In addition, we have entered into an amended and restated stockholders rights agreement, dated August 29, 2016, or the Stockholders Rights Agreement, pursuant to which our board of directors may cause the substantial dilution of any person that attempts to acquire us without the approval of our board of directors.
These anti-takeover provisions, including provisions of our Stockholders Rights Agreement, could substantially impede the ability of our shareholders to benefit from a change in control and, as a result, may adversely affect the value of our securities, if any, and the ability of our shareholders to realize any potential change of control premium.
Item 4. | Information on the Company |
Item 4.Information on the Company
| A. | History and Development of the Company |
Performance Shipping Inc. (formerly Diana Containerships Inc.) is a corporation incorporated under the laws of the Republic of the Marshall Islands on January 7, 2010. Each of the Company'sour vessels is owned by a separate wholly-owned subsidiary. Diana ContainershipsPerformance Shipping Inc. is the owner of all the issued and outstanding shares of the subsidiaries listed in Exhibit 8.1 to this annual report. We maintain our principal executive offices at Pendelis 18, 175 64 Palaio Faliro, Athens, Greece. Our telephone number at that address is +30 216 600 2400. Our agent and authorized representative in the United States is our wholly-owned subsidiary, Container Carriers (USA) LLC, established in July 2014, in the State of Delaware, which is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. The address of our Internet site is http://www.pshipping.com/.
During 2016 and 2017, we effected six reverse stock splits of our common shares, each which was approved by our board of directors and by our shareholders:
| · | On June 9, 2016, we effected a one-for-eight reverse stock split, which our shareholders approved at our annual meeting of shareholders held on February 24, 2016; |
| · | On July 5, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017; |
| · | On July 27, 2017, we effected a one-for-six reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017; |
| · | On August 24, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017; |
| · | On September 25, 2017, we effected a one-for-three reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017; and |
| · | On November 2, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at the special meeting of shareholders held on October 26, 2017. |
35On June 9, 2016, we effected a one-for-eight reverse stock split, which our shareholders approved at our annual meeting of shareholders held on February 24, 2016;
On July 5, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017;
On July 27, 2017, we effected a one-for-six reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017;
On August 24, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017;
On September 25, 2017, we effected a one-for-three reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017; and
On November 2, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at the special meeting of shareholders held on October 26, 2017.
There were no changes to the trading symbol, number of authorized shares, or par value of our common stock in connection with any of the reverse stock splits. All share and per share amounts disclosed in this annual report give effect to these six reverse stock splits retroactively, for all periods presented.
On March 30, 2020, our ticker symbol on Nasdaq has changed from “DCIX” to “PSHG”.
Business Development and Capital Expenditures and Divestitures
In March 2015, we entered, through two separate wholly-owned subsidiaries, into two Memoranda of Agreement with unrelated parties, to acquire the 2006-built Panamax container vessels of approximately 4,923 TEU capacity each, the m/v YM New Jersey and the m/v YM Los Angeles, for a purchase price of $21.5 million each. The vessels were delivered to us in April 2015.
In July 2015, we entered, through two separate wholly-owned subsidiaries, into two Memoranda of Agreement with unrelated parties, to acquire two Post-Panamax container vessels of approximately 6,494 TEU capacity each, the 2009-built m/v Hamburg and the 2008-built m/v Rotterdam, for a purchase price of $38.5 million and $37.5 million, respectively. The vessels were delivered to us in November and September 2015, respectively.
In September 2015, we sold the m/v Garnet (ex Apl Garnet) to unrelated parties for demolition, for a sale price of $7.6 million, net of address commission. The vessel was delivered to her new owners in the same month.
In September 2015, we, through nine separate wholly-owned subsidiaries, entered into a loan agreement with The Royal Bank of Scotland plc, or RBS, for up to $148.0 million, to re-finance the acquisition cost of seven of our vessels, including the full prepayment of the existing facility agreement with RBS, and to support the acquisition of the two newly acquired vessels, the m/v Hamburg and the m/v Rotterdam (discussed above).The loan facility had a term of six years, was repayable in quarterly installments and a balloon payment payable together with the last installment, and bore interest at the rate of 2.75% per annum over LIBOR. Until December 31, 2015, we drew down in full the $148.0 million. In connection with this loan, we paid arrangement and structuring fees amounting to $1.9 million and a commitment fee of 1.375% per annum on the undrawn amount of the loan until the drawdown dates.
In September 2015, and in relation with the RBS refinance discussed above, our $50.0 million loan agreement with Diana Shipping was amended. The loan agreement was extended until March 2022, provided for annual repayments of $5.0 million, plus a balloon installment at the final maturity date, and bore interest at LIBOR plus a margin of 3.0% per annum. We also agreed to pay at the date of the amendment the accumulated back-end fee, amounting to $1.3 million, and that no additional back-end fee would be charged thereafter. Furthermore, we agreed that we would pay at the final maturity date a flat fee of $0.2 million.
In February 2016, we sold the m/v Hanjin Malta to unrelated parties for demolition, for a sale price of $4.8 million, net of commissions. The vessel was delivered to her new owners in March 2016.
In August 2016, we entered into a First Amended and Restated Stockholders Rights Agreement, or the Rights Agreement, with Computershare Inc. as Rights Agent, which amended and restated in its entirety the original Stockholders Rights Agreement between the Company and Mellon Investor Services LLC, dated as of August 2, 2010, as amended on July 28, 2014. Pursuant to the Rights Agreement, each share of our common stock includes one right, which we refer to as a Right, that entitles the holder to purchase from us a unit consisting of one one-thousandth of a share of our Series A Participating Preferred Stock at an exercise price of $50.00, subject to specified adjustments.
In September 2016, we amended our $148.0 million loan agreement with RBS dated September 10, 2015 (discussed above). Amendments to the RBS loan agreement included, among others things, the prepayment of $7.6 million by September 15, 2016; a reduction in the first four consecutive quarterly repayment installments under each tranche, to be repaid ratably over the remaining quarterly installments, and the deferral of all quarterly repayments until September 15, 2017; the creation of a new $8.9 million tranche, or the Deferred Tranche, out of the reallocation of amounts due under the existing tranches, whose repayment would commence on March 15, 2019; a prohibition on the payment of dividends until the later of prepayment or repayment in full of the Deferred Tranche and September 15, 2018; and a prohibition on the incurrence of additional indebtedness (with the exception of intra-group debt) or the acquisition of additional vessels until September 15, 2018.
In September 2016, as a condition to the RBS loan amendments discussed above, we also amended our $50.0 million loan agreement with Diana Shipping dated May 20, 2013, as amended in July 2014 and September 2015, to, among other things, defer its repayment until the later of the repayment or prepayment in full of the Deferred Tranche under the RBS loan and September 15, 2018.
In November 2016, we sold the m/v Angeles (ex YM Los Angeles) to unrelated parties for demolition, for a sale price of $6.4 million, net of commissions. The vessel was delivered to her new owners in the same month.
In January 2017, we filed with the SEC a shelf registration statement on Form F-3, which was declared effective on March 7, 2017. The shelf registration statement gives us the ability to offer and sell, within a three year period, up to $250.0 million of our securities consisting of common shares, including related preferred stock purchase rights, preferred shares, debt securities, warrants, purchase contracts, rights and units. We may offer and sell such securities from time to time and through one or more methods of distribution, subject to market conditions and our capital needs.
In March 2017, we completed a registered direct offering of (i) 3,000 newly-designated Series B-1 convertible preferred shares, par value $0.01 per share, and common shares underlying such Series B-1 convertible preferred shares, and (ii) warrants to purchase 6,500 of Series B-1 convertible preferred shares, 6,500 of Series B-1 convertible preferred shares underlying such warrants, and common shares underlying such Series B-1 convertible preferred shares. Concurrently with the registered direct offering, we completed an offering of warrants to purchase 140,500 of Series B-2 convertible preferred shares in a private placement, in reliance on Regulation S under the Securities Act. The securities in the registered direct offering and private placement were issued and sold to Kalani Investments Limited, or Kalani, an entity not affiliated with us, pursuant to a Securities Purchase Agreement. In connection with the private placement, we entered into a Registration Rights Agreement with Kalani, pursuant to which the investor was granted certain registration rights with respect to the securities issued and sold in the private placement. In 2017, we received gross proceeds of $3.0 million from the sale of the 3,000 Series B-1 convertible preferred shares. Additionally, 29,500 preferred warrants were exercised during the period for the sale of an equal number of Series B-1 and Series B-2 preferred shares, and we received $29.5 million of gross proceeds for these shares until December 31, 2017. In 2017, from the 32,500 Series B preferred shares issued, 32,211 preferred shares were converted to 4,049,733 common shares and 289 Series B preferred shares remained outstanding as of December 31, 2017. Additionally, subsequent to the balance sheet date and up to March 14,In 2018, we received $7.5$17.5 million of gross proceeds from the exercise of 7,50017,490 Series B-2 preferred warrants to purchase an equal number of Series B-2 convertible preferred shares. In aggregate, subsequent to December 31, 2017, 7,493in 2018, 17,529 Series B-2 convertible preferred shares were converted to 2,840,14410,250,265 common shares, thus leaving 296250 Series B-2 convertible preferred shares outstanding on March 14,December 31, 2018. In 2019, we received $6.5 million of gross proceeds from the exercise of 6,470 Series B-2 preferred warrants to purchase an equal number of Series B-2 convertible preferred shares. In aggregate, in 2019, 5,220 Series B-2 convertible preferred shares were converted to 7,100,510 common shares, thus leaving 1,500 Series B-2 convertible preferred shares outstanding on December 31, 2019. Subsequent to December 31, 2019 and up to April 6, 2020, 1,100 Series B-2 convertible preferred shares were converted to 1,952,152 common shares, thus leaving 400 Series B-2 convertible preferred shares outstanding on April 6, 2020. On April 7, 2020, we entered into an agreement with Kalani and repurchased and cancelled all of our outstanding Series B-2 convertible preferred stock – see below.
In May 2017, we issued 100 shares of our newly-designated Series C Preferred Stock, par value $0.01 per share, to DSI, in exchange for a reduction of $3.0 million in the principal amount of our then outstanding loan with DSI, thus leaving an outstanding principal balance of $42.4 million on such loan. The Series C Preferred Stock hashad no dividend or liquidation rights. The Series C Preferred Stock votesvoted with our common shares, and each share of the Series C Preferred Stock entitlesentitled the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series C Preferred Stock together with its affiliates doesdid not exceed 49.0% of the total number of votes eligible to be cast on all matters submitted to a vote of our stockholders. As of December 31, 2017, the2019, 100 shares of Series C Preferred Stock remained outstanding. On March 26, 2020, we repurchased all 100 shares of Series C Preferred Stock outstanding from DSI and cancelled them- See “Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions.”
In May 2017, we sold the m/v Doukato (ex Cap Doukato) to an unrelated party, for a sale price of $6.0 million, net of commissions. The vessel was delivered to her new owners in June 2017.
In June 2017, we repaid to RBS an amount of $85.0 million as full and final settlement of our loan, which had an outstanding balance of $128.9 million as of the date of settlement, and the loan agreement was terminated. This settlement resulted in a gain of $42.2 million, net of expenses.
In June 2017, the repayment of the RBS loan discussed above was partially funded with $10.0 million from our own cash, with $40.0 million from a refinance of our then existing loan with DSIDiana Shipping and with $35.0 million from a new loan agreement with Addiewell Ltd, or Addiewell, an unrelated party. After the refinance of our then existing unsecured loan facility with DSI,Diana Shipping, the principal amount of the new secured loan amounted to $82.6 million, which included the $42.4 million outstanding principal balance as of June 30, 2017, increased by the flat fee of $0.2 million which was payable at maturity, and the additional drawdown of $40.0 million. The new loans with Addiewell and DSI,Diana Shipping, which arewere secured by first and second priority mortgages over our containerships, each would mature in eighteen months from their signing, or on December 31, 2018, and bearbore interest at the rate of 6% per annum for the first twelve months scaled to 9% for the next three months and further scaled to 12% for the remaining three months of the loans. Additionally, there iswas a discount premium amount of $10.0 million and $5.0 million for the loans with Addiewell and DSI,Diana Shipping, respectively. During 2017 and 2018, we gradually repaid $26.5 million of the outstanding balance on our loan with Addiewell and did not make any repayments to DSI. Up to March 14, 2018 we repaid an additional $8.5 million to Addiewell and also repaid $8.4 million to DSIbalances of both loans, by making use of equity and vessels'vessels’ sales proceeds. The entire loan balances of Addiewell and Diana Shipping were fully repaid, together with the applicable discount premiums, in May and July 2018, respectively, and the loan agreements were accordingly terminated.
