of the loan is 6.0% above LIBOR. The loan is secured with the following: (i) first priority mortgage over M/V "Kuo Hsiung.", M/V "Aristides N. P.", M/V "Captain Costas" and M/V "Despina P", (ii) first assignment of earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd. The balance of this as of February 12, 2016 was repaid with the part of proceeds of a new loan (see Note 20-(b)). |
Furthermore, the Company has signed loan agreements to finance the acquisition of two of its vessels under construction. These loans will be drawn upon the delivery of the vessels.
| i. | On January 12, 2015, the Company signed a term loan facility with HSBC Bank plc of up to the maximum of $19.95 million or 70% of the vessel's market value upon delivery if the ship is under a time-charter contract with a charterer approved by the bank or 65% of the vessel's market value upon delivery otherwise. The facility will be used to partly finance the construction cost of Hull No DY 160 and will be repaid over 5 years following the delivery of the vessel. Hull No DY 160 will serve as collateral to the loan. The interest rate margin is 2.80% over LIBOR and the Company pays a 1% per annum commitment fee until the loan is drawn. |
| ii. | On March 20, 2015, the Company signed a term loan facility with HSH Nordbank AG of up to the maximumlesser of $19.00 million or 62.5% of the vessel's market value of Hull No DY 160 (named "Alexandros P") upon its delivery (lesser of). The facility will be used to partly finance the construction costcost. A commitment fee of Hull No DY 1610.9% per annum was payable until the loan was drawn. On April 28, 2016 and will be repaid over 4 years followingon October 27, 2016, the deliveryCompany signed a supplemental loan agreement to the term loan facility signed on March 20, 2015 extending the allowed drawdown period until October 31, 2016 and subsequently until January 31, 2017 to account for delays in the construction of the vessel. Hull No DY 161 will serve as collateral160, and reducing the maximum loan amount to 55% of the loan.market value of the vessel at delivery. On January 25, 2017, the Company drew $10,862,500 from HSH Nordbank secured by its newly acquired vessel M/V "Alexandros P" (ex-Hull DY 160). The loan is payable in thirteen equal consecutive quarterly instalments of $159,743 each, with a balloon payment of $8,785,841 to be paid together with the last instalment in April 2020. The interest rate margin is 3.00% over LIBOR and the Company pays a 0.9% per annum commitment fee until theLIBOR. The loan is drawn.secured with (i) first priority mortgage over M/V "Alexandros P.", (ii) first assignment of earnings and insurance of M/V "Alexandros P.", (iii) a corporate guarantee of Euroseas Ltd and other covenants and guarantees similar to the remaining loans of the Company. The Company paid loan arrangement fees of $95,000 and commitment fees of $440,483 for this loan. |
(h) | On June 15, 2017, the Company signed a term loan facility with Credit Agricole and on June 19, 2017 a loan of $4,750,000 was drawn by Gregos Shipping Ltd. to partly finance the purchase of M/V "EM Astoria". The loan is payable in twenty or sixteen consecutive equal quarterly installments of $100,000 plus a balloon amount of $2,750,000 or $3,150,000 ( the debt repayment schedule shown in the previous table assumes repayment in sixteen quarters). The margin of the loan is 2.65% above LIBOR. The loan is secured with (i) first priority mortgages over M/V "EM Astoria", (ii) first assignment of earnings and insurance of M/V "EM Astoria", (iii) a corporate guarantee of Euroseas Ltd and other covenants and guarantees similar to remaining loans of the Company. The Company paid loan arrangement fee of $50,000 for this loan. The Company has also entered into a profit sharing agreement with Credit Agricole whereby it will share with the bank 35% of the excess of the fair market value of the vessel over the outstanding loan when the vessel is sold or when the loan matures. As a result of the lender's entitlement to participate in the appreciation of the market value of the mortgaged vessel, the Company has recognized a participation liability of amount $1,297,100, presented in "Vessel profit participation liability" in the accompanying "Consolidated balance sheets" as of December 31, 2017, with a corresponding debit to a debt discount account, presented contra to the loan balance. In addition, 35% of the cash flow after debt service will be set aside and be used to repay the balloon payment with any excess funds to be paid to the bank. |
(i) | On February 27, 2018, Credit Agricole refinanced the loan of Noumea Shipping Ltd., owner of M/V "Evridiki G", (see Note 9-(c) and Note 20-(a)). Under this refinancing agreement, Gregos Shipping Ltd., provided a Corporate Guarantee secured by second ranking mortgage and second ranking assignment of earnings of the M/V "EM Astoria". Additionally, Noumea Shipping Ltd. provided a Corporate Guarantee secured by second ranking mortgage and second ranking assignment of earnings and insurances on the M/V "Evridiki G" to secure M/V "EM Astoria" existing loan with Credit Agricole indebtedness. |
F-29
(j) | On October 19, 2017, the Company signed a term loan facility with Eurobank Ergasias S.A for an amount of $17,500,000. The loan was used to partially finance the acquisition of M/V "EM |
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
9. | Long-Term Debt - continued |
Athens", M/V "EM Oinousses", M/V "EM Corfu" and M/V "Akinada Bridge". The loan was drawn in tranches upon the delivery of each vessel to the Company with the last drawdown taking place on December 21, 2017.The loan is payable in five consecutive equal quarterly installments of $500,000 followed by eleven consecutive equal quarterly installments of $800,000 followed by a balloon payment of $6,200,000. The loan bears interest at LIBOR plus a margin of 4.5%. The loan is secured with (i) first priority mortgages over M/V "EM Athens", M/V "EM Oinousses", M/V "EM Corfu" and M/V "Akinada Bridge", (ii) first assignment of earnings and insurance of the above mentioned vessels, (iii) a corporate guarantee of Euroseas Ltd and other covenants and guarantees similar to the remaining loans of the Company. The Company paid loan arrangement fees of $137,638 within 2017 and another $54,862 within 2018 for this loan.
9.Long-Term Debt - continued(k) | On November 29, 2016, Euroseas signed an agreement with Colby Trading Ltd, a company affiliated with its CEO, to draw a $2 million loan to finance working capital needs. Interest on the loan is payable quarterly, and there are no principal repayments until January 2018 when the loan matures. The Company may elect to capitalize the interest to the outstanding principal amount. Under certain limited circumstances, the Company can pay principal and interest in equity, and the loan is convertible in common stock of the Company at the option of the lender at certain times. The Company repaid this loan, earlier than scheduled, on February 28, 2017 along with $50,556 interest. |
In addition to the terms specific to each loan described above, all the above loans are secured with a pledge of all the issued shares of each borrower.
The loan agreements also contain covenants such as minimum requirements regarding the hull ratio cover (the ratio of fair value of vessel to outstanding loan less cash in retention accounts ranging from 125%75% to 130%), restrictions as to changes in management and ownership of the ship-owning companies, distribution of profits or assets (i.e. limiting dividends in some loans to 60% of profits, or, not permitting dividend payment or other distributions in cases that an event of default has occurred), additional indebtedness and mortgage of vessels without the lender's prior consent, sale of vessels, maximum fleet-wide leverage, sale of capital stock of our subsidiaries, ability to make investments and other capital expenditures, entering in mergers or acquisitions, minimum cash balance requirements and minimum cash retention accounts (restricted cash). The loan agreements also require the Company to make deposits in retention accounts with certain banks that can only be used to pay the current loan instalments. Minimum cash balance requirements are in addition to cash held in retention accounts. These cash deposits amounted to $7,994,093$5,605,740 and $10,466,743$8,548,452 as of December 31, 20142016 and 2015,2017, respectively, and are shown asincluded in "Restricted cash" under "Current assets" and "Long-term assets" in the consolidated balance sheets. As of December 31, 2015,2017, all the debt covenants are satisfied.