In October 2017, we entered into two memoranda of agreement, as amended, to sell the vessels m/v March and m/v Great to unrelated parties, for a gross sale price of $11.0 million each, with expected deliverynet of commissions, and were delivered to thetheir new owners by the end ofin March 2018. We haveBoth vessels were classified both vessels as held for sale in the current assets of our 2017 consolidated balance sheets.
In
From February to May 2018, we entered into a memorandumfive memoranda of agreement to sell the m/v New Jersey (ex YM New Jersey), the m/v Sagitta, the m/v Centaurus, the m/v Puelo and the m/v Hamburg to unrelated parties, for an unrelated party for demolition, for aaggregate sale price of $9.4$71.7 million, net of commissions to the buyers.commissions. The vessel wasvessels were delivered to hertheir new owners between March and July of 2018.
In January 2019, we announced that our board of directors authorized a share repurchase program to purchase up to an aggregate of $6.0 million of our common shares, or the First Share Repurchase Program. The timing and amount of any repurchases would be determined by our management team, and would depend on March 12, 2018.market conditions, capital allocation alternatives, applicable securities laws and other factors. The board of directors’ authorization of the First Share Repurchase Program was effective immediately and expired on December 21, 2019. No common shares were repurchased as part of this program until its expiration.
In January 2019, we announced that we received written notification from The Nasdaq Stock Market LLC, or Nasdaq, dated January 10, 2019, indicating that because the closing bid price of our common stock for 30 consecutive business days was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq Global Select Market, we were not in compliance with Nasdaq Listing Rule 5450(a)(1). The applicable grace period to regain compliance was 180 days, or until July 9, 2019. We regained compliance on April 4, 2019 and thus cured this deficiency within the prescribed grace period.
In February 2019, we issued 5,747,786 restricted common shares as a one-time special award to the executive management and the non-executive directors, pursuant to our board of directors’ decision of February 15, 2018, in recognition of the successful refinancing of the RBS loan in 2017, which resulted in a significant gain of $42.2 million, net of expenses. The fair value of the award is $5.0 million and the number of shares issued was based on the share closing price of February 15, 2019. One third of the shares vested as of the issuance date and the remainder two thirds will vest ratably over two years from the issuance date.
In February 2019, the affirmative vote of a majority of all votes eligible to be cast by Shareholders entitled to attend and vote at our Annual Meeting of Shareholders approved an amendment to our Amended and Restated Articles of Incorporation to change our name to “Performance Shipping Inc.”, which was effected on February 25, 2019. Our common shares traded on the NASDAQ stock exchange under the ticker “DCIX” until March 30, 2020, whereupon they commenced trading under the ticker “PSHG.”
In June and November 2019, under two separate transactions, we acquired the entities Taburao Shipping Company Inc., Tarawa Shipping Company Inc. and Rongelap Shipping Company Inc., which were affiliated with our CEO and Chairman, Mr. Symeon Palios, for an aggregate purchase price of $21.0 million. Prior to their acquisition by us, each of the three newly-acquired entities had signed contracts to purchase one Aframax tanker vessel each, the Blue Moon, the Briolette and the P. Fos (ex Virgo Sun) from unaffiliated third party sellers for a purchase price of $30.0 million, $30.0 million and $26.0 million respectively, and had paid advance deposits of $8.0 million, $2.0 million and $11.0 million, respectively, in connection therewith. In exchange for the acquisition of the aforementioned entities, we agreed to pay a price equal to the aggregate deposits previously paid to the vessels’ sellers. We paid the $21.0 million aggregate purchase price for the previously signed contracts of the Blue Moon, the Briolette and the P. Fos (ex Virgo Sun) in our common shares. Both transactions, which were unanimously approved by the disinterested members of our board of directors, resulted in the issuance of an aggregate number of 21,709,474 of our common shares during 2019.
Also in June 2019, we entered into Amendment No. 1 to the First Amended and Restated Shareholders Rights Agreement, dated as of August 28, 2016, by and between the Company and Computershare Trust Company, N.A., or the Rights Agreement, to amend the definition of “Acquiring Person” set out in the Rights Agreement.
In July 2019, we, through Taburao Shipping Company Inc. and Tarawa Shipping Company Inc. (the “Initial Borrowers”), entered into a loan agreement with Nordea for a senior secured term loan facility of up to $33.0 million. The purpose of the loan facility was to partially finance the acquisition cost of the tanker vessels Blue Moon and Briolette, discussed above.
In August and November 2019, we took delivery of the tanker vessels Blue Moon and Briolette respectively, and drew down the maximum amount of $16.5 million for each vessel, according to the Nordea loan agreement terms.
In August and September 2019, we entered into two memoranda of agreement to sell the container vessels m/v Sagitta Pamina and m/v CentaurusPucon to unrelated parties, for an aggregate sale price of $29.0 million, net of commissions. The vessels were delivered to their new owners in October and November 2019, respectively.
In September 2019, we announced that we received written notification from The Nasdaq Stock Market LLC, or Nasdaq, dated September 6, 2019, indicating that because the closing bid price of our common stock for 30 consecutive business days was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq Global Select Market, we were not in compliance with Nasdaq Listing Rule 5450(a)(1). The applicable grace period to regain compliance was 180 days, or until March 4, 2020. On March 5, 2020, NASDAQ approved our application to list our common stock on the NASDAQ Capital Market and our securities were transferred to NASDAQ Capital Market at the opening of business on March 6, 2020. Moreover, NASDAQ notified us that in connection with the transfer of our securities to the NASDAQ Capital Market, we were granted an additional 180 calendar days, until August 31, 2020, in order to regain compliance with the minimum $1.00 bid price per share requirement.
In December 2019, we, through the “Initial Borrowers” and Rongelap Shipping Company Inc. (collectively “the Borrowers”), entered into an amended and restated loan agreement with Nordea for a senior secured term loan facility of up to $47.0 million. The purpose of the amended agreement is to provide additional financing of up to $14.0 million for the acquisition of the tanker vessel P. Fos (ex Virgo Sun), discussed above. The amended agreement includes substantively identical terms to the initial agreement of July 2019, discussed above, in all other respects.
In January 2020, we took delivery of the tanker vessel P. Fos (ex Virgo Sun) and drew down the maximum amount of $14.0 million under the amended loan agreement with Nordea, as discussed above.
Also, in January 2020, we announced that our board of directors authorized a share repurchase program to purchase up to an unrelated party,aggregate of $6.0 million of our common shares. The timing and amount of the repurchases is determined by our management team, and depends on market conditions, capital allocation alternatives, applicable securities laws and other factors. From inception on January 29, 2020 and until April 9, 2020, we have repurchased 452,768 common shares of $0.4 million aggregate gross value. We cancel all common shares repurchased as part of this program. Our board of directors’ authorization of the repurchase program will expire on December 21, 2020.
Also in January 2020, we contracted to sell to unaffiliated parties the container vessel Rotterdam, for a gross sale price of $12.3 million each.$18.5 million. The vessels are expected to bevessel was delivered to her new owners on April 1, 2020.
In February 2020, we contracted to acquire from unaffiliated parties the buyertanker vessel P. Kikuma (ex FSL Shanghai), for a gross sale price of $26.0 million. The vessel was delivered to us on March 30, 2020 and we funded its acquisition cost with cash on hand and bank financing – see below.
On February 18, 2020, the election of Mr. Andreas Michalopoulos as Class I Director of the Company was approved by the requisite vote at our 2020 Annual General Meeting of Shareholders, or the latest2020 Annual Meeting. Also effective as of the date of the 2020 Annual Meeting, Mr. Anastasios Margaronis, Mr. Nikolaos Petmezas and Mr. Ioannis Zafirakis have resigned from our board of directors due to other business commitments. Our board of directors appointed Mr. Christos Glavanis and Mrs. Aliki Paliou to the board of directors, effective as of February 28, 2020, to fill the existing vacancies created by the resignations of Messrs Margaronis and Petmezas. Mr. Glavanis was also appointed as Chairman of the Compensation Committee. Finally, also effective February 28, 2020, Mr. Anastasios Margaronis has resigned from his position as our President, Mr. Ioannis Zafirakis has resigned as our Chief Strategy Officer and Secretary, and Mrs. Semiramis Paliou has resigned as our Chief Operating Officer, in order to devote substantially all of their business time to other endeavors. On the same date, Mr. Michalopoulos has been appointed to replace Mr. Zafirakis as Secretary. Since October 31, 2019, Mr. Andreas Michalopoulos also holds the position of Deputy Chief Executive Officer.
On March 1, 2020, we early terminated our Brokerage Agreement with Steamship Shipbroking, which was originally due to expire on March 31, 2020, at no cost.
On March 20, 2020, we signed the second amendment and restatement loan agreement with Nordea, which increases the maximum loan amount to $59.0 million. The purpose of the amended loan facility is to additionally finance the acquisition cost of the vessel P. Kikuma (ex FSL Shanghai), described above, by $12.0 million. The second amendment and restatement loan agreement includes substantively identical terms to the previous loan agreement of December 2019. On March 26, 2020, we drew down the amount of $12.0 million in anticipation of the vessels’ P. Kikuma delivery – see above.
On March 23, 2020, the disinterested members of our board of directors approved the repurchase of all of the shares of our Series C Preferred Stock, held by DSI since 2017, for a purchase price of $1.5 million. Our board of directors had previously obtained from an independent third party a fairness opinion for the transaction. On March 25, 2020 we agreed with DSI for the re-purchase of the shares and on March 26, 2020 we paid the purchase price of $1.5 million and cancelled all of the shares of our Series C Preferred Stock. See “Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions.”
On March 30, 2020, our ticker symbol on Nasdaq has changed from “DCIX” to “PSHG.”
On April 27, 2018.7, 2020, we entered into an agreement with Kalani and re-purchased all 400 outstanding Series B-2 convertible preferred shares, discussed above, for a purchase price of $0.4 million. We cancelled these shares upon the conclusion of the transaction.
| B. | Business Overviewoverview |
We are a corporation formed under the laws of the Republic of the Marshall Islands on January 7, 2010. We were founded to own containerships and pursue containership acquisition opportunities. In August 2019 our first tanker vessel was delivered and since then we have expanded our fleet of tanker vessels.
As of the date of this annual report, our fleet consists of four panamax and six post-panamax containerships, including the fourAframax tanker vessels, we have contracted to sell and have not yet delivered to their buyers, with a combined carrying capacity of 52,855440,703 DWT and a weighted average age of 10.9 years and also of one Panamax containership, with a carrying capacity of 3,739 TEU and an age of 19.1 years. As of December 31, 2019, our fleet consisted of two Aframax tanker vessels, with a combined carrying capacity of 209,211 DWT and a weighted average age of 8.5 years and also of one Panamax and one Post-Panamax containerships, with a combined carrying capacity of 10,233 TEU and a weighted average age of 11.514.1 years.
As atof December 31, 2018, our fleet consisted of two Panamax and two Post-Panamax containerships with a combined carrying capacity of 21,816 TEU and a weighted average age of 13.0 years.
As of December 31, 2017, our fleet consisted of five panamaxPanamax and six post-panamaxPost-Panamax containerships, including the two vessels we were contracted to sell as of that date, with a combined carrying capacity of 57,778 TEU and a weighted average age of 11.3 years. As at December 31, 2016, our fleet consisted of six panamax and six post-panamax containerships with a combined carrying capacity of 61,517 TEU and a weighted average age of 10.6 years. As at December 31, 2015, our fleet consisted of eight panamax and six post-panamax containerships with a combined carrying capacity of 70,464 TEU and a weighted average age of 10.3 years.
During 2017, 20162019, 2018 and 2015,2017, we had a fleet utilization of 75.9%92.4%, 69.8%95.3%, and 92.0%75.9%, respectively, our vessels achieved a daily time charter equivalent rate of $5,320, $6,341,$15,435, $10,639, and $13,192,$5,320, respectively, and we generated voyage and time charter revenues net of prepaid charter revenue amortization, of$26.8 million, $25.6 million and $23.8 million, $33.2 million and $62.2 million, respectively.