Interest expense for the years ended December 31, 2013, 20142015, 2016 and 20152017 amounted to $1,699,951, $2,015,155$1,336,345, $1,918,673 and $1,352,737,$2,988,806, respectively. Capitalized interest was booked only for the yearyears ended December 31, 2015, 2016 and 2017 and amounted to $697,048.$697,048, $497,813 and $123,697, respectively.
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
10.Income Taxes
Under the laws of the countries of the companies' incorporation and/or vessels' registration, the companies are not subject to tax on international shipping income, however, they are subject to registration and tonnage taxes, which have been included in "Vessel operating expenses" in the accompanying "Consolidated statements of operations."
Pursuant toUnder the United States Internal Revenue Code of 1986, as amended (the "Code"), the U.S. source gross transportation income of a ship-owning or chartering corporation, such as the Company, is subject to a 4% U.S. Federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
The Company qualified for this exemption in 2015. For 2016 and 2017 the Company did not qualify for this exemption. The Company is subject to an effective 2% United States federal tax on the U.S. source shipping income that is attributable to the transport of cargoes to or from the United States (the "Code"), U.S. sourcewhich is not considered an income fromtax. The amount of this tax for the international operations of shipsyear ended December 31, 2016 was $28,475 and for the year ended December 31, 2017 is generally exempt from U.S tax if the company operating the ships meets certain requirements. Among other things, in order to qualify for this exemption, the company operating the ships must be incorporated in a country, which grants an equivalent exemption from income taxes to U.S corporations. All the Company's ship-operations subsidiaries satisfy this particular criterion. In addition, more than 50%estimated at $44,268. The amount of the value of the stock must be owned, directly or indirectly, by individuals who are residents as defined2016 tax was paid on June 16, 2017 and was recorded within "Vessel operating expenses" in the countriesaccompanying consolidated statements of incorporation or another foreign country that grants an equivalent exemption to U.S corporations, the "50% Ownership Test", or, the stock is "primarily and regularly traded on an established securities market" in our country of organization, in another country that grants an "equivalent exemption" to United States corporations, or in the United States, the "Publicly-Traded Test".operations when paid. The management of the Company believes that by virtue of the special rule applicable to situations where the ship operating companies are beneficially owned by a publicly-traded company like the Company, the "Publicly-Traded Test" was satisfiedamount for 2013, 2014 and 2015.
2017 has not yet been paid.
11. | Commitments and Contingencies |
| (a) | There are no material legal proceedings to which the Company is a party or to which any of its properties are subject, other than routine litigation incidental to the Company's business. In the opinion of the management, the disposition of these lawsuits should not have a material impact on the consolidated results of operations, financial position and cash flows.
|
| (b) | As of December 31, 2015,2017 a subsidiary of the Company, Alterwall Business Inc. owner of M/V "Ninos", has a dispute with a fuel oil supplier who claimed a maritime lien against the vessel after the company which had under construction four bulk carriers one of which was delivered on February 25, 2016 (see also Note 20(c)).time-chartered the vessel from the Company went bankrupt in October 2009 and failed to pay certain invoices. The contracted amount paid for the delivery of that vessel was $21.35arrested in Karachi in November 2009 and released after a bank guarantee for an amount of $0.53 million, whilefor which the contractedbank has restricted an equal amount remaining to be paid forof the remaining three vessels amounts to $40.84 million in 2016, $2.77 million in 2017 and $19.39 in 2018Company's cash which has andis presented within Restricted Cash, was provided on behalf of the Company. Legal proceedings continue. Although the Company believes it will be funded from undrawn facilities available, cash, future loan facilities and proceeds from equity raisings.successful in its claim, it made a provision of $0.15 million for any costs that may be incurred. |
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
12.11. | Stock Incentive PlanCommitments and Contingencies - continued |
On June 15, 2010,(b) | As of December 31, 2017 Areti Shipping Ltd. has a dispute with Windrose SPS Shipping and Trading ("Windrose"), a charterer, regarding Windrose's failure to pay the balance of the charter fee of $52,019 in relation to charter party agreement dated January 20, 2017. Additionally, Areti Shipping Ltd. paid an amount of $115,000 to a bunker supplier for portion of the total claim of $179,281, after facing an arrest of M/V "Tasos" in Brazil. The Company took the case to London arbitration and obtained an award of approximately $215,000. The award has yet to be collected. The Company has hired Swiss lawyers in order to proceed with the recovery of the funds in Switzerland where Windrose is based. The Company's management believe that they will fully recover the amount of $167,019 and hence no provision has been made. |
There are no other material legal proceedings to which the BoardCompany is a party or to which any of Directors approvedits properties are subject, other than routine litigation incidental to the Company's 2010business. In the opinion of the management, the disposition of these lawsuits should not have a material impact on the consolidated results of operations, financial position and cash flows.
For the construction of M/V "Ekaterini" (Hull No. YZJ2013-1153), in accordance with the amended shipbuilding contract, Kamsarmax Two Shipping Ltd has contractual obligations of $18.0 million in 2018, remaining to be paid from the total contract price of $22.5 million. An amount of $2.25 million has already been paid in February 2018, with the balance payable upon delivery of the vessel, which is expected until June 2018
As of December 31, 2017 future gross minimum revenues upon collection of hire under non-cancellable time charter agreements in excess of 1 year relate to the M/V "Xenia and total $10.0 million. In arriving at the future gross minimum revenues, the Company has deducted an estimated one off-hire day per quarter Such off-hire estimate may not be reflective of the actual off-hire in the future. In addition the actual revenues could be affected by early delivery of the vessel by the charterers or any exercise of the charterers' options to extend the terms of the charters, which however cannot be estimated and hence not reflected above.
Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
12. Stock Incentive Plan (the "2010 Plan"). The plan is administered by the Board of Directors which can make awards totaling in aggregate up to 1,500,000 shares, respectively over 10 years after the plan's adoption date.
On July 31, 2014, the Board of Directors approved the Company's 2014 Stock Incentive Plan (the "2014 Plan"). The plan is administered by the Board of Directors which can make awards totaling in aggregate up to 2,500,000 shares, respectively over 10 years after the plan's adoption date. The persons eligible to receive awards under eitherthe plan are officers, directors, and executive, managerial, administrative and professional employees of the Company or Eurobulk or Eurochart (collectively, "key persons") as the Board, in its sole discretion, shall select based upon such factors as the Board shall deem relevant. Awards may be made under eitherthe plan in the form of incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, unrestricted stock, restricted stock units and performance shares. Details of awards granted under the 2014 Plan during the three year period ended December 31, 20152017 are noted below.
| a) | On November 21, 20136, 2015 an award of 45,00068,400 non-vested restricted shares, under the 2010 Plan, was made to 19 key persons of which 50% vested on July 1, 2014 and July 1, 2015; awards to officers and directors amounted to 25,350 shares and the remaining 19,650 shares were awarded to employees of Eurobulk. |
| b) | On November 3, 2014 an award of 45,000 non-vested restricted shares under the 2014 Plan, was made to 19 key persons of which 50% vested on November 16, 20152016 and 50% will vest on November 16, 2016; awards to officers and directors amounted to 26,100 shares and the remaining 18,900 shares were awarded to employees of Eurobulk.
|
| c) | On November 6, 2015 an award of 68,400 non-vested restricted shares under the 2014 Plan, was made to 19 key persons of which 50% will vest on July 1, 2016 and 50%vested on July 1, 2017; awards to officers and directors amounted to 40,040 shares and the remaining 28,360 shares were awarded to employees of Eurobulk. |
b) | On November 3, 2016 an award of 82,080 non-vested restricted shares, was made to 19 key persons of which 50% vested on November 1, 2017 and 50% will vest on November 1, 2018; awards to officers and directors amounted to 48,048 shares and the remaining 34,032 shares were awarded to employees of Eurobulk. |
c) | On November 2, 2017 an award of 100,270 non-vested restricted shares, was made to 18 key persons of which 50% will vest on July 1, 2018 and 50% will vest on July 1, 2019; awards to officers and directors amounted to 57,700 shares and the remaining 42,570 shares were awarded to employees of Eurobulk. |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
12. | Stock Incentive Plan - continued |
All non-vested restricted shares are conditional upon the grantee's continued service as an employee of the Company, Eurobulk or as a director until the applicable vesting date. The grantee does not have the right to vote on such non-vested restricted shares until they vest or exercise any right as a shareholder of these shares, however, the non-vested shares will accrue dividends as declared and paid which will be retained by the Company until the shares vest at which time they are payable to the grantee. As non-vested restricted share grantees accrue dividends on awards that are expected to vest, such dividends are charged to retained earnings.