Set forth below is summary information concerning our fleet as at March 15, 2018.of April 9, 2020.
| Vessel | Sister Ships* | Gross Rate (USD Per Day) | | Com** | Charterers | Delivery Date to Charterers*** | Redelivery Date to Owners**** | Notes |
| BUILT TEU | |
| 4 Panamax Container Vessels |
| | | | | | | | | |
| SAGITTA | A | $8,400 | | 1.25% | Hapag-Lloyd AG | 15-Aug-17 | 15-Feb-18 | 1 |
| | | $8,400 | | 1.25% | 15-Feb-18 | 15-May-18 - 15-Jul-18 | |
| 2010 3,426 | | | | | | | | |
| CENTAURUS | A | $7,950 | | 3.50% | CMA CGM | 23-Aug-17 | 23-Apr-18 - 23-Aug-18 | 1 |
| 2010 3,426 | | | | | | | | |
| NEW JERSEY | | - | | - | - | - | - - - | 2,3 |
| (ex YM New Jersey) | | | | | | | | |
| 2006 4,923 | | | | | | | | |
| PAMINA | | $9,500 | | 3.75% | Orient Overseas Container Line Ltd. | 12-Sep-17 | 12-Apr-18 - 12-Sep-18 | |
| (ex Santa Pamina) | | | | | | | |
| 2005 5,042 | | | | | | | | |
| DOMINGO | | $8,500 | | 3.50% | CMA CGM | 14-Sep-17 | 14-May-18 - 14-Aug-18 | |
| (ex Cap Domingo) | | | | | | | | |
| 2001 3,739 | | | | | | | | |
| | | | | | | | | |
| 6 Post - Panamax Container Vessels |
| | | | | | | | | |
| PUELO | B | $10,600/$12,000 | | 5.00% | Maersk Lines A/S | 1-Aug-17 | 1-Apr-18 - 1-Feb-19 | 4 |
| 2006 6,541 | | | | | | | | |
| PUCON | B | $10,750 | | 3.75% | Orient Overseas Container Line Ltd. | 27-Apr-17 | 27-Apr-18 - 26-Jun-18 | |
| 2006 6,541 | | | | | | | |
| MARCH | C | $6,850 | | 1.25% | Hapag-Lloyd AG | 15-Feb-17 | 19-Mar-18 - 30-Mar-18 | 5,6,7 |
| (ex YM March) | | | | | | | | |
| 2004 5,576 | | | | | | | | |
| GREAT | C | $7,300 | | 3.75% | Orient Overseas Container Line Ltd. | 8-Apr-17 | 16-Mar-18 | 5,7 |
| (ex YM Great) | | | | | | | |
| 2004 5,576 | | | | | | | | |
| HAMBURG | D | $11,000 | | 3.75% | Wan Hai Lines (Singapore) Pte Ltd. | 1-Dec-17 | 31-Mar-18 - 9-Jul-18 | |
| | | | | | | | |
| 2009 6,494 | | | | | | | | |
| ROTTERDAM | D | $6,890 | | 3.50% | CMA CGM | 7-Mar-17 | 7-Jan-18 | |
| | | $13,150 | | 3.75% | Wan Hai Lines (Singapore) Pte Ltd. | 25-Jan-18 | 25-May-18 - 14-Jul-18 | |
| 2008 6,494 | | | | | | | |
* Each container vessel is a "sister ship", or closely similar, to other container vessels that have the same letter. |
** Total commission paid to third parties. |
*** In case of newly acquired vessel with time charter attached, this date refers to the expected/actual date of delivery of the vessel to the Company. |
**** Range of redelivery dates, with the actual date of redelivery being at the Charterers' option, but subject to the terms, conditions, and exceptions of the particular charterparty. |
1 Vessel sold and expected to be delivered to her new owners at the latest by April 27, 2018. |
2 As of October 11, 2016, vessel has been placed into lay-up, in Malaysia. |
3 "New Jersey" sold and delivered to her new owners on March 12, 2018. |
4 The gross charter rate is US$10,600 per day for the first eight (8) months of the charter period and US$12,000 per day for the balance period of the time charter. The charterer has the option to redeliver the vessel any time between April 1, 2018 and February 1, 2019. |
5 Based on latest information. |
6 Charterers will pay US$1 per day for the first 15 days of the charter period. |
7 Vessel sold and expected to be delivered to her new owners at the latest by March 30, 2018. |
| Fleet Employment Profile (As of April 9, 2020) | |
| Performance Shipping Inc.’s fleet is employed as follows: | |
| | | | | | | |
| Vessel | Gross Rate (USD Per Day) | Com* | Charterers | Delivery Date to
Charterers** | Redelivery Date to Owners*** | Notes |
| BUILT CAPACITY |
| 4 Aframax Tanker Vessels |
| BLUE MOON | Spot | - | - | - | - - - | |
| 2011 104,623DWT | | | | | | |
| BRIOLETTE | Spot | - | - | - | - - - | |
| 2011 104,588DWT | | | | | | |
| P. FOS | Spot | - | - | - | - - - | |
| 2007 115,577DWT | | | | | | |
| P. KIKUMA | Spot | - | - | - | - - - | |
| (ex FSL Shanghai) | | | | | | |
| 2007 115,915DWT | | | | | | |
| | | | | | | |
| 1 Panamax Container Vessel |
| | | | | | | |
| DOMINGO | $11,850 | 3.50% | CMA CGM | 15-Jan-20 | 6-Apr-20 | |
| | $10,500 | 3.50% | 6-Apr-20 | 29-Jun-20 | |
| 2001 3,739TEU | | | | | | |
| | | | | | | |
| * Total commission paid to third parties. |
** In case of newly acquired vessel with time charter attached, this date refers to the expected/actual date of delivery of the vessel to the Company. *** Range of redelivery dates, with the actual date of redelivery being at the Charterers’ option, but subject to the terms, conditions, and exceptions of the particular charterparty. |
Potential Conflicts of Interest
Our Management Team
Our management team is responsible for the strategic management of our company, including the development of our business plan. Strategic management also involves, among other things, locating, purchasing, financing and selling vessels. Our management team is led by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, who founded the predecessors of Diana Shipping and DSS in 1972. Mr. Palios has servedalso acts as the Chief Executive Officer and Chairman of the Board of Diana Shipping Inc. since 2005 and as a director since 1999. Mr. Anastasios Margaronis, our President and a director, also serves as President and as a director of Diana Shipping Inc. and has been employed by the Diana Shipping group of companies since 1979. Mr. Ioannis Zafirakis, our Chief Operating Officer, Secretary and a director, also serves as Chief Operating Officer and Secretary and a director of Diana Shipping Inc. and has been employed by the Diana Shipping group of companies since 1997. Mr. Andreas Michalopoulos, our Chief Financial Officer and Treasurer, has held these same offices with Diana Shipping Inc. since 2006.
Our management team has experience in multiple sectors of the international shipping industry, including the containership sector, and a proven track record of strategic growth beginning with the formation of the Diana Shipping group of companies in 1972. Our management team is responsible for identifying assets for acquisition at appropriate times and for the operation of our business in order to build our fleet and effectively manage our growth.
Potential Conflicts of Interest
Our management team is comprised of four executive officers who are also executive officers of Diana Shipping and three of such executive officers serve on our board of directors as well as the board of directors of Diana Shipping. Our officers and directors haveChief Executive Officer has fiduciary duties to manage our business in a manner beneficial to us and our shareholders, and also havehas fiduciary duties to manage the business of Diana Shipping and its affiliates in a manner beneficial to such entities and their shareholders. Consequently, these officers and directorsour Chief Executive Officer may encounter situations in which theirhis fiduciary obligationsobligations to Diana Shipping and us are in conflict. Furthermore, although Diana Shipping is contractually restricted from competing with us in the containership industry, there may be other business opportunities for which Diana Shipping may compete with us such as hiring employees, acquiring other businesses, or entering into joint ventures, which could have a material adverse effect on our business. In addition, we are contractually restricted from competing with Diana Shipping in the dry bulk carrier sector, which limits our ability to expand our operations. Additionally, our Deputy Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary, Mr. Andreas Michalopoulos, served as Director, Chief Financial Officer and Treasurer of Diana Shipping until his resignation from such positions at Diana Shipping Inc. in February 2020. Furthermore, as described more fully below, certain of our now-resigned directors and executive officers, Mr. Anastasios Margaronis, Mr. Ioannis Zafirakis and Mrs. Semiramis Paliou, served as directors and/or executive officers of Diana Shipping during the period covered by this annual report.
Management of Our Fleet
The business of Diana ContainershipsPerformance Shipping Inc. is the ownership of containerships. Diana Containershipsvessels. Performance Shipping Inc. wholly owns, directly or indirectly, the subsidiaries which own the vessels that comprise our fleet. The holding company sets the general overall direction for the company and interfaces with various financial markets. The commercial and technical management of our fleet, as well as the provision of administrative services relating to the fleet'sfleet’s operations, arehave been carried out since March 1, 2013, by UOT, our in-house fleet manager. In exchange for providing us with commercial and technical services, we pay our Manager a commission that is equal to 2% of our gross revenues, a fixed management fee of $15,000 per month for each vessel in operation and a fixed monthly fee of $7,500 for laid-up vessels, if any. In addition, pursuantPursuant to an Administrative Services Agreement, we pay to UOT a fixed monthly administrative fee of $10,000, in exchange for providing us with accounting, administrative, financial reporting and other services necessary for the operation of our business. In addition, in exchange for providing us with commercial and technical services, we pay to UOT a commission of 2.00% of our gross revenues, a fixed management fee of $15,000 per month for each vessel in operation and a fixed monthly fee of $7,500 for laid-up vessels, if any. For as long as part of the management services is assigned to third-party managers (see below), we pay to UOT a reduced monthly management fee in the range of $1,000 to $5,000, and a commission of 1.00% or 2.00% of our gross revenues, depending on the level of involvement of the third-party managers. These amounts are considered inter-company transactions and are, therefore, eliminated from our consolidated financial statements.
Moreover, in August 2019, upon delivery of the tanker vessel Blue Moon, we appointed Maersk Tankers A/S (“Maersk Tankers”), an unaffiliated entity, to provide commercial and technical management services for the vessel on a temporary basis. The commercial and technical services provided to the vessel Blue Moon were terminated in December 2019 and February 2020, respectively. Also, in November 2019, upon delivery of the tanker vessel Briolette, we also appointed Maersk Tankers to provide technical management services for the vessel on a temporary basis. For any laid-upas long as Maersk Tankers were providing commercial management services to the vessel Blue Moon, they received a daily fee of $275 per vessel plus 1.25% commission on the vessel’s gross income. For the technical management services that Maersk Tankers provided to the vessel Blue Moon until February 2020, and for the technical management fees they still provide to Briolette, they receive a daily fee of $570 per vessel. When we terminate the commercial and/or technical management agreements with Maersk, UOT is appointed to provide these services to our tanker vessels, for the fees and commissions described above.
Furthermore, in late December 2019, UOT has appointed Diana Wilhelmsen Management Limited (“DWM”), to provide management services to our container vessels Rotterdam and Domingo. DWM was an affiliated entity to us until February 2020 . See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.” For the technical management services, we pay to DWM a fixed management fee of $9,000 per month. DWM has provided commercial management services to our fleet,two container vessels until March 1, 2020, for a fixed fee of $5,000 per month and 1.00% commissions on the vessels’ gross income, and on March 1, 2020, the commercial agreements were terminated. Upon termination of the commercial management services by DWM, UOT was appointed to provide these services to our container vessels, for the fees and commissions described above.
From 2016 to 2018, in addition to the management services provided by UOT, we have also appointed Wilhelmsen Ship Management LTD, an unaffiliated third party, to provide specific management services in relation to the laying-up for a fixed monthly fee for each laid-up vessel.