The Company estimates the forfeitures of non-vested restricted shares to be immaterial. The Company will, however, re-evaluate the reasonableness of its assumption at each reporting period.
immaterial and hence accounts for forfeitures as they occur.
The compensation cost that has been charged against income for these plansawards was $568,334, $510,114$306,111, $294,341 and $306,111,$116,569, for the years ended December 31, 2013, 20142015, 2016 and 2015,2017, respectively. The Company has used the straight-line method to recognize the cost of the awards.
A summary of the status of the Company's non-vested shares as of December 31, 20152017 and changes during the year ended December 31, 2015,2017, are presented below:
| | | | | | |
Non-vested Shares | | Shares | | | Weighted-Average Grant-Date Fair Value | |
Non-vested on January 1, 2015 | | | 67,500 | | | | 10.57 | |
Granted | | | 68,400 | | | | 4.18 | |
Vested | | | (45,000 | ) | | | 10.75 | |
Non-vested on December 31, 2015 | | | 90,900 | | | | 5.67 | |
Non-vested Shares | | Shares | | | Weighted-Average Grant-Date Fair Value |
Non-vested on January 1, 2017 | | | 116,280 | | | | 2.08 | |
Granted | | | 100,270 | | | | 1.76 | |
Vested | | | (72,152 | ) | | | 2.53 | |
Forfeited | | | (4,036 | ) | | | 2.78 | |
Non-vested on December 31, 2017 | | | 140,362 | | | | 1.60 | |
As of December 31, 2015,2017, there was $334,762$201,346 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan and is expected to be recognized over a weighted-average period of 0.7690.779 years. The total fair value at grant-date of shares granted during the year ended December 31, 2013,2015, December 31, 2014,2016, and December 31, 20152017 was $508,500, $459,000$285,912, $99,317 and $285,912,$176,475, respectively.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
13. | Earnings / (Loss) Per Share |
Basic and diluted earnings / (loss) per common share are computed as follows:
| | 2013 | | | 2014 | | | 2015 | |
Income: | | | | | | | | | |
Net loss attributable to common shareholders' | | | (103,424,827 | ) | | | (19,359,005 | ) | | | (15,687,132 | ) |
Basic earnings per share: | | | | | | | | | | | | |
Weighted average common shares – Outstanding | | | 4,544,284 | | | | 5,479,418 | | | | 6,410,794 | |
Basic loss per share | | | (22.76 | ) | | | (3.53 | ) | | | (2.45 | ) |
Effect of dilutive securities | | | | | | | | | | | | |
Weighted average common shares – Outstanding | | | 4,544,284 | | | | 5,479,418 | | | | 6,410,794 | |
Diluted loss per share | | | (22.76 | ) | | | (3.53 | ) | | | (2.45 | ) |
| | 2015 | | | 2016 | | | 2017 | |
Income: | | | | | | | | | |
Net loss attributable to common shareholders | | | (15,687,132 | ) | | | (45,946,822 | ) | | | (7,903,371 | ) |
Basic and diluted earnings per share: | | | | | | | | | | | | |
Weighted average common shares – Outstanding | | | 6,410,794 | | | | 8,165,703 | | | | 11,067,524 | |
Basic and diluted loss per share | | | (2.45 | ) | | | (5.63 | ) | | | (0.71 | ) |
During 2013, 20142015, 2016 and 2015,2017, the effect of the non-vested stock awards and of Series B Preferred Shares was anti-dilutive. The number of dilutive securities was 11,581, 18,39522,443, 0 and 22,4430 shares in 2013, 20142015, 2016 and 2015,2017, respectively.
Euroseas Ltd.14. Voyage and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
14.Voyage, Vessel Operating Expenses and Commissions
These consisted of:
| | Year ended December 31, | |
| | 2013 | | | 2014 | | | 2015 | |
Voyage expenses | | | | | | | | | |
Port charges and canal dues | | | 364,091 | | | | 1,214,856 | | | | 832,917 | |
Bunkers | | | 1,173,807 | | | | 2,748,325 | | | | 1,479,596 | |
Total | | | 1,537,898 | | | | 3,963,181 | | | | 2,312,513 | |
| | | | | | | | | | | | |
Vessel operating expenses | | | | | | | | | | | | |
Crew wages and related costs | | | 13,921,033 | | | | 13,985,377 | | | | 14,164,355 | |
Insurance | | | 2,222,912 | | | | 2,364,112 | | | | 2,412,366 | |
Repairs and maintenance | | | 478,197 | | | | 501,733 | | | | 503,934 | |
Lubricants | | | 2,836,561 | | | | 2,379,191 | | | | 2,433,956 | |
Spares and consumable stores | | | 4,204,965 | | | | 4,083,942 | | | | 4,058,153 | |
Professional and legal fees | | | 158,978 | | | | 498,240 | | | | 492,852 | |
Other | | | 1,368,604 | | | | 1,466,492 | | | | 1,138,977 | |
Total | | | 25,191,250 | | | | 25,279,087 | | | | 25,204,593 | |
Commission consisted of commissions charged by:
| | Year ended December 31, | |
| | 2013 | | | 2014 | | | 2015 | |
Third parties | | | 1,461,915 | | | | 1,674,798 | | | | 1,741,044 | |
Related parties (see Note 8) | | | 474,466 | | | | 517,828 | | | | 475,792 | |
| | | 1,936,381 | | | | 2,192,626 | | | | 2,216,836 | |
| | Year ended December 31, | |
| | 2015 | | | 2016 | | | 2017 | |
Voyage expenses | | | | | | | | | |
Port charges and canal dues | | | 832,917 | | | | 421,140 | | | | 1,734,979 | |
Bunkers | | | 1,479,596 | | | | 870,572 | | | | 2,225,828 | |
Total | | | 2,312,513 | | | | 1,291,712 | | | | 3,960,807 | |
| | | | | | | | | | | | |
Vessel operating expenses | | | | | | | | | | | | |
Crew wages and related costs | | | 14,164,355 | | | | 10,670,721 | | | | 13,388,286 | |
Insurance | | | 2,412,366 | | | | 1,649,313 | | | | 1,871,330 | |
Repairs and maintenance | | | 503,934 | | | | 341,481 | | | | 824,962 | |
Lubricants | | | 2,433,956 | | | | 1,611,543 | | | | 1,549,265 | |
Spares and consumable stores | | | 4,058,153 | | | | 2,770,405 | | | | 3,098,275 | |
Professional and legal fees | | | 492,852 | | | | 214,317 | | | | 196,343 | |
Other | | | 1,138,977 | | | | 904,082 | | | | 983,269 | |
Total | | | 25,204,593 | | | | 18,161,862 | | | | 21,911,730 | |
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
15.Financial Instruments
The principal financial assets of the Company consist of cash on hand and at banks, other investment and accounts receivable due from charterers. The principal financial liabilities of the Company consist of long-term loans, derivatives including interest rate swaps and accounts payable due to suppliers.