Business Strategy
Strategically deploy
Our primary objective is to operate our vessels in order to optimize the opportunities in the time charter market
We intend to actively monitor market conditions, charter rates and vessel operating expenses in order to selectively employ vessels as market conditions warrant. In the near term we intend to enter into short-term time charters to allowbusiness on behalf of our shareholders to benefit from what we believe to be an improving charter rate environment. Depending on market conditions, in the future we might enter into long-term time charters at ratesa manner that compare favorably to historical averages, shielding us from charter rate decreases and cyclical fluctuations. We believe that maintaining staggered charter maturities will provide usis consistent with the flexibility to capitalize on favorable market conditions, while providing us with a baseour business strategy. The key elements of strong, visible cash flows.our strategy are:
Fleet
Acquire high quality containershipsvessels throughout the shipping cycle
cycle: At times when we have sufficient funds and we are not restricted under the terms ofby our loan agreementslenders or forby any other reason,party from doing so, we will seek to provide attractive returns to our investors by making accretive acquisitions of high quality containershipsvessels in the secondhand market, including from shipyards and lending institutions. Over time, we expect that asset prices and charter rates will increase and that we will continue to seek to make acquisitions that meet our investment criteria. Because members of our senior management team have successfully navigated previous market cycles, we believe that we have the experience and discipline to capitalize on market movements. We will continueaim to initially focus on vessels ranging from 3,500 TEU to 8,500 TEU because we believe that the current orderbook composition, coupled with global GDP growth, creates a favorable multi-year dynamicgrow our fleet through selective acquisitions of supply and demand for these mid-sized containerships. Assecondhand vessels. However, as industry dynamics change, we might also opportunistically acquire containerships outside of this range as well as enter into newbuilding contracts with shipyards on terms that meet our acquisition criteria.When evaluating acquisitions, we expect to consider and analyze our expectation of fundamental developments in the seaborne transportation, changes in trading patterns, the cash flow earned by the target vessel relative to its value, as well as its condition and technical specifications.
Commercial
Strategically deploy our vessels in order to optimize the opportunities in the time charter and spot market. We intend to actively monitor market conditions, charter rates and vessel operating expenses in order to selectively employ vessels as market conditions warrant. Depending on market conditions, in the future we might enter into a mixture of charter types (short or long-term time charters or spot voyages), at rates that compare favorably to historical averages, shielding us from charter rate decreases and cyclical fluctuations. We believe that maintaining staggered charter maturities will provide us with a base of strong, visible cash flows with the flexibility to capitalize on favorable market conditions, and that employing part of our fleet in the spot market will enable us to capture increased profit margins during periods of improved charter rates.
Leverage Established Commercial Relationships. We expect to capitalize on our commercial and technical management team’s long-standing relationships with leading charterers. We believe that our experienced management team can assist us in securing employment for our vessels and provide us with an established and diverse customer base in both western and eastern hemisphere geographical basins.
Management
Significant Management Expertise. We believe that our executive management team has extensive public company and vessel operations experience. In the competitive shipping market, charterers are typically focused on the quality of vessel operators and we believe that our wholly- owned subsidiary fleet manager, UOT, has a reputation as a respected commercial and technical manager. The long experience of our executive, commercial and technical management team gives us confidence that we have established relationships with charterers, financial institutions, insurers, suppliers, ship repair yards and other industry participants. We believe that these relationships will assist us in further developing our position as a sought-after business partner with our charterers and provide access to attractive acquisition opportunities.
Highly Efficient Operations. We believe that the skills of our executive management team, backed by an experienced commercial and technical team, can position us as a cost-efficient and reliable company, due to the quality and maintenance standards of our fleet. We intend to actively monitor and seek to control vessel operating expenses without compromising the quality of our vessels by utilizing regular inspection and maintenance programs, employing and retaining qualified crew members and taking advantage of the economies of scale that we expect to enjoy when we acquire additional vessels.
Financial
Equity Capital Reliance and Low Leverage Strategy. We believe that maintaining a low level of indebtedness will allow us to operate in adverse market conditions. Going forward, we expect to rely on follow-on offerings of shares of our common stock to fund the acquisition of additional secondhand vessels. Consistent with our low leverage strategy, we may enter into new credit agreements or access the public or private debt markets to fund the remaining portion of these acquisitions. We expect the issuance of shares of our common stock to grow our fleet and increase our market capitalization, the trading activity for the shares of our common stock and the number of such shares held by non-affiliated shareholders, but there can be no assurances that such increases will materialize. In addition, our reliance on follow-on offerings of our shares of common stock may significantly dilute existing shareholders.
Governance
In-House Management. We wholly own the subsidiaries that own the vessels comprising our fleet. Our executive management team’s responsibilities include working to ensure the implementation of our business strategy, general corporate oversight, interfacing with financial markets and supervising the commercial and technical management teams. The commercial and technical management of our fleet, as well as the provision of administrative services relating to the fleet’s operations, have been carried out since March 1, 2013, by our wholly-owned subsidiary, UOT, our fleet manager, while third party managers may be appointed from time to time to provide management services, usually on a temporary basis. For accounting and administrative purposes only, in exchange for providing us with commercial and technical services, we pay UOT certain fees and commissions. These amounts payable to UOT are considered inter-company transactions and are, therefore, eliminated from our consolidated financial statements.
Transparent Corporate Structure. In addition to performing all management functions in-house, we maintain a majority independent board of directors comprising of individuals with extensive experience in all aspects of our business. Members of our executive, commercial and technical management teams, with the exception of our Chairman and Chief Executive Officer, do not have any duties related to other public or private shipping companies. During the period covered by this annual report, our Deputy Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary, Mr. Andreas Michalopoulos, served as Director, Chief Financial Officer and Treasurer of Diana Shipping until his resignation from such positions at Diana Shipping in February 2020. Furthermore, certain of our now-resigned directors and executive officers, Mr. Anastasios Margaronis, Mr. Ioannis Zafirakis and Mrs. Semiramis Paliou, served as directors and/or executive officers of Diana Shipping during the period covered by this annual report. As described elsewhere in this annual report, Mr. Anastasios Margaronis, Mr. Ioannis Zafirakis and Mrs. Semiramis Paliou resigned from such positions at Performance Shipping Inc. in February 2020. (Please see “Item 4. Information on the Company—A. History and Development of the Company.”)
Our Customers
Our customers include national, regional, and international companies, such as Maersk Lines A/S, CMA CGM, Hapag-Lloyd AG,Hyundai Merchant Marine Co Ltd., Orient Overseas Container Line Ltd. and Wan Hai Lines (Singapore) Pte Ltd. During 2019, five of our charterers accounted for 81% of our revenues: Wan Hai Lines (Singapore) Pte. Ltd (31%), Hyundai Merchant Marine Co Ltd., (11%), CMA CGM (16%), Orient Overseas Container Line Ltd (10%) and Lukoil Asia Pacific (13%). During 2018, three of our charterers accounted for 80% of our revenues: CMA CGM (19%), Orient Overseas Container Line Ltd (32%) and Wan Hai Lines (Singapore) Pte. Ltd (29%). During 2017, three of our charterers accounted for 77% of our revenues: Hapag-Lloyd AG (18%), Orient Overseas Container Line Ltd (24%) and CMA CGM (35%). During 2016, three of our charterers accounted for 67% of our revenues: Yang Ming (UK)Ltd (34%), Maersk Line A/S (22%) and CMA CGM (11%). During 2015, five of our charterers accounted for 83% of our revenues: Yang Ming (UK)Ltd (25%), Maersk Line A/S (11%), Reederei Santa Containerschiffe / Rudolf A. Oetker KG (10%), CSAV Valparaiso / Hapag Lloyd A.G Hamburg (24%) and Hanjin Shipping Co. Ltd (13%). We believe that developing strong relationships with the end users of our services allows us to better satisfy their needs with appropriate and capable vessels. A prospective charterer'scharterer’s financial condition, creditworthiness, reliability and track record are important factors in negotiating our vessels'vessels’ employment.
The Container Shipping Industry
The containers used in maritime transportation are steel boxes of standard dimensions. The standard unit of measure of volume or capacity in container shipping is the 20-foot equivalent unit, or TEU, representing a container which is 20 feet long and typically 8.5 feet high and 8 feet wide. In recent years, 40-foot long containers (9.5 feet high), equivalent to two TEU, have increasingly been used by large retailers to move lightweight, fast moving consumer goods across the globe. There are specialized containers of both sizes to carry refrigerated perishables or frozen products, as well as tank containers that carry liquids such as liquefied gases, spirits or chemicals.
A container shipment begins at the shipper'sshipper’s premises with the delivery of an empty container. Once the container has been filled with cargo, it is transported by truck, rail or barge to a container port, where it is loaded onto a containership. The container is shipped either directly to the destination port or through an intermediate port where it is transferred to another vessel, an activity referred to as transshipment. When the container arrives at its destination port, it is off-loaded and delivered to the receiver'sreceiver’s premises by truck, rail or barge.
Container shipping has a number of advantages compared with other shipping methods, including:
Containers provide a secure environment for cargo. The contents of a container, once loaded into the container, are not directly handled until they reach their final destination. Using other shipping methods, cargo may be loaded and discharged several times, resulting in a greater risk of breakage and loss.
| · | Efficient Port Turnaround |
Efficient Port Turnaround
With specialized cranes and other terminal equipment, containerships can be loaded and unloaded in significantly less time and at lower cost than other cargo vessels.
| · | Highly Developed Intermodal Network |
Highly Developed Intermodal Network
Onshore movement of containerized cargo, from points of origin, around container ports, staging or storage areas, and to final destinations, benefits from the physical integration of the container with other transportation equipment such as road chassis, railcars and other means of hauling the standard-sized containers. Sophisticated port and intermodal industries have developed to support container transportation.
Containerships can travel at a speed of up to 25 knots per hour, even in rough seas, thereby transporting cargo over long distances in shorter periods of time. Such speed reduces transit time and facilitates the timeliness of regular scheduled port calls, compared to general cargo shipping. However, since 2008, due to higher fuel prices and the negative effects of the global recession, most operators have reduced speeds and deployed more ships on some voyage strings. This has also had a positive environmental effect in helping reduce ship emissions.
Types of Container Ships
Containerships are typically "cellular,"“cellular,” which means they are equipped with metal guide rails to allow for rapid loading and unloading, and provide for more secure carriage. Partly cellular containerships include roll-on/roll-off vessels, or "ro-ro"“ro-ro” ships, designed to carry chassis and trailers, and multipurpose ships which can carry a variety of cargo including containers.
The main categories of containerships are broadly as follows:
"“Very large"large” ships (with capacity in excess of 10,000 TEU) are currently exclusively deployed on the Asia-North Europe and Mediterranean and Transpacific trades. Middle East trades may at some stage see the regular deployment of ships with capacity exceeding 10,000 TEU.
Large ships have a capacity of 8,000 to 9,999 TEU and are currently deployed on the Transpacific, Asia-Middle East and Asia to Latin America trades.
Ships with a capacity of 5,000 to 7,999 TEU, so-called because of their inability to transit through the existing Panama Canal due to dimension restrictions. However, the Panama Canal was widened in 2016, and the expansion allows ships with capacity of up to about 13,000 TEU to transit the waterway. Ships of this size can be considered the workhorses of many smaller or emerging trade routes outside of the main east-west arteries.
Ships with a capacity between 3,000 to 4,999 TEU.
In this category, the ships range in capacity between 2,000 and 2,999 TEU and are generally able to operate on all trades.
Smaller ships with capacities ranging from 1,000 to 1,999 TEU, for use in regional trades – a primary example being the intra-Asian trades.
Ships with a capacity of less than 1,000 TEU, which are usually employed as feeder vessels on trades to and from hub ports or on small niche trades or domestic routes.
Containership Newbuilding Prices
The factors which influence new-built prices include ship type, shipyard capacity, demand for ships, "berth cover"“berth cover”, i.e., the forward book of business of shipyards, buyer relationships with the yard, individual design specifications, including fuel efficiency or environmental features and the price of ship materials, engine and machinery equipment and particularly the price of steel.
Containership Secondhand Prices
Vessel values are primarily driven by supply and demand for vessels. During extended periods of high demand, as evidenced by high charter rates, secondhand vessel values tend to appreciate and during periods of low demand, evidenced by low charter rates, vessel values tend to decline. Vessel values are also influenced by age and specification and by the replacement cost (new-built price) in the case of vessels up to five years old.
Values for younger vessels tend to fluctuate on a percentage, if not on a nominal, basis less than values for older vessels. This is due to the fact that younger vessels with a longer remaining economic life are less susceptible to the level of charter rates than older vessels with limited remaining economic life.
Vessels are usually sold through specialized brokers who report transactions to the maritime transportation industry on a regular basis. The sale and purchase market for vessels is usually quite transparent and liquid, with a number of vessels changing hands on an annual basis.
Containership Charter Rates
The main factors affecting vessel charter rates are primarily the supply and demand for container shipping. The shorter the charter period, the greater the vessel charter rate is affected by the current supply to demand balance and by the current phase of the market cycle (high point or low point). For longer charter periods, from three years to ten years, vessel charter rates tend to be more stable and less cyclical because the period may cover not only a particular phase of a market cycle, but a full market cycle or several market cycles. Other factors affecting charter rates include the age and characteristics of the ships (including fuel consumption, speed, wide beam, shallow draft, whether geared or gearless), the price of new-built and secondhand ships (buying as an alternative to chartering ships) and market conditions.
Container Freight Rates
Factors that drive vessel charter rates also affect container freight rates. Container freight rates are primarily driven by the supply and demand for container shipping, the cost of operating ships, fuel prices, and carrier behavior, including inter-carrier competition. To some extent, container freight rates are also affected by market conditions.
The Clarksons average Containerships Earnings Index wasTanker Shipping Industry
The oil tanker shipping industry constitutes a vital link in January 2018 at 54, the highest rate recorded since August 2015.
Global Container Trade
According to industry sources, the global container trade grewenergy supply chain, in which tanker vessels play a critical role by approximately 2.7%carrying large quantities of crude oil. The rationale behind this is that only tanker vessels can carry crude oil from one continent to the other and across the oceans based on practical and economical terms. The shipping of crude oil is the only transportation method that implies the lower cost per oil barrel compare to other methods such as pipelines.
Αn oil tanker shipping company earns revenues by the freight rates paid for transportation capacity. Freight is paid for the movement of cargo between a load port and a discharge port. The cost of moving the ship from a discharge port to the next load port is not directly compensated by the charterers in 2017.
Disclosure Pursuant to Section 13(r)the freight payment but is an expense of the Securities Exchange Actowners if not on time charter.
Types of 1934Crude Tanker Vessels
The disclosure below does not relatemain categories of crude tanker vessels are:
VLCCs, with an oil cargo carrying capacity in excess of 200,000 dwt (typically 300,000 to any activities conducted320,000 dwt or approximately two million barrels). VLCCs generally trade on long-haul routes from the Middle East and West Africa to Asia, Europe and the U.S. Gulf or the Caribbean.
Suezmax tankers, with an oil cargo carrying capacity of approximately 120,000 to 200,000 dwt (typically 150,000 to 160,000 dwt or approximately one million barrels). Suezmax tankers are engaged in a range of crude oil trades across a number of major loading zones.
Aframax tankers, with an oil cargo carrying capacity of approximately 80,000 to 120,000 dwt (or approximately 500,000 barrels). Aframax tankers are employed in shorter regional trades, mainly in North West Europe, the Caribbean, the Mediterranean and Asia.
Tanker Newbuilding Prices
The factors which influence new-built prices include ship type, shipyard capacity, demand for ships, “berth cover”, i.e., the forward book of business of shipyards, buyer relationships with the yard, individual design specifications, including fuel efficiency or environmental features and the price of ship materials, engine and machinery equipment and particularly the price of steel.
Tanker Secondhand Prices
Second-hand prices are primarily driven by Diana Containerships Inc., its management or Unitized Ocean Transport Limited, itstrends in the supply and demand for vessels capacity. During extended periods of high demand, as evidenced by high charter rates, secondhand vessel technical manager. The disclosure herein relates solelyvalues tend to certain activities conductedappreciate and during periods of low demand, evidenced by Diana Shipping Inc.low charter rates, vessel values tend to decline. Vessel values are also influenced by age and specification and by the replacement cost (new-built price) in the case of vessels up to five years old.
Section 219The sale and purchase (S&P) market, where vessels are sold and bought through specialized brokers, determines vessel values on a daily basis. The S&P market is transparent and liquid with a significant number of vessels changing hands annually.
Values for younger vessels tend to fluctuate on a percentage basis less than values for older vessels.This is due to the fact that younger vessels with a longer remaining economic life are less susceptible to the level of charter rates than older vessels with limited remaining economic life.
The Crude Oil Tanker Freight Market
Charter Types
Employment of oil tankers occurs through the following chartering options:
Bareboat Charter: In this charter type vessels are usually employed for several years. All voyage related costs such as bunkers, port dues and daily operating expenses are paid by the charterer. The owner of the U.S. Iran Threat Reductionvessel is entitled to monthly charter hire payments and Syria Human Rights Act of 2012, or ITRA, added a new Section 13(r)covers the capital cost associated to the U.S. Securities Exchange Actvessel.
Time Charter: Involves the use of 1934,the vessel for a number of months or years or for a trip between specific delivery and redelivery positions. The charterer covers all voyage related costs while the owner receives monthly charter hire payments on a per day basis and pays all operating expenses and capital costs of the vessel.
Spot or Voyage Charter: Vessels are used for a single voyage for the carriage of a specific amount and type of cargo on a load port to discharge port. Owner covers the repositioning cost of the ship as amended,well as all expenses namely voyage, operating and capital costs of the ship.
Tanker Charter Rates
The main factors affecting vessel charter rates are primarily the supply and demand for tanker shipping. The shorter the charter period, the greater the vessel charter rate is affected by the current supply to demand balance and by the current phase of the market cycle (high point or the Exchange Act, that requires each SEC reporting issuerlow point). For longer charter periods vessel charter rates tend to disclose in its annualbe more stable and if applicable, quarterly reports regardless of whether it or any of its affiliates have knowingly engaged in certain activities, transactions or dealings relating to Iran or with the Government of Iran or certain designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction duringless cyclical because the period covered bymay cover not only a particular phase of a market cycle, but a full market cycle or several market cycles. Other factors affecting charter rates include the report. The required disclosure includes disclosure of activities that are not prohibited by U.S. or other law, even if conducted outsideage and characteristics of the U.S. by non-U.S. affiliates in compliance with local law.
Diana Shipping Inc. isships (fuel consumption, speed), the former parent companyprice of the Companynew-built and current owner of 100% of our Series C preferred voting stock,secondhand ships (buying as an alternative to chartering ships) and certain members of the Company's board of directors and senior management team are also members of the board of directors and management team of Diana Shipping Inc., however all vessel operations of the Company and Diana Shipping Inc. are performed by separate companies that do not share common management teams or boards of directors. The Annual Report on Form 20-F for the year ended December 31, 2017 filed by Diana Shipping Inc. with the Securities and Exchange Commission on March 16, 2018 contains the disclosure set forth below (with all references contained therein to "the Company" being references to Diana Shipping Inc. and its consolidated subsidiaries). As a result, it appears that the Company may be required to provide the disclosures set forth below pursuant to Section 219 of ITRA and Section 13(r) of the Exchange Act. By providing this disclosure, the Company does not admit that it is an affiliate of Diana Shipping Inc.
The disclosure relates solely to activities conducted by Diana Shipping Inc. and its consolidated subsidiaries.
The disclosure contained in Diana Shipping Inc.'s Annual Report is as follows:
Disclosure Pursuant to Section 219 of the Iran Threat Reduction And Syrian Human Rights Act
Section 219 of the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, or the ITRA, added new Section 13(r) to the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, requiring each SEC reporting issuer to disclose in its annual and, if applicable, quarterly reports whether it or any of its affiliates have knowingly engaged in certain activities, transactions or dealings relating to Iran or with the Government of Iran or certain designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the report.
Pursuant to Section 13(r) of the Exchange Act, we note that for the period covered by this annual report, one of our vessels made one port call to Iran in 2017.
The vessel Thetis made a call to the port of Bandar Imam Khomeini on February 25, 2017, discharging corn, and remained in the port of Bandar Imam Khomeini during 2017 for seven days. During this time the Thetis was on time charter to Transgrain Shipping B.V., Rotterdam at a gross rate of $5,150 per day.
The aggregate gross revenue attributable to these seven days that our vessel remained in the port of Bandar Imam Khomeini was $36,050. As we do not attribute profits to specific voyages under a time charter, we have not attributed any profits to the voyages which included this port call. Our charter party agreements for our vessels restrict the charterers from calling in Iran in violation of U.S. sanctions, or carrying any cargo to Iran which is subject to U.S. sanctions. However, there can be no assurance that the vessel referenced above or another of our vessels will not, from time to time in the future on charterer's instructions, perform voyages which would require disclosure pursuant to Exchange Act Section 13(r).
market conditions.
Environmental and Other Regulations in the Shipping Industry
Government regulationInternational, Federal, State and local regulations and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection, including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of governmentalgovernment and private entities subject our vessels to both scheduled and unscheduled rigorous inspections. These entities include the local port authorities (applicable national authorities such as the Ports State Controls (PSC) or United States Coast Guard or the USCG,(“USCG”), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and particularly the charterers particularlythrough the SIRE inspection regime and terminal operators.inspections. SIRE inspection program stands for: Ship Inspection Report and is a comprehensive, worldwide inspection regime utilizing inspectors with common training and oversight, to inspect oil tankers, chemical tankers and gas carriers, based on a standardized set of questions and requirements known as the SIRE Vessel Inspection Questionnaire. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry.
Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with U.S.United States and international regulations. We believe that the operation of our vessels is not only in substantial compliance withbut also exceeds applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations are frequently changedchange and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
It should be noted that the United States is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For example, in April 2017, the U.S. President signed an executive order regarding environmental regulations, specifically targeting the U.S. offshore energy strategy, which may affect parts of the maritime industry and our operations. Furthermore, recent action by the IMO's Maritime Safety Committee and U.S. agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship owners and managers by 2021. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.
International Maritime Organization (IMO)
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels or the IMO,(the “IMO”), has adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as MARPOL, adopted“MARPOL,” the International Convention for the Safety of Life at Sea of 1974 or the (“SOLAS Convention,Convention”), and the International Convention on Load Lines of 1966 or the LL Convention.(the “LL Convention”). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to drybulk, tanker and LPGLNG carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.
In 2013, the IMO’s Marine Environmental Protection Committee, or the “MEPC,” adopted a resolution amending MARPOL Annex I Condition Assessment Scheme, or “CAS.” These amendments became effective on October 1, 2014, and require compliance with the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, or “ESP Code,” which provides for enhanced inspection programs. We may need to make certain financial expenditures to comply with these amendments.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits "deliberate emissions"“deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of "volatile“volatile organic compounds"compounds” from certain tankers,vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs) are also prohibited. We believe that allAll our vessels are currently compliant in all material respects with these regulations.
The IMO's Marine EnvironmentalEnvironment Protection Committee, or MEPC,“MEPC,” adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from the current 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels or certain exhaust gas cleaning systems. Once the cap becomes effective, ships will be required to obtain bunker delivery notes and International Air Pollution Prevention or IAPP,(“IAPP”) Certificates from their flag states that specify sulfur content. This subjectsAdditionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were adopted and will take effect March 1, 2020.
These regulations subject ocean-going vessels in these areas to stringent emissions controls, and may cause us to incur additionalsubstantial costs.
Sulfur content standards are even stricter within certain "Emission“Emission Control Areas,"” or ECAs.(“ECAs”). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1%. m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.SU.S. Environmental Protection Agency or the EPA,(“EPA”) or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The U.S. Environmental Protection AgencyEPA promulgated equivalent (and in some senses stricter) emissions standards in late 2009.2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI isbecame effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection commencinghaving commenced on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans or SEEMPS,(“SEEMPS”), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index.Index (“EEDI”). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for Maritime Claims or the LLMC,(the “LLMC”) sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that all of ourOur vessels are in substantial compliance with SOLAS and LL ConventionLLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention or the ISM Code,(the “ISM Code”), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for compliance witha functional Safety Management System (SMS), conforming to the requirements of the ISM Code.Code, which includes a safety and environmental protection policy, safe operating procedures, defined levels of authority, procedures for internal audits etc. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel'svessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificate are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers (GBS Standards)(“GBS Standards”).
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code or the (“IMDG Code.Code”). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers or the STCW.(“STCW”). As of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
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Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships'Ships’ Ballast Water and Sediments or the BWM Convention,(the “BWM Convention”), in 2004. The BWM Convention entered into force on September 9,8, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention'sConvention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast Waterwater management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date "existing vessels"“existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention or IOPP,(“IOPP”), renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention'sConvention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a "D-1“D-1 standard,"” requiring the exchange of ballast water only in open seas and away from coastal waters. The "D-2 standard"“D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D2D-2 standard on or after September 8, 2019. For most ships, compliance with the D2D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the Ballast Water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial.