Interest rate risk
The Company enters into interest rate swap contracts as economic hedges to manage its exposure to variability in its floating rate long term debt. Under the terms of the interest rate swaps the Company and the bank agreed to exchange, at specified intervals the difference between a paying fixed rate and receiving floating rate interest amount calculated by reference to the agreed principal amounts and maturities. Interest rate swaps allow the Company to convert long-term borrowings issued at floating rates into equivalent fixed rates. Even though the interest rate swaps were entered into for economic hedging purposes, the derivatives described below (see Note 16) do not qualify for hedge accounting, under the guidance relating to Derivatives and Hedging, as the Company does not have currently written contemporaneous documentation identifying the risk being hedged and, both on a prospective and retrospective basis, performing an effectiveness test to support that the hedging relationship is highly effective. Consequently, the Company recognizes the change in fair value of these derivatives in the "Loss on derivatives, net" in the "Consolidated statements of operations." As of December 31, 2015, the Company had three open swap contracts for a notional amount of $30.0 million.
Concentration of credit risk
Financial instruments, which potentially subject the Company to significant concentration of credit risk consist primarily of cash and trade accounts receivable. The Company places its temporary cash investments, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluation of the relative credit standing of these financial institutions that are considered in the Company's investment strategy. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers' financial condition and generally does not require collateral for its accounts receivable. As of December 31, 2015, there were no customers with trade accounts receivable accounting for more than 10% of the customer's 2015 hire revenues.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
15.Financial Instruments - continued
Fair value of financial instruments
The Company follows guidance relating to "Fair value measurements", which establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
The fair value of the Company's interest rate swap agreements is determined using a discounted cash flow approach based on market-based LIBOR swap rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items. As of December 31, 2014 and December 31, 2015 no fair value measurements for assets or liabilities under Level 3 were recognized in the Company's consolidated financial statements.
| | Fair Value Measurement as of December 31, 2015 | |
| | Total
| | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Interest rate swap contracts, current and long-term portion | | $ | 253,102 | | | | - | | | $ | 253,102 | | | | -
| |
| | Fair Value Measurement as of December 31, 2014 | |
| | Total
| | | (Level 1) | | | (Level 2) | | | (Level 3) | |
Liabilities | | | | | | | | | | | | |
Interest rate swap contracts, current and long-term portion | | $ | 298,771 | | | | - | | | $ | 298,771 | | | | - | |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
15.Financial Instruments - continued
Asset Measured at Fair Value on a Non-recurring Basis
As of December 31, 2014, the Company reviewed the carrying amount in connection with the estimated amount of each of its vessels. The review indicated that such carrying amount was not recoverable for one of the Company's vessels; the M/V Aristides NP. The Company recognized the total impairment losses of $3.5 million in 2014 which was included in the "Consolidated statements of operations" for the period. On December 21, 2015 the Company agreed to sell M/V Aristides NP for scrap. The vessel was sold for a net price of $2,671,811. The vessel was delivered to her new owners on January 16, 2016. As of December 31, 2015 the vessel was classified as "Held for Sale". This resulted in a write-down of $1,641,885 representing the difference between the vessel's carrying value and its fair value. This amount was included in the "Consolidated statements of operations" for the period. Details of the impairment charge and the write-down of vessel held for sale are noted in the table below.
Vessel – M/V Aristides NP | Significant Other Observable Inputs (Level 2) (amounts in $million) | Loss (amounts in $million) |
December 31, 2014 –Impairment | $5.1 | $3.5 |
December 31, 2015 – Write-down to fair value | $2.7 | $1.6 |
The fair value is based on the Company's best estimate of the value of each vessel on a time charter free basis, and is supported by vessel valuations of independent shipbrokers as of December 31, 2014 and 2015, respectively, which are mainly based on recent sales and purchase transactions of similar vessels.
The Company did not have any other assets or liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2014 and 2015.
The estimated fair values of the Company's financial instruments such as cash and cash equivalents and restricted cash approximate their individual carrying amounts as of December 31, 2014 and 2015, due to their short-term maturity. Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short-term maturities. The fair value of the Company's total borrowings approximates $39.0 million as of December 31, 2015 or $1.5 million less than its carrying value of $40.5 million. The fair value of the long term borrowings are estimated based on current interest rates offered to the Company for similar loans. LIBOR rates are observable at commonly quoted intervals for the full terms of the loans and hence fair value of the long-term bank loans are considered Level 2 items in accordance with the fair value hierarchy due to their variable interest rate, being the LIBOR.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
15.Financial Instruments - continued
The fair value of the Company's "Other investment" approximates its carrying value (see Note 17 – "Investment in Joint Venture and Other Investment") and is considered a Level 3 item.
The key input that determines the fair value of the Company's "Other investment" is the required rate of return for preferred equity investments in investment opportunities of similar risk which is not observable and hence is considered a level 3 item. The Company considers the initial dividend rate of 19% p.a. as the appropriate rate for its fair value calculation and monitors market conditions for similar investment and other possible developments specific to its investment that might provide indications for changes in the required rate of return it uses in its fair value measurement. As of December 31, 2015, the Company did not identify indications that would require changes in the required rate of return.
Quantitative Information about Level 3 Fair Value Measurements
| Fair Value at December 31, 2015 | Valuation Technique | Unobservable Input | Value |
Other investment | 7,396,738 | Discounted cash flow | Rate of return | 19% |
The fair value of the Company's "Other investment" is sensitive to the required rate of return used to estimate the present value of its investment using the discounted cash flow approach. If the required rate of return increases or decreases by 1%, the fair value of the Company's "Other investment" will decrease or increase by approximately $0.3 million, respectively, assuming that the preferred investment is redeemed at the end of the investment period (October 2020).
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
16.Derivative Financial Instruments
Interest rate swaps
Effective September 20, 2013October 17, 2014 and on October 17, 2014August 8, 2017 respectively, the Company entered into two interest rate swaps with EFG Eurobank – Ergasias S.A. ("Eurobank") and HSBC Bank PLC ("HSBC") on a notional amount of $10.0 million and $5.0 million respectively for each of the contracts, each in order to manage interest costs and the risk associated with changing interest rates. Under the terms of the swaps,swap, Eurobank makes a quarterly payment to the Company equal to the 3-month LIBOR while the Company pays the fixed rate of 1.29% on the first and an adjustable rate averaging 1.97% on the second swap (Eurobank makes a quarterly payment to the Company equal to the 3-month LIBOR while the Company pays the fixed rate of 0.50% until November 28, 2016 then 0.95% till November 28, 2017 and then 3.55% till May 28, 2019*). Based2019) based on the relevant notional amount; all contracts are net settled between Eurobank and the Company. Two swaps were effective from January 21, 2011 to January 21, 2016 and from September 20, 2013 to December 31, 2016, respectively.
In October 2014 the Company entered into a new forward step-up swap contract for a notional amount of $10 million, underamount. Under the terms of the contract datedswap, HSBC makes a quarterly payment to the Company equal to the 3-month LIBOR while the Company pays an adjustable rate averaging 1.93% (HSBC makes a quarterly payment to the Company equal to the 3-month LIBOR while the Company pays the fixed rate of 1.40% until August 8, 2018 then 1.75% till August 8, 2019, then 1.85% until August 8, 2020 and then 2.32% till August 8, 2022) based on the relevant notional amount. One swap was effective from November 28, 2015. 2015 to December 31, 2017 and one swap was effective from August 8, 2017 to December 31, 2017, respectively.
The interest rate swaps did not qualify for hedge accounting as of December 31, 20142016 and 2015.2017.