Once mid-ocean ballast exchange or exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may be material.have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States,U.S, for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
The costsIMO adopted the International Convention on Civil Liability for Oil Pollution Damage of compliance1969, as amended by different Protocols in 1976, 1984 and 1992, and amended in 2000 (“the CLC”). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”) to impose strict liability on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a mandatory mid-ocean ballast exchange couldcertificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling Convention.” The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be material,required to undergo an initial survey before the vessel is put into service or before an International Anti-fouling System Certificate is issued for the first time; and it is difficultsubsequent surveys when the anti-fouling systems are altered or replaced. All of our vessels have obtained Anti-fouling System Certificates in accordance to predict the overall impact of such a requirement on our operations.Anti-fouling Convention.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by the applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels ishas a valid Safety Management Certificate (SMC) in accordance to ISM Code certified.a document issued to the vessel, which signifies that the Company and its shipboard management operate in accordance with the approved Safety Management System; However, there can be no assurance that such certificates will be maintained in the future.future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
U.S.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990, or the OPA,(“OPA”), established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all "owners“owners and operators"operators” whose vessels trade or operate withwithin the United States,U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the United States'U.S.’S territorial sea and its 200 nautical mile exclusive economic zone around the United States.U.S. The United StatesU.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act or CERCLA,(“CERCLA”), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define "owner“owner and operator"operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are "responsible parties"“responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to include:
| (i) | (i) injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs; |
| (ii) | (ii) injury to, or economic losses resulting from, the destruction of real and personal property; |
| (iii) | (iii) loss of subsistence use of natural resources that are injured, destroyed or lost; |
| (iv) | (iv) net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources; |
| (v) | (v) lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and |
| (vi) | net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources. |
(vi) net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective December 21, 2015,November 12, 2019, the USCG adjusted the limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,300 per gross ton or $19,943,400 (subject to periodic adjustment for inflation). Also effective November 12, 2019, the USCG adjusted the limits of OPA liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,100$1,200 per gross ton or $939,800$997,100 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsibilityresponsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG'sUSCG’s financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including the raising ofhigher liability caps under OPA, new regulations regarding offshore oil and gas drilling and a pilot inspection program for offshore facilities. However, the status of several of these initiatives and regulations is currently in flux.have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement, orEnforcement’s (“BSEE”) revised Production Safety Systems Rule (“PSSR”), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE announced a newamended the Well Control Rule, in April 2016, but pursuant to orders byeffective July 15, 2019, which rolled back certain reforms regarding the safety of drilling operations, and the U.S. President in early 2017, the BSEE announced in August 2017 that this rule would be revised. In January 2018, the U.S. Presidenthas proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling, vastly expanding the U.S. waters that are available for such activity over the next five years.drilling. The effects of the proposalthese proposals and changes are currently unknown. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Additionaland future legislation or regulations applicable to the operation of our vessels that may be implemented incould impact the future couldcost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners'vessel owners’ responsibilities under these laws. The Company intendsCompany’s Safety Management System details all the important operational practices, guidelines and procedures that are to complybe followed in order to ensure compliance with all applicable state regulations in the ports where the Company'sCompany’s vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage it could have an adverse effect on our business and results of operation.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or “SIPs,” designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. Our vessels operating in such regulated port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these existing requirements.
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990), or the CAA,(“CAA”), requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, or SIPs, some of which regulate emissions resulting from vessel loading and unloading operations which may affect our vessels.
The U.S. Clean Water Act or the CWA,(“CWA”) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of “waters of the United States” (“WOTUS”), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of “waters of the United States.” The proposed rule was published in the Federal Register on February 14, 2019 and was subject to public comment. On October 22, 2019, the agencies published a final rule repealing the 2015 Rule defining “waters of the United States” and recodified the regulatory text that existed prior to the 2015 Rule. The final rule became effective on December 23, 2019. On January 23, 2020, the EPA published the “Navigable Waters Protection Rule,” which replaces the rule published on October 22, 2019, and redefines “waters of the United States.” The effect of this rule is currently unknown.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. Waters. The EPA requires a permit regulatingwill regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters underpursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018 and replaces the 2013 Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or 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(“VGP”) program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants. For a new vessel delivered to an owner or operator after December 19, 2013 to be covered by the VGP, the owner must submit a Notice of Intent, or NOI, at least 30 days (or 7 days for eNOIs) before the vessel operates in United States waters. We have submitted NOIs for our vessels where required.
The USCGlubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act or NISA, impose mandatory(“NISA”), such as mid-ocean ballast water management practicesexchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or operating in U.S. waters, whichretention of a PARI form and submission of annual reports. We shall submit NOIs for our vessels where required.
Compliance with the EPA, U.S Coast Guard and state regulations could require the installation of certain engineering equipment andballast water treatment systems to treat ballast water before it is dischargedequipment on our vessels 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 placed on a vessel. The USCG first approved said technology in December 2016, and continues to review ballast water management systems. The USCG may also provide waivers to vessels that demonstrate why they cannot install the new technology. The USCG has set up requirements for ships constructed before December 1, 2013 with ballast tanks trading with exclusive economic zones of the U.S. to install water ballast treatment systems as follows: (1) ballast capacity 1,500-5,000m3—first scheduled drydock after January 1, 2014; and (2) ballast capacity above 5,000m3—first scheduled drydock after January 1, 2016. All of our vessels have ballast capacities over 5,000m3, and those of our vessels trading in the U.S. will have to install water ballast treatment plants at their first drydock after January 1, 2016, unless an extension is granted by the USCG.
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. In 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.
Two recent United States court decisions should be noted. First, in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA issues a new VGP. The effect of such redrafting remains unknown. Second, on October 9, 2015, the Sixth Circuit Court of Appeals stayed the Waters of the United State, or WOTUS, rule, which aimed to expand the regulatory definition of "waters of the United States," pending further action of the court. In response, regulations have continued to be implemented as they were prior to the stay on a case-by-case basis. In February 2017, the U.S. President issued an executive order directing the EPA and U.S. Army Corps of Engineers publish a proposed rule rescinding or revising the WOTUS rule. In January 2018, the EPA and Army Corps of Engineers issued a final rule pursuant to the President's order, under which the Agencies will interpret the term "waters of the United States" to mean waters covered by the regulations, as they are currently being implemented, within the context of the Supreme Court decisions and agency guidance documents, until February 6, 2020. Litigation regarding the status of the WOTUS rule is currently underway, and the effect of future actions in these cases upon our operations is unknown.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the European UnionEU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the European UnionEU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in European Union ports.the Baltic, the North Sea and the English Channel (the so called “SOx-Emission Control Area”). As of January 2020, EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
International Labour Organization
The International LaborLabour Organization or the ILO,(the “ILO”) is a specialized agency of the United NationsUN that has adopted the Maritime Labor Convention 2006 or the (“MLC 2006.2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships abovethat are 500 gross tonstonnage or over and are either engaged in international trade. We believevoyages or flying the flag of a Member and operating from a port, or between ports, in another country. Company’s Safety Management System establishes working and living standards for all seafarers working onboard that all ofexceed MLC 2006 requirements. All our vessels are in substantial compliance withhave been issued the MLC Certificate following, surveys, inspections, paperwork and are certified to meet MLC 2006.approval by the registered flag state.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. OnThe U.S. initially entered into the agreement, but on June 1, 2017, the U.S. presidentPresident announced that it is withdrawingthe United States intends to withdraw from the Paris Agreement.Agreement, which provides for a four-year exit process, meaning that the earliest possible effective withdrawal date cannot be before November 4, 2020. The timing and effect of such action has yet to be determined.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial IMO strategy for reduction of greenhouse gas emissions is expected to be adopted at MEPC 72 in April 2018. The IMO may implement market-based mechanisms to reduce greenhouse gas emissions from ships. The initial strategy identifies “levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the upcoming MEPC session.total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses.
The European UnionEU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The European UnionEU also committed to reduce its emissions by 20% under the Kyoto Protocol'sProtocol’s second period from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at European UnionEU ports are required to collect and publish data on carbon dioxide emissions and other information.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, the U.S. President signed an executive order to review and possibly eliminate the EPA'sEPA’s plan to cut greenhouse gas emissions, and in August 2019, the Administration announced plans to weaken regulations for methane emissions. The outcome of this order is not yet known. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, the EPA or individual U.S. states could enact environmental regulations that would affect our operations.For example, California has introduced a cap-and-trade program for greenhouse gas emissions, aiming to reduce emissions 40% by 2030.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the European Union,EU, the United StatesU.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or more intensecertain weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 or MTSA.(“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port FacilitiesFacility Security Code or (“the ISPS Code.Code”). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate or ISSC,(“ISSC”) from a recognized security organization approved by the vessel'svessel’s flag state. Ships operating without a valid certificate may be detained, expelled from or refused entry at port until they obtain an ISSC. The following are among the various requirements, some of which are found in the SOLAS Convention:Convention, include, for example:
| · | on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status; |
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| · | on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; |
| · | the development of vessel security plans; |
| · | ship identification number to be permanently marked on a vessel's hull; |
on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status;
| · | a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and |
on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore;
| · | compliance with flag state security certification requirements. |
the development of vessel security plans;
ship identification number to be permanently marked on a vessel’s hull;
a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
compliance with flag state security certification requirements.
The USCG regulations, intended to be alignedalign with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel'svessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We intend
All vessels have been issued with ISSC which is subject to complyVerifications that have ensured that the security system and any associated security equipment of the vessel fully complies with the various security measures addressed byapplicable requirements of MTSA the SOLAS Convention and the ISPS Code.Code, is in satisfactory condition and fit for the service for which the vessel is intended.
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The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorizedrecognized by its country of registry. The classification society certifies that a vessel is saferegistry 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 classification society certifies that a vessel is constructed to specific structural standards and carries out regular surveys throughout vessel’s service life to ensure continuing compliance with the standards. The Classification Certificate issued is required to enable vessel’s owner to register the ship and to obtain Marine Insurance on the ship. Commercially, it is required to be produced before a vessel’s entry into ports or waterways and is of interest to Charterers and potential Buyers. The IACS has adopted harmonized Common Structural Rules, or the Rules, which apply to oil tankers and bulk carriers constructedcontracted for construction 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"“in class” by all the majorIACS recognized Classification Societies (e.g., American Bureau of Shipping,Veritas, Lloyd's Register of Shipping).
The Class and Statutory Certificates need to be renewed every 5 years. A vessel must undergo a cycle of 5-years surveys consisting of periodical surveys, such as annual surveys,and intermediate surveys, drydockings and special or renewal surveys. Periodical Surveys are carried out to confirm vessel’s compliance to Rules and Regulations. In the scope of ensuring vessel’s construction integrity a docking survey is required twice in the 5-years Certificates validity and without exceeding 36 months interval period. Vessels younger than 15 years old can be exempted from the intermediate docking survey by an Underwater Inspection to Class acceptance. In lieu of a special survey, a vessel's machineryvessel’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 inspectionIn addition Hull and Construction are surveyed and tested, resulting in the renewal of the underwater parts of the vessel.Class and Statutory Certificates. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydockingdocking 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.
100% Container Screening75
On August 3, 2007, the United States signed into law the Implementing Recommendations of the 9/11 Commission Act of 2007 (or the 9/11 Commission Act). The 9/11 Commission Act amends the SAFE Port Act of 2006 to require that all containers being loaded at foreign ports onto vessels destined for the United States be scanned by nonintrusive imaging equipment and radiation detection equipment before loading.
As a result of the 100% scanning requirements added to the SAFE Port Act of 2006, ports that ship to the United States may need to install new x-ray machines and make infrastructure changes in order to accommodate the screening requirements. Such implementation requirements may change which ports are able to ship to the United States and shipping companies may incur significant increased costs. It is impossible to predict how this requirement will affect the industry as a whole, but changes and additional costs can be reasonably expected.
Risk of Loss and Liability Insurance Coverage
General
The operation of any containershipcargo 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 owners,shipowners, operators and demisebareboat charterers of vesselsany vessel trading in the United States exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship ownersshipowners and operators trading in the United States market.
While we maintain hull and machinery insurance, war risks insurance, protection and indemnity cover and freight, demurrage and defense cover for our vessels in amounts that we believe to be prudent to cover normal risks in our operations, we may not be able to achieve or maintain this level of coverage throughout a vessel'svessel’s useful life. Furthermore, while we believe we procure adequate insurance coverage, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery and War RisksRisk Insurance
We maintain for our vessels marine hull and machinery and war risks insurance, which covers, among other risks, the risk of actual or constructive total loss. Our vessels are each covered up to at least market value with deductibles which vary according to the size and value of the vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance is generally provided by mutual protection and indemnity associations, or P“P&I Associations, which insure” and covers our third partythird-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses resulting from theof injury or death of crew, passengers and other third parties, the 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."“clubs.”
We procure protection and indemnity insurance coverage for pollution in the amount of $1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world'sworld’s commercial tonnage and have entered into a pooling agreement to reinsure each association'sassociation’s liabilities. The International Group’s website states that the Pool provides a mechanism for sharing all claims in excess of $10 million up to, currently, approximately $8.2 billion. As a member of certain P&I Associations which are members of the International Group, we are subject to calls payable to the associations based on the group'sgroup’s claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group. Supplemental calls are made by the P&I Associations based on estimates of premium income and anticipated and paid claims and such estimates are adjusted each year by the Board of Directors of the P&I Associations until the closing of the relevant policy year, which generally occurs within three years from the end of the policy year. We do not know whether any supplemental calls will be charged in respect of any policy year by the P&I Associations in which the Company'sCompany’s vessels are entered. To the extent we experience supplemental calls; our policy is to expense such amounts.
| C. | Organizational Structure |
We are a corporation incorporated under the laws of the Republic of the Marshall Islands on January 7, 2010. We are the sole owner of all of the issued and outstanding shares of the subsidiaries listed in Note 1 "General Information"“General Information” of our consolidated financial statements filed as part of this annual report and in exhibit 8.1 to this annual report.report.
| D. | Property, Plants and Equipment |
Our Manager,in-house fleet manager, UOT, currently rents our office space from an unrelated third partyparties and owns office furniture and equipment. In December 2014, UOT also acquired, jointly owns, jointly with two other related parties, a plot of land in Athens, Greece. The plot of land is under the common ownership of the joint purchasers.
Other than this interest in real property, our only material properties are the vessels in our fleet.
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| Item 4A. | Unresolved Staff Comments |
Not applicable.
| Item 5. | Operating and Financial Review and Prospects |
The following management's discussion and analysis should be read in conjunction with our consolidated financial statements and their notes included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section entitled "Item“Item 3. Key Information – D. Risk Factors"Factors” and elsewhere in this report.
We charterhave historically chartered our vessels to customers primarily pursuant to short-term and long-term time charters. Currently, we have secured time charters for all of our vessels, and the minimum remaining durations of our time charters are up to 2 months.on spot voyages. Under our time charters, the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. Under spot charter arrangements, voyage expenses that are unique to a particular charter are paid for by us. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes, environmental costs and other miscellaneous expenses, and we also pay management fees and commissions to one or more managers and unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in our results of operations consist of the following:
| · | Ownership days. We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership 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 a period.
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| · | Available days. We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys including the aggregate amount of time that we spend positioning our vessels for such events. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues.Ownership days. We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership 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 a period. |
| · | Operating days. We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generateAvailable days. We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys including the aggregate amount of time that we spend positioning our vessels for such events. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues. |
| · | Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company'sOperating days. We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues. Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the 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 for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades and special surveys including vessel positioning for such events. Time Charter Equivalent (TCE) rates. We define TCE rates as our voyage and time charter revenues, less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. Voyage expenses include port charges, bunker (fuel) expenses, canal charges and commissions. TCE is a non-GAAP measure. TCE rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels despite changes in the mix of charter types (i.e., voyage (spot) charters, time charters and bareboat charters). Daily Operating Expenses. We define daily operating expenses as total vessel operating expenses, which include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to repairs and maintenance, the costs of spares and consumable stores, lubricant costs, tonnage taxes, regulatory fees, environmental costs, lay-up expenses and other miscellaneous expenses divided by total ownership days for the relevant period. |
| · | Time Charter Equivalent (TCE) rates. We define TCE rates as our time charter revenues, net, less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a non-GAAP measure, and management believes it is useful to provide to investors because it is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts.
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| · | Daily Operating Expenses. We define daily operating expenses as total vessel operating expenses, which include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to repairs and maintenance, the costs of spares and consumable stores, lubricant costs, tonnage taxes, regulatory fees, environmental costs, lay-up expenses and other miscellaneous expenses divided by total ownership days for the relevant period.
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The following table reflects our ownership days, available days, operating days, fleet utilization, TCE rate and daily operating expenses for the periods indicated.
| | | For the year ended December 31, 2017 | | | For the year ended December 31, 2016 | | | For the year ended December 31, 2015 | | For the year ended December 31, 2019 | For the year ended December 31, 2018 | For the year ended December 31, 2017 |
| Ownership days | | | 4,178 | | | | 4,780 | | | | 4,600 | | 1,516 | 2,307 | 4,178 |
| Available days | | | 4,155 | | | | 4,735 | | | | 4,515 | | 1,516 | 2,284 | 4,155 |
| Operating days | | | 3,152 | | | | 3,304 | | | | 4,155 | | 1,401 | 2,177 | 3,152 |
| Fleet utilization | | | 75.9 | % | | | 69.8 | % | | | 92.0 | % | 92.4% | 95.3% | 75.9% |
| Time charter equivalent (TCE) rate (1) | | $ | 5,320 | | | $ | 6,341 | | | $ | 13,192 | | $15,435 | $10,639 | $5,320 |
| Daily operating expenses | | $ | 5,441 | | | $ | 6,321 | | | $ | 7,793 | | $7,468 | $6,698 | $5,441 |
| (1) | Please see "Item“Item 3. Key Information – A. Selected Financial Data"Data” for a reconciliation of TCE to GAAP measures. |
Voyage and Time Charter Revenues
Our revenues are driven primarily by the number of vessels in our fleet, the number of voyage days and the amount of daily charter hire that our vessels earn under charters which, in turn, are affected by a number of factors, including:
| · | the duration of our charters; |
| · | 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 container shipping industry; and |
| · | other factors affecting spot market charter rates for container vessels. |
57the duration of our charters;
Period charters referour decisions relating to bothvessel 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 bareboat charters. upgrade work;
the age, condition and specifications of our vessels;
levels of supply and demand in the shipping industry; and
other factors affecting spot market charter rates for vessels.
Vessels operating on time charters for a certain period of time provide more predictable cash flows over that period of time, but can yield lower profit margins than vessels operating in the spot charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable but may enable their owners to capture increased profit margins during periods of improvements in charter rates although their owners would be exposed to the risk of declining charter rates, which may have a materially adverse impact on financial performance. As we employ vessels on periodtime and spot charters, future spotwe mitigate our charter rates may be higher or lower than the rates at which we have employed our vessels on period charters.fluctuation exposure.
Currently, all of the vessels in our fleet are employed either on time charters.charters or on spot voyages. Our time charter agreements subject us to counterparty risk. In depressed market conditions, charterers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows. For 2020, we expect our revenues to increase as we further expand our fleet and as the tankers’ market shows signs of improvement, unless we face unpredictable losses of revenues as a result of the COVID-19 pandemic which is currently evolving.
Voyage Expenses
We incur voyage expenses that include port and canal charges, bunker (fuel oil) expenses and commissions. Port and canal charges and bunker expenses primarily increase in periods during which vessels are employed on voyage charters because these expenses are for the account of the owner of the vessels. Ourvessels, while they are on the account of the charterer when vessels are currently employed under time charters, and these time charters require the charterer to bear all of those expenses. In addition to this, our laid uptime-chartered. Laid-up vessels, if any, do not incur bunkers costs. However, at times when our vessels are off-hire due to other reasons, we incur port and canal charges and bunker expenses.
We have paid commissions ranging from 0% to 5% of the total daily charter hire rate of each charter to unaffiliated ship brokers, depending on the number of brokers involved with arranging the charter. Our in-house fleet manager, UOT, our wholly-owned subsidiary, receives commission that is equal to 2% of our gross revenues in exchange for providing us with technical and commercial management services in connection with the employment of our fleet. However, this commission is eliminated from our consolidated financial statements as an intercompany transaction. Our third party managers, receive commissions from 1.00% to 1.25% on the gross revenues of the vessels they provide commercial services to. For 2020, we expect our voyage expenses to follow the same trend with our voyage and time charter revenues.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, regulatory fees, environmental costs, lay-up expenses and other miscellaneous expenses. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for crew wages and insurance, may also cause these expenses to increase. In conjunction with our senior executive officers, our ManagerUOT has established an operating expense budget for each vessel and performs the day-to-day management of our vessels under separate management agreements with our vessel-owning subsidiaries. Separately, we obtain operating expenses budgets from the third party managers we appoint from time to time to provide full or partial management services to our vessels. We monitor the performance of our ManagerUOT and the third party managers by comparing actual vessel operating expenses with the operating expense budget for each vessel. We are responsible for the costs of any deviations from the budgeted amounts.For 2020, we expect our vessel operating expenses to increase as we further expand our fleet.
Vessel Depreciation
We depreciate all our vessels on a straight-line basis over their estimated useful lives which we estimate to be 25 years for the tankers - and 30 years for the containers, from the date of their initial delivery from the shipyard. Depreciation is based on the cost less the estimated salvage values. Each vessel'svessel’s salvage value is the product of her light-weight tonnage and estimated scrap rate, which is estimated at $350 per light-weight ton for all vessels in our fleet. We believe that these assumptions are common in the tanker and containership industry. For 2020, we expect depreciation expense to increase as we further expand our fleet.
General and Administrative Expenses
We incur general and administrative expenses, including our onshore related expenses such as legal and professional expenses. Certain of our general and administrative expenses arehave been provided for, until March 1, 2020, under our Broker Services Agreement with Steamship Shipbroking Enterprises Inc. We also incur payroll expenses of employees and general and administrative expenses reflecting the costs associated with running a public company, including board of director costs, director and officer insurance, investor relations, registrar and transfer agent fees and legal and accounting costs related to our compliance with public reporting obligations and the Sarbanes-Oxley Act of 2002. For 2020, we expect our general and administrative expenses to remain approximately at the same levels, as these expenses are relatively fixed and are not widely affected by the expansion (or shrinkage) of our fleet.
Interest and Finance Costs
We incurhave historically incurred interest expense and financefinancing costs in connection with our vessel-specific debt. As atof December 31, 2017,2019, our outstanding debt amounted to $32.5 million and until the date of this annual report, we had $91.1have drawn down another $26.0 million to fund our newly-acquired tanker vessels. We expect to manage any exposure in interest rates through our regular operating and financing activities and, when deemed appropriate, through the use of outstanding principal indebtedness from our loan agreements with Addiewell Ltdderivative financial instruments. For 2020, we expect interest and Diana Shipping Inc., and an additional $15.0 million outstanding discount premiums under the two loan agreements.finance expenses to increase due to increased average debt.
Lack of Historical Operating Data for Vessels before their Acquisition
Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, there is no historical financial due diligence process when we acquire vessels. Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in our common shares in assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel'svessel’s classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller'sseller’s technical manager and the seller is automatically terminated and the vessel'svessel’s trading certificates are revoked by its flag state following a change in ownership.
Consistent with shipping industry practice, we treat the acquisition of a vessel (whether acquired with or without charter) as the acquisition of an asset rather than a business. Although vessels are generally acquired free of charter, we have in the past and we may, in the future, acquire vessels with existing time charters. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter, and it is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer'scharterer’s consent and the buyer'sbuyer’s entering into a separate direct agreement with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer.
When we purchase a vessel and assume or renegotiate a related time charter, we must take, among other things, the following steps before the vessel will be ready to commence operations:
| · | obtain the charterer's consent to us as the new owner; |
| · | obtain the charterer's consent to a new technical manager; |
| · | obtain the charterer's consent to a new flag for the vessel; |
| · | arrange for a new crew for the vessel; |
59obtain the charterer’s consent to us as the new owner;
obtain the charterer’s consent to a new technical manager;
| · | replace all hired equipment on board, such as gas cylinders and communication equipment; |
obtain the charterer’s consent to a new flag for the vessel;
| · | negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; |
arrange for a new crew for the vessel;
| · | register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state; |
replace all hired equipment on board, such as gas cylinders and communication equipment;
| · | implement a new planned maintenance program for the vessel; and |
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
| · | ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state. |
register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;
implement a new planned maintenance program for the vessel; and
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.