Derivatives not designated as hedging instruments | Balance Sheet Location | | December 31, 2016 | | | December 31, 2017 | |
| | | | | | | |
Interest rate swap contracts | Current liabilities – Derivatives | | | - | | | | 177,998 | |
| | | | | | | | | |
Interest rate swap contracts | Long-term liabilities – Derivatives | | | 240,181 | | | | 16,631 | |
| | | | | | | | | |
Total derivative liabilities | | | | 240,181 | | | | 194,629 | |
Derivatives not designated as hedging instruments | Location of gain (loss) recognized | | Year Ended December 31, 2015 | | | Year Ended December 31, 2016 | | | Year Ended December 31, 2017 | |
Interest rate swap contracts– Fair value | (Loss) / gain on derivatives, net | | | 45,669 | | | | 12,921 | | | | 45,552 | |
Interest rate swap contracts - Realized (loss) / gain | (Loss) / gain on derivatives, net | | | (307,343 | ) | | | (132,075 | ) | | | 16,785 | |
Total (Loss) / gain on derivatives | | | | (261,674 | ) | | | (119,154 | ) | | | 62,337 | |
The table below summarizes the swaps active as of December 31, 2015:
Trade Date | Financial Institution | | Notional Amount($m) | | | Interest rate (%) | | End Date |
21 Jan 2011 | EFG Eurobank – Ergasias S.A. | | | 10.0 | | | | 2.29 | | 21 Jan 2016 |
20 Sep 2013 | EFG Eurobank – Ergasias S.A. | | | 10.0 | | | | 1.29 | | 31 Dec 2016 |
17 Oct 2014 | EFG Eurobank – Ergasias S.A. | | | 10.0 | | | 1.97 (average)* | | 28 May 2019 |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
16.15. Derivative Financial Instruments -– continued
Derivatives not designated as hedging instruments | Balance Sheet Location | December 31, 2014 | December 31, 2015 |
| | | |
Interest rate swap contracts | Current liabilities – Derivatives | 297,992 | 50,402 |
| | | |
Interest rate contracts | Long-term liabilities – Derivatives | 779 | 202,700 |
| | | |
Total derivative liabilities | | 298,771 | 253,102 |
Derivatives not designated as hedging instruments | Location of gain (loss) recognized | Year Ended December 31, 2013 | Year Ended December 31, 2014 | Year Ended December 31, 2015 |
Interest rate – Fair value | Change in fair value of derivatives | 1,375,820 | 718,977 | 45,669 |
Interest rate contracts - Realized loss | Change in fair value of derivatives | (1,552,952) | (763,625) | (307,343) |
Total loss on derivatives | | (177,132) | (44,648) | (261,674) |
Freight Forward Agreements ("FFA")
In December 2017, the Company entered into three FFA contracts on the Baltic Panamax Index ("BPI") for the first three calendar months of 2018, totaling 90 days at an average time charter equivalent rate of $11,000 per day. The contracts are settled on a monthly basis using the average of the BPI for the days of the month the BPI is published. The Company receives a payment if the average BPI for the month is below the contract rate equal to the difference of the contract rate less the average BPI for the month times the number of contract days sold; if the average BPI for the month is greater than the contract rate the Company makes a payment equal to the difference of the average BPI for the month less the contract rate times the number of contract days sold. If the Company buys contracts previously sold (or the opposite) the Company receives or pays the difference of the two rates for the period covered by the contracts.
The FFA contracts did not qualify for hedge accounting. The Company follows guidance relating to "Fair value measurements" to calculate the fair value of the FFA contracts (see Note 18).
F-41
FFA contracts not designated as hedging instruments | Location of gain (loss) recognized | Year Ended December 31, 2017 |
FFA contracts – Fair value | (Loss)/gain on derivatives, net | (781) |
FFA contracts – Realized gain/(loss) | (Loss)/gain on derivatives, net | - |
Total loss on derivatives | | (781) |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
17.16. | Investment in Joint Venture and Other Investment |
On March 25, 2010, the Company entered into a partnership (the "Joint Venture") with companies managed by Eton Park Capital Management, L.P. ("Eton Park") and Rhône Capital III L.P. ("Rhône") to form Euromar LLC. Eton Park's investments are made through Paros Ltd., a Cayman Islands exempted company, and Rhône's investments are made through the Cayman Islands limited companies All Seas Investors I Ltd., All Seas Investors II Ltd., and the Cayman Islands exempted limited partnership All Seas Investors III LP. Euromar LLC willhas been set up to acquire, maintain, manage, operate and dispose of shipping vessels. Pursuant to the terms of the Joint Venture, theThe Company may invest up toinvested $25.0 million for a 14.286% interest in the Joint Venture, while Eton Park and Rhône may each invest upinvested to $75.0 million for a 42.857% interest in the Joint Venture each, for a total of $175 million. After March 25, 2012, Eton Park and Rhône have the option to convert part or all of their holdings in the Company's stock at a conversion ratio based on the ratio of the net asset market values of the Company and the Joint Venture, or the ratio of the Company's market value multiplied by 0.925 and the net asset market value of the Joint Venture whichever is to the advantage of the Company. No conversion can take place if any of the net asset market values are negative. Management of the vessels and various administrative services pertaining to the vessels are performed by the ManagerEuroseas and its affiliates; strategic, financial and reporting services are provided by Euroseas. For these services, Euroseas earned $240,000 in 2015, 20142017, 2016 and 2013.2015. These amounts are recorded in "Related party revenue" under "Revenues".
In March 2013, the Company contributed $6,250,000 and as of December 31, 2013, the Company had contributed $25.0 million. No new contributions were made in 2014 and 2015. The Company accounts for its investment in the Joint Venture using the equity method of accounting despite the fact that it is a minority partner as it is considered to havehas significant influence in the operations and management of Euromar LLC (see "Significant Accounting Policies" – Note 2). The Company's share of the results of operations of the Joint Venture is included in the "Consolidated statements of operations" as "Equity loss in joint venture".
The Company's share of the results of operations of the Joint Venture amounted to a loss of $2.0$2.2 million, $2.5$2.4 million and $2.2$0 million for the years 2015, 2016 and 2017, respectively. Euromar LLC has restructured its credit facilities between 2013 2014 and 2015, respectively.
Summarized financial information2016. As a consequence of the restructured credit facilities and continued adverse market developments, during 2016, the Company determined in June 2016 that its investment in the joint venture was not recoverable and as a result it recorded a $14.0 million impairment and recorded an additional impairment of $0.1 million in December 2016 for a total of $14.1 million for the Joint Ventureyear ended December 31, 2016 which is presented in the line "Impairment in joint venture" in the "Consolidated statements of operations". The carrying value of the Company's investment in Euromar LLC as follows:of December 31, 2016 was zero and is presented in the "Investment in joint venture" in the "Consolidated balance sheets". In June 2017, the Company acquired one of the vessels of Euromar with the consent of its lender by assuming debt equal to the market value of the vessel with any excess indebtedness to the lender written off and Euromar released from any guarantees to the lender. In September 2017, Euroseas acquired the 85.714% interest in Euromar it did not already own for nominal cost. As a result of the acquisition, Euromar, which was a joint venture among the Company and two private equity firms, became a wholly-owned subsidiary of the Company. However, Euromar vessels were substantially under the control of its lenders. The Company provided no guarantees to Euromar's lenders, and none of the lenders had any recourse against the Company. As of December 31, 2017, all vessels of Euromar were sold with the consent of Euromar's lenders; all proceeds from such sales and any funds in excess of other liabilities were applied towards the indebtedness of Euromar with any excess indebtedness written off; Euromar was released from all its corporate guarantees to its lenders. As a result of the above, Euromar has not been consolidated in our results nor any gain or loss from it has been recognized.