The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations.
Our business is mainly comprised of the following elements:
| · | acquisition and disposition of vessels; |
| · | employment and operation of our vessels; and |
acquisition and disposition of vessels;
| · | management of the financial, general and administrative elements involved in the conduct of our business and ownership of our vessels. |
employment and operation of our vessels; and
management of the financial, general and administrative elements involved in the conduct of our business and ownership of our vessels.
The employment and operation of our vessels mainly require the following components:
| · | vessel maintenance and repair; |
| · | crew selection and training; |
vessel maintenance and repair;
| · | vessel spares and stores supply; |
crew selection and training;
| · | contingency response planning; |
vessel spares and stores supply;
| · | on board safety procedures auditing; |
contingency response planning;
on board safety procedures auditing;
| · | vessel insurance arrangement; |
vessel insurance arrangement;
| · | vessel performance monitoring. |
vessel performance monitoring.
The management of financial, general and administrative elements involved in the conduct of our business and ownership of vessels, mainly requires the following components:
| · | management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts; |
| · | management of our accounting system and records and financial reporting; |
management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts;
| · | administration of the legal and regulatory requirements affecting our business and assets; and |
management of our accounting system and records and financial reporting;
| · | management of the relationships with our service providers and customers. |
administration of the legal and regulatory requirements affecting our business and assets; and
management of the relationships with our service providers and customers.
The principal factors that may affect our profitability, cash flows and shareholders'shareholders’ return on investment include:
| · | rates and periods of charterhire; |
| · | levels of vessel operating expenses; |
rates and periods of charterhire;
levels of vessel operating expenses;
| · | fluctuations in foreign exchange rates. |
fluctuations in foreign exchange rates.
See " Item“Item 3. Key Information – D. Risk Factors"Factors” for additional factors that may affect our business.
Our Fleet – Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of our Vessels
In "Critical“Critical Accounting Policies – Impairment of long-lived assets,"” we discuss our policy for impairing the carrying values of our vessels. Historically, the market values of vessels have experienced volatility, which from time to time may be substantial. As a result, the charter-free market value of certain of our vessels may have declined below those vessels'vessels’ carrying value, even though we would not impair those vessels'vessels’ carrying value under our accounting impairment policy. In 2017,2019, we recorded impairment charges for three of our vessels as a result of their classification as held for sale during the vessels Centaurus and New Jersey asyear, or due to our impairment test exercise indicatedindicating that their carrying values were not recoverable. In 2016,For the same reasons, in 2018, we recorded impairment charges for the vessels Sagitta, Centaurus, Domingo, Doukato, Angeles, Great and March, astwo of our impairment test exercise indicated that their carrying values were not recoverable.vessels.
Based on: (i) the carrying value of each of our vessels as of December 31, 2017 and 2016,2019, and (ii) what we believe the charter-free market value of each of our vessels was as of December 31, 2017 and 2016,2019, the aggregate carrying value of sixall the vessels in our fleet as of December 31, 2017 and six2019 did not exceed their aggregate charter-free market values. Similarly, based on: (i) the carrying value of each of our vessels as of December 31, 20162018, and (ii) what we believe the charter-free market value of each of our vessels was as of December 31, 2018, the aggregate carrying value of two vessels in our fleet as of December 31, 2018 exceeded their aggregate charter-free market value by approximately $72.8$34.8 million, and $87.7 million, respectively, as noted in the table below. This aggregate difference represents the approximate analysis of the amount by which we believe we would have to reduce our net income or increase our loss if we sold all of such vessels at December 31, 2017 and 2016, on industry standard terms, in cash transactions, and to a willing buyer where we were not under any compulsion to sell, and where the buyer was not under any compulsion to buy. For the purposes of this calculation, we have assumed that these six and six vessels, respectively, would be sold at prices that reflect our estimate of their charter-free market values as of December 31, 2017 and 2016. As of December 31, 2017, we had entered into two memoranda of agreement to sell the vessels Great and March, whose net book values as of that date were below market values. In addition, in February 2018, we contracted to sell three more vessels, the New Jersey, the Sagitta and the Centaurus. As discussed above, the vessels Centaurus and New Jersey were impaired as of December 31, 2017 to their market values.
Our estimates of charter-free market value assume that our vessels were all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:
| · | reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values; |
| · | news and industry reports of similar vessel sales; |
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
| · | news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates; |
news and industry reports of similar vessel sales;
| · | approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated; |
news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates;
| · | offers that we may have received from potential purchasers of our vessels; and |
83
| · | vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
|
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
offers that we may have received from potential purchasers of our vessels; and
vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
As we obtain information from various industry and other sources, our estimates of charter-free market values are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future charter-free market values of our vessels or prices that we could achieve if we were to sell them. We also refer you to the risk factor under "Item“Item 3. Key Information – D. Risk Factors"Factors” entitled "Vessel values may fluctuate which may adversely affect our financial condition, result in the incurrence of a loss upon disposal of a vessel, impairment losses or increases in the cost of acquiring additional vessels".vessels.”
| | | | | | | | Carrying Value (in millions of US dollars) | |
| Vessel | | TEU | | | Year Built | | | At December 31, 2017 | | | At December 31, 2016 | |
| | 1 | | Sagitta | | | 3,426 | | | | 2010 | | | | 11.1 | * | | | 11.4 | |
| | 2 | | Centaurus | | | 3,426 | | | | 2010 | | | | 10.1 | | | | 11.4 | |
| | 3 | | Domingo | | | 3,739 | | | | 2001 | | | | 5.0 | | | | 5.0 | |
| | 4 | | Doukato | | | 3,739 | | | | 2002 | | | | - | | | | 5.0 | |
| | 5 | | Puelo | | | 6,541 | | | | 2006 | | | | 40.0 | * | | | 41.6 | * |
| | 6 | | Pucon | | | 6,541 | | | | 2006 | | | | 40.1 | * | | | 41.7 | * |
| | 7 | | March | | | 5,576 | | | | 2004 | | | | 9.2 | | | | 9.2 | |
| | 8 | | Great | | | 5,576 | | | | 2004 | | | | 9.2 | | | | 9.2 | |
| | 9 | | Pamina | | | 5,042 | | | | 2005 | | | | 14.6 | * | | | 15.0 | * |
| | 10 | | New Jersey | | | 4,923 | | | | 2006 | | | | 10.0 | | | | 17.9 | * |
| | 11 | | Rotterdam | | | 6,494 | | | | 2008 | | | | 34.5 | * | | | 35.8 | * |
| | 12 | | Hamburg | | | 6,494 | | | | 2009 | | | | 36.0 | * | | | 37.2 | * |
| | | | Vessels Net Book Value | | | | | | | | 219.8 | | | | 240.4 | |
| | | | | Carrying Value (in millions of US dollars) |
| Vessel | TEU | DWT | Year Built | At December 31, 2019 | At December 31, 2018 |
| 1 | Domingo | 3,739 | | 2001 | 5.0 | 5.0 |
| 2 | Pucon | 6,541 | | 2006 | - | 38.4 * |
| 3 | Pamina | 5,042 | | 2005 | - | 9.2 |
| 4 | Rotterdam | 6,494 | | 2008 | 18.5 | 33.3* |
| 5 | Blue Moon | | 104,623 | 2011 | 29.5 | - |
| 6 | Briolette | | 104,588 | 2011 | 29.9 | - |
| | Vessels' Net Book Value | | | 82.9 | 85.9 |
*Indicates vessels for which we believe, as of December 31, 2017 and December 31, 2016, the charter-free market value was lower than the vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeded their aggregate charter-free market value by approximately $72.8 million and $87.7 million, respectively.
| * | Indicates vessels for which we believe, as of December 31, 2018, the charter-free market value was lower than the vessel’s carrying value. We believe that the aggregate carrying value of these vessels exceeded their aggregate charter-free market value by approximately $34.8 million. |
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of 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 when we acquire and operate vessels, because they generally involve a comparatively higher degree of judgment in their application. For a description of all our significant accounting policies, see Note 2 to our consolidated financial statements included in this annual report.
Accounting for Voyage and Time Charter Revenues and Related Expenses
Revenues
Since our vessels are generatedemployed under time and voyage charter contracts, we disaggregate our revenue from contracts with customers by the type of charter (time charters and spot charters).
We have determined that all of our time charter agreements. Time charter agreements with the same charterercontain a lease and are therefore accounted for as separate agreements according to the terms and conditions of each agreement.operating leases in accordance with ASC 842. Time charter revenues are recordedaccounted for over the term of the charter as the service is provided. RevenuesVessels are chartered when a contract exists and the vessel is delivered (commencement date) to the charterer, for a fixed period of time, at rates that are generally determined in the main body of charter parties and the relevant voyage expenses burden the charterer (i.e. port dues, canal tolls, pilotages and fuel consumption). Upon delivery of the vessel, the charterer has the right to control the use of the vessel (under agreed prudent operating practices) as they have the enforceable right to: (i) decide the delivery and redelivery time of the vessel; (ii) arrange the ports from which the vessel shall pass; (iii) give directions to the master of the vessel regarding vessel's operations (i.e. speed, route, bunkers purchases, etc.); (iv) sub-charter the vessel and (v) consume any income deriving from the vessel's charter. Any off-hires are recognized as incurred. The charterer may charter the vessel with or without owner's crew and other operating services. In the case of time charter agreements, providingthe agreed hire rates include compensation for varying annual rates over their termpart of the agreed crew and other operating services provided by the owner (non-lease components). We, as a lessor, elected to apply the practical expedient which allowed us to account for the lease and the non-lease components of time charter agreements as one, as the criteria of the paragraphs ASC 842-10-15-42A through 42B are accounted for on a straight line basis. Deferredmet. Time-charter revenue if any, includesis usually received in advance, and as such, unearned revenue represents cash received prior to the balance sheet date for which all criteriarelated service has not been provided.
Spot, or voyage, charter is a charter where a contract is made in the spot market for recognition as revenue wouldthe use of a vessel for a specific voyage for a specified freight rate per ton, regardless of time to complete. We have determined that under voyage charters, the charterer has no right to control any part of the use of the vessel. Thus, our voyage charters do not be met, including any deferred revenue resulting from charter agreements providing for varying annual rates, whichcontain lease and are accounted for in accordance with ASC 606. More precisely, we satisfy our single performance obligation to transfer cargo under the contract over the voyage period. Thus, revenues from voyage charters on the spot market are recognized ratably from the date of loading (Notice of Readiness to the charterer, that the vessel is available for loading) to discharge date of cargo (loading-to-discharge). Voyage charter payments are due upon discharge of the cargo. Demurrage revenue, which is included in voyage revenues, represents charterers’ reimbursement for any potential delays exceeding the allowed lay time as per charter party agreement, represents form of variable consideration and is recognized as the performance obligation is satisfied.
Under a straight line basis.
Voyage expenses, primarily consisting oftime charter, specified voyage costs, such as bunkers and port canal and bunkercharges are paid by the charterer while commissions are paid by the Company. Under spot charter arrangements, voyage expenses that are unique to a particular charter are paid for by the charterer under time charter arrangements, except for commissions, which are paid for by us. All voyage and vessel operating expensesCompany. Commissions are expensed as incurred. Voyage expenses that qualify as contract fulfillment costs (mainly consisting of bunkers expenses and port dues) and are incurred except for commissions. Commissions are deferred overby us from the related charter period to the extent revenue has been deferred since commissions are due as revenues are earned.
Vessel Cost
Vessels are stated at cost which consistslatter of the contract price and costs incurred upon acquisition or delivery of a vessel from a shipyard. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earnings capacity or improve the efficiency or safetyend of the vessels; otherwise these amounts are charged to expense as incurred.
Vessel Depreciation
We have recorded the value of our vessels at their cost, which includes acquisition costs directly attributable toprevious vessel employment, provided that the vessel and expenditures made to prepare the vessel for her initial voyage, less accumulated depreciation. We depreciate our containership vessels on a straight-line basis over their estimated useful lives, estimated to be 30 yearsis fixed, or from the date of initial delivery from the shipyard which we believe is also consistent with that of other shipping