| | 2013 | | | 2014 | | | 2015 | |
| | | | | | | | | |
Current assets | | | 11,207,156 | | | | 9,520,607 | | | | 11,880,202 | |
Non current assets | | | 268,669,047 | | | | 252,531,888 | | | | 223,366,979 | |
Current liabilities | | | 4,079,748 | | | | 16,194,148 | | | | 116,207,106 | |
Non current liabilities | | | 127,350,355 | | | | 115,181,837 | | | | 3,495,007 | |
Members' contributions | | | 175,000,000 | | | | 175,000,000 | | | | 175,000,000 | |
Voyage revenue | | | 27,510,792 | | | | 31,663,989 | | | | 34,419,758 | |
Net revenue | | | 26,163,274 | | | | 30,269,066 | | | | 33,114,016 | |
Operating loss | | | (7,313,783 | ) | | | (11,058,601 | ) | | | (7,912,039 | ) |
Net loss | | | (14,106,082 | ) | | | (17,798,476 | ) | | | (15,108,751 | ) |
F-42F-45
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
17.16. | Investment in Joint Venture and Other Investment- continued |
On October 15, 2013 by and among the Company, Paros Ltd., All Seas Investors I Ltd., All Seas Investors II Ltd. and All Seas Investors III LP, a Contribution Agreement was signed. Under this agreement Euroseas agreed to deposit an amount of $5,000,000 into an escrow account ("Escrowed Funds") controlled by Paros Ltd., All Seas Investors I Ltd., All Seas Investors II Ltd. and All Seas Investors III LP which can distribute part or all of the funds to Euromar LLC until December 31, 2018. With the distribution of the Escrowed Funds, Euromar LLC will issue to the Company (or a subsidiary thereof) units representing a preferred membership interest in Euromar LLC (each, a "Preferred Unit") in respect of the Escrowed Funds based on the following ratio: one Preferred Unit in exchange for each $1,000 of the Escrowed Cash, or 5,000 Preferred Units in total (assuming $5 million of Escrowed Cash). TheIn March 2014, in relation to the acquisition of a vessel by Euromar LLC, $1,000,000 of the Escrowed Funds was contributed into Euromar LLC .The Company is entitled to a "payment-in-kind" dividend at a rate of 19% per year compounded annually from the date of issuance. Euromar LLC can return any undistributed Escrowed Funds to the Company after the second anniversary of the agreement while after the fifth anniversary any undistributed Escrowed Funds will be returned to the Company and Preferred Units will be issued by Euromar LLC for any accrued dividends at the time. Euroseas recorded an accrued dividend income of $196,196, $987,604$1,212,938, $1,024,714 and $1,212,938$0 for the years ended December 31, 2013, 20142015, 2016 and 2015, respectively. This amount2017, respectively which is recordedpresented in the "Consolidated statements of operations" as "Investment"Other Investment Income" under. In the fourth quarter of 2016, the Company determined that its "Other Income / (expenses)".investment" was not recoverable except for the undistributed Escrowed Funds ($4,000,000) and as a result it recorded a $4,421,452 impairment which is presented in the "Consolidated statements of operations" for the current period. The Company stopped recognizing dividend income from its "Other investment" from October 1, 2016. The Escrowed Funds were returned to Euroseas in September 2017.
In USD | | Other Investment | |
Balance, January 1, 20142015 | 5,196,196 |
| 6,183,800 | |
Total gain for period included in Investment income | 987,604 |
Balance, December 31, 2014 | 6,183,800 |
Total gain for period included in Investment income | 1,212,938 | |
Balance, December 31, 2015 | | | 7,396,738 | |
Total gain for the period included in Investment income | | | 1,024,714 | |
Impairment of other investment | | | (4,421,452 | ) |
Balance, December 31, 2016 | | | 4,000,000 | |
Return of funds, September 22, 2017 | | | (4,000,000 | ) |
Balance, December 31, 2017 | | | - | |
Euromar LLC has two of its credit facilities maturing in August and October 2016 requiring final payments of $63.01 million and $23.45 million, respectively. Euromar LLC is in negotiations with the banks and expects to successfully restructure its credit facilities. If Euromar does not succeed in refinancing these payments, it might be forced to liquidate part or all of its assets in order to meet its debt obligations. If such liquidation were to occur at present market values which are below the carrying amounts of Euromar LLC's vessels, it would result in Euromar recording losses on the sale of the vessels. In such a case, our equity investment in Euromar would suffer a partial or complete loss. Furthermore, if the proceeds from the sale of the vessels are not sufficient to repay both Euromar's debt obligations and our preferred investment in Euromar LLC, our preferred investment would also incur a partial or complete loss.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
18.17. Preferred shares
| | Number of Shares | | | Preferred Shares Amount | | | Dividends paid-in-kind | | | Total | |
Balance, January 1, 2014 | | | - | | | | - | | | | - | | | | - | |
Issuance of preferred shares from private placement net of issuance costs | | | 30,700 | | | | 29,000,000 | | | | | | | | 29,000,000 | |
Dividends declared | | | 1,440 | | | | | | | | 1,440,100 | | | | 1,440,100 | |
Balance, December 31, 2014 | | | 32,140 | | | | 29,000,000 | | | | 1,400,100 | | | | 30,440,100 | |
Dividends declared | | | 1,639 | | | | | | | | 1,639,149 | | | | 1,639,149 | |
Balance, December 31, 2015 | | | 33,779 | | | | 29,000,000 | | | | 3,039,249 | | | | 32,079,249 | |
| | Number of Shares | | | Preferred Shares Amount | | | Dividends paid-in-kind | | | Total | |
Balance, January 1, 2015 | | | 32,140 | | | | 29,000,000 | | | | 1,440,100 | | | | 30,440,100 | |
Dividends declared | | | 1,639 | | | | - | | | | 1,639,149 | | | | 1,639,149 | |
Balance, December 31, 2015 | | | 33,779 | | | | 29,000,000 | | | | 3,079,249 | | | | 32,079,249 | |
Dividends declared | | | 1,726 | | | | - | | | | 1,725,699 | | | | 1,725,699 | |
Balance, December 31, 2016 | | | 35,505 | | | | 29,000,000 | | | | 4,804,948 | | | | 33,804,948 | |
Dividends declared | | | 1,809 | | | | - | | | | 1,808,811 | | | | 1,808,811 | |
Balance, December 31, 2017 | | | 37,314 | | | | 29,000,000 | | | | 6,613,759 | | | | 35,613,759 | |
On January 27, 2014, the Company entered into an agreement to sell 25,000 shares of its Series B Convertible Perpetual Preferred Shares ("Series B Preferred Shares") to a fund managed by Tennenbaum Capital Partners, LLC ("TCP") and 5,700 shares to Preferred Friends Investment Company Inc, an affiliate of the Company, for total net proceeds of approximately $29 million. The redemption amount of the Company's Series B Preferred Shares is $1,000 per share. The Company used the proceeds for the acquisition of vessels and general corporate purposes. The Series B Preferred Shares will pay dividends (in cash or in-kind at the option of the Company, subject to certain exceptions) during the first five years at a rate of 0% or 5%, depending on the trading price of the Company's common stock. In addition, if a cash dividend is paid on the Company's common stock during such time, then if the dividend paid on the Series B Preferred Shares is 5%, the holders of Series B Preferred Shares shall receive such dividend in cash and shall also receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. If, however, the dividend on the Series B Preferred Shares is 0%, then the holders of Series B Preferred Shares shall receive a cash dividend equal to the greater of 100% of the common stock dividend it would have received on an as-converted basis and 5%. If a cash dividend is paid on the Company's common stock after the first five years, the holders of Series B Preferred Shares shall receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
17. Dividends Series B preferred shares - continued
The dividend rate will increase to 12% in years six and seven and to 14% thereafter. The Series B Preferred Shares can be converted at the option of their holders at any time, and at the option of the Company only if certain share price and liquidity milestones are met. Each Series B Preferred Share is convertible into common stock at a conversion price of $12.25 (as adjusted in September 2015 following the shareholders' rights offering of the Company) subject to further adjustment for certain events. The Series B Preferred Shares are redeemable in cash by the Company at any time after the fifth anniversary of the original issue date. Holders of the Series B Preferred Shares may require the Company to redeem their shares only upon the occurrence of certain corporate events.
For the year ended December 31, 2017, the Company declared four consecutive dividends totaling $1.8 million, all of which were paid in kind. The redemption liability as of December 31, 20152017 is $33,779,249.$37,306,766. If all the subsequent dividend payments are made in-kind, the Series B Preferred Shares will increase by $1,720,806, $1,808,472, $1,900,607 and $152,473 for the years 2016, 2017, 2018 and 2019, respectivelyrespectively. The redemption liability will be $35,498,294, $37,306,766, $39,207,373 and $39,359,846 as of December 31, 2016, 2017, 2018 and end-January 2019, respectively. After January 2019, the dividend will be payable only in cash as described above.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2014 and 2015 and for the
Years ended December 31, 2013, 2014 and 2015
(All amounts expressed in U.S. Dollars)
18.Dividends Series B preferred shares - continued
Subject to certain ownership thresholds, holders of Series B Preferred Shares have the right to appoint one director to the Company's board of directors and TCP also has consent rights over certain corporate actions. In addition, the holders of Series B Preferred Shares will vote as one class with the Company's common stock on all matters on which shareholders are entitled to vote, with each Series B Preferred Share having a number of votes equal to 50% of the numbers of shares of common stock of the Company into which such Series B Preferred Share would be convertible on the applicable record date.
For the year ended December 31, 2015, the Company declared four consecutive dividends aggregating $1.64 million, all of which were paid in kind.
19.Common StockF-48
On July 23, 2015, the Company announced that it has completed a 1-for-10 reverse stock split, effective at the close of trading on July 22, 2015. The Company's common shares began trading on a split-adjusted basis on July 23, 2015.
On September 17, 2015, the Company issued 2,343,335 shares of common stock pursuant to a shareholders' rights offering at a price of $4.50 per share for gross proceeds of $10.55 million.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 20142016 and 20152017 and for the
Years ended December 31, 2013, 20142015, 2016 and 20152017
(All amounts expressed in U.S. Dollars)
18. Financial Instruments
The principal financial assets of the Company consist of cash and cash equivalents, restricted cash, trade accounts receivable and other receivables. The principal financial liabilities of the Company consist of long-term bank loans, derivatives including interest rate swaps, trade accounts payable accrued expenses and due to related companies.
Interest rate risk
The Company enters into interest rate swap contracts as economic hedges to manage some of its exposure to variability in its floating rate long term debt. Under the terms of the interest rate swaps the Company and the bank agreed to exchange, at specified intervals the difference between a paying fixed rate and receiving floating rate interest amount calculated by reference to the agreed principal amounts and maturities20.. Interest rate swaps allow the Company to convert long-term borrowings issued at floating rates into equivalent fixed rates. Even though the interest rate swaps were entered into for economic hedging purposes, as noted in Note 15 they do not qualify for hedge accounting, under the guidance relating to Derivatives and Hedging, as the Company does not have currently written contemporaneous documentation identifying the risk being hedged and, both on a prospective and retrospective basis, performing an effectiveness test to support that the hedging relationship is highly effective. Consequently, the Company recognizes the change in fair value of these derivatives in the "(Loss)/ gain on derivatives, net" in the "Consolidated statements of operations." As of December 31, 2017, the Company had two open swap contracts for a notional amount of $15.0 million.
Concentration of credit risk
Financial instruments, which potentially subject the Company to significant concentration of credit risk consist primarily of cash and trade accounts receivable. The Company places its temporary cash investments, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluation of the relative credit standing of these financial institutions that are considered in the Company's investment strategy. The Company limits its credit risk with trade accounts receivable by performing ongoing credit evaluations of its customers' financial condition and generally does not require collateral for its trade accounts receivable.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
18. Financial Instruments - continued
Fair value of financial instruments
The Company follows guidance relating to "Fair value measurements", which establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
The fair value of the Company's investments in FFA contracts are determined based on quoted prices in active markets and therefore are considered Level 1 of the fair value hierarchy as defined in guidance relating to "Fair value measurements".
The fair value of the Company's interest rate swap agreements is determined using a discounted cash flow approach based on market-based LIBOR swap rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items. The fair values of the interest rate swap determined through Level 2 of the fair value hierarchy as defined in guidance relating to "Fair value measurements" are derived principally from or corroborated by observable market data. Inputs include quoted prices for similar assets, liabilities (risk adjusted) and market-corroborated inputs, such as market comparables, interest rates, yield curves and other items that allow value to be determined.
Recurring Fair Value Measurements
| Fair Value Measurement as of December 31, 2017 | |
| Total | | (Level 1) | | (Level 2) | | (Level 3) | |
Liabilities | | | | | | | | |
Interest rate swap contracts, current portion | | $ | 177,998 | | | | | $ | 177,998 | | | |
Interest rate swap contracts, long-term portion | | $ | 16,631 | | | | - | | | $ | 16,631 | | | | - | |
| | Fair Value Measurement as of December 31, 2016 | |
| | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
Liabilities | | | | | | | | | | | | |
Interest rate swap contracts, long-term portion | | $ | 240,181 | | | | - | | | $ | 240,181 | | | | - | |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
18. Financial Instruments - continued
Asset Measured at Fair Value on a Non-recurring Basis
Vessels Held for Sale (see Note 5) are measured at fair value less estimated costs to sell. The fair value is based, for M/V "Eleni P" on the price agreed by the Company to sell the vessel to unrelated parties in a transaction that was concluded in January 2017, for M/V "Aggeliki P" on the scrap price per ton as quoted by industry sources in October 2017 with the vessel sold in December 2017, and for M/V "Monica P" on market price estimates for sale to unrelated parties provided by Eurochart and third party brokers also in October 2017, respectively and are considered good estimates of the fair value of the vessels as of December 31, 2016 and 2017, respectively.
On December 20, 2016, the Company agreed to sell for scrap M/V "Eleni P" with a carrying amount of $8.74 million, which was classified as vessel held for sale and written down to its fair value of $2.95 million, less estimated costs to sell of $0.13 million resulting in a loss of $5.92 million (Note 5), which was included in the accompanying consolidated statements of operations under "Loss on write down of vessel held for sale". The fair value of M/V "Monica P" is considered Level 2.
On June 15, 2017, the Company has also entered into a profit sharing agreement with Credit Agricole whereby it will share with the bank 35% of the excess of the fair market value of M/V "EM Astoria" over the outstanding loan when the vessel is sold or when the loan matures. As a result of the lender's entitlement to participate in the appreciation of the market value of the mortgaged vessel, the Company has recognized a participation liability of amount $1,297,100, presented in "Vessel profit participation liability" in the accompanying "Consolidated balance sheets" as of December 31, 2017, with a corresponding debit to a debt discount account, presented contra to the loan balance. The fair value of this participation agreement is considered Level 2, as it directly depends on the fair value or expected fair value of M/V "EM Astoria".
As of September 30, 2017 the vessel M/V "Monica P" with a carrying amount of $8.23 million, was classified as vessel held for sale and written down to its fair value of $5.0 million, less estimated costs to sell of $0.10 million, resulting in a loss of $3.33 million (Note 5), which was included in the accompanying consolidated statements of operations under "Loss on write down of vessels held for sale". The fair value of M/V "Monica P" is considered level 2.
As of September 30, 2017 the vessel M/V "Aggeliki P" with a carrying amount of $5.39 million, was classified as vessel held for sale and written down to its fair value of $4.3 million, less estimated costs to sell of $0.17 million, resulting in a loss of $1.26 million (Note 5), which was included in the accompanying consolidated statements of operations under "Loss on write down of vessels held for sale". The fair value of M/V "Aggeliki P" is considered level 2.
During the second quarter of 2016 and in December 2016, the Company concluded that its equity investment in Euromar shown under "Investment in joint venture" was impaired and wrote it down to its estimated fair value. The impairment was due both to changes in the terms of its investment during the period as well as continuing less favorable market developments. The change in the terms of the Company's investment resulted from the conclusion of loan restructuring agreements between Euromar and its lenders that provided the latter with increased payments before any capital is returned to Euromar's partners, which include the Company, and, in addition, participation of the lenders in the profits of and any distributions made by Euromar. The fair value of the Company's "Investment in joint venture" is considered a Level 3 item (see Note 16 – "Investment in Joint Venture and Other Investment").
The key input that determines the fair value of the Company's "Investment in joint venture" is the cost of capital for investments in containership vessels which is not observable and hence is considered a level 3 item. The Company estimated the cost of capital in the range of 9-10% p.a. based on its return threshold in considering investments in containerships which, in turn take into consideration the historical returns and volatility of such investments. Additional inputs required include earnings and operating cost assumptions for each vessel as well other expenses and liabilities of Euromar. As of December 31, 2016, the Company used the Discounted Cash Flow technique and a cost of capital of 9.5% p.a. to calculate the fair value of its equity investment in Euromar.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
18. Financial Instruments - continued
Asset Measured at Fair Value on a Non-recurring Basis - continued
Furthermore, as a result of the same analysis described above, the Company determined that the fair value of its "Other investment", which consists of preferred units in Euromar was also impaired and recognized a $4,421,452 impairment as of December 31, 2016, which is shown under "Impairment in other investment". The key input that determined the fair value of the Company's "Other investment" was the required rate of return of 19% p.a. for preferred equity investments in investment opportunities of similar risk which was not observable and hence is considered a Level 3 item. The Company considered the initial dividend rate of 19% p.a. as the appropriate rate for its fair value calculation and monitored market conditions for similar investment and other possible developments specific to its investment that might provide indications for changes in the required rate of return it used in its fair value measurement. As of December 31, 2016, the Company did not identify indications that would require changes in the required rate of return. The fair value of the Company's other investment is calculated using the discounted cash flow technique.
Nonrecurring Fair Value Measurements at Reporting Date
| | | | | December 31, 2016 | | | | | | December 31, 2017 | |
| | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Loss 2016 | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Loss 2017 | |
Vessels held for sale | | $ | 2,946,923 | | | | - | | | $ | 2,946,923 | | | | - | | | $ | 5,924,668 | | | $ | 5,000,000 | | | | - | | | $ | 5,000,000 | | | | - | | | $ | 4,595,819 | |
Other investment | | $ | 4,000,000 | | | | - | | | | - | | | $ | 4,000,000 | | | $ | 4,421,452 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Investment in joint venture | | | 0 | | | | - | | | | - | | | | 0 | | | $ | 14,071,075 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Vessel profit participating liability | | | - | | | | - | | | | - | | | | - | | | | - | | | $ | 1,297,100 | | | | - | | | $ | 1,297,100 | | | | - | | | | - | |
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
18. Financial Instruments - continued
The estimated fair values of the Company's financial instruments such as cash and cash equivalents and restricted cash approximate their individual carrying amounts as of December 31, 2016 and 2017, due to their short-term maturity. Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short-term maturities. The fair value of the Company's total borrowings approximates $73.7 million as of December 31, 2017 or $0.7 million less than its carrying value of $74.4 million. The fair value of the long term borrowings are estimated based on current interest rates offered to the Company for similar loans. LIBOR rates are observable at commonly quoted intervals for the full terms of the loans and hence fair value of the long-term bank loans are considered Level 2 items in accordance with the fair value hierarchy due to their variable interest rate, being the LIBOR.
For the year ended December 31, 2016, the fair value of the Company's "Other investment" was impaired by $4.4 million and presented in the "Consolidated balance sheets" with a value of $4.0 million which represents actual cash existing in an escrow account. The Company stopped recognizing income from "Other investment" in the three-month period ended December 31, 2016. The amount of $4.0 million of the escrowed funds, were actually returned to Euroseas in September 2017.
19. Common Stock
Following the Company's prospectus supplement filed with the SEC on December 20, 2016, the Company issued and sold at-the-market (ATM) 978,847 shares of common stock during December 2016 for gross proceeds net of commissions of $2.2 million.
On December 14, 2016, the Company reached an agreement with Friends Investment Co., an affiliate and its largest shareholder, to sell to Friends 719,425 shares of common stock at $1.39 per share, the closing price of the Company shares on December 14, 2016, for total proceeds of $1,000,000.
On December 23, 2016, the Company issued 900,000 shares of common stock at $2.00 per share in order to purchase M/V "RT Dagr" from a related party (Tennenbaum Capital Partners, a holder of the Company's Series B Preferred Shares), a feeder containership vessel.
During January 2017, following the Company's prospectus supplement filed with the SEC on December 20, 2016, the Company issued and sold at-the-market (ATM) 301,780 shares of common stock for gross proceeds net of commissions of $0.6 million.
Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2016 and 2017 and for the
Years ended December 31, 2015, 2016 and 2017
(All amounts expressed in U.S. Dollars)
20. Subsequent Events
The following events occurred after December 31, 2017:
| (a) | On January 5, 2016, the Company announced the sale of M/V Aristides N. P. The vessel was delivered to its buyers on January 16, 2016. |
| (b) | On February 12, 2016,27, 2018, the Company signed and drew a term loan facility with Eurobank Ergasias S.ACredit Agricole in order to refinance allthe existing facilitiesindebtedness of M/V "Evridiki G" with the bank. This is a $14,500,000$4,250,000 loan drawn by Saf-ConcordNoumea Shipping Ltd, Eternity Shipping Company, Allendale Investments S.A., Manolis Shipping Limited, Alterwall Business Inc. and Aggeliki Shipping LtdLtd. as Borrowers.Borrower. The loan is payable in 12 equalfourteen consecutive quarterly instalmentsinstalments. Thirteen of $460,000$303,000 each with an $8.98 million balloon payment to be paid together with the lastand a final instalment in February 2019.the amount of $311,000. The margin of the loan is 6.00%3.00% above LIBOR. The loan is secured with the following: (i) first priority mortgages over M/V Monica P, M/"Evridiki G" and collateral vessel (M/V Captain Costas, M/V Kuo Hsuing, M/V Manolis P, M/V Ninos and M/V Aggeliki P,"EM Astoria"), (ii) first assignment of earnings and insurance and (iii) a corporate guarantee of Euroseas Ltd and other covenants and guarantees similar to the rest of theremaining loans of the Company, and (iv) a $2,800,000 cash collateral deposit pledged in favor of the bank.Company. |
(b) | (c) | On February 19, 2016,In March 2018, the Company signed a term loan facility with Nord LB and on February 25, 2016sheet from a major commercial banking institution for a loan up to the lesser of $13,800,000 was drawn by Kamsarmax One Shipping Ltd. to partly finance$18.4 million or 65% of the purchasevessel's market value for the financing of the construction of M/V Xenia."Ekaterini" (Hull No. YZJ2013-1153). The drawdown is expected to take place upon the delivery of M/V "Ekaterini" by June 2018 and is subject to customary definitive documentation. The loan iswill be payable in twenty consecutive quarterly instalments, eight in the amount of $400,000, and twelve in the amount of $325,000, with a $11,300,000 balloon payment to be repaid in 14 consecutive equal semi-annual installmentsmade with the last installment. In case of $467,000 plus a balloon amount of $7,262,000.lower utilization, the repayments will be reduced pro-rata. The interest rate margin of the loan is 2.95% above2.80% over LIBOR. The loan iswill be secured with (i) first priority mortgages over M/V Xenia,"Ekaterini" (Hull No. YZJ2013-1153), (ii) first assignment of earnings and insurance (iii) a corporate guarantee of Euroseas LtdM/V "Ekaterini" and (iii) other covenants and guarantees similar to the rest of theremaining loans of the Company. |
(c) | (d) | On April 27, 2016,March 19, 2018, the Company signed a memorandum of agreementcontract to sell M/V Captain Costas, one"Monica P", a 46,667 dwt vessel, built in 1998, which was classified as held for sale since September 30, 2017, for the gross amount of $6.45 million. The Company decided to sell this vessel to concentrate its drybulk fleet on the Ultramax, Panamax and Kamsarmax segments of the Company's containership vessels.drybulk market. The saleCompany is expected to occur in May 2016 and to result in gross proceedsrecord a gain on sale of approximately $2.77 million which$1.4 million. The vessel is in excess ofexpected to be delivered to its carrying value.buyers by June 30, 2018. |
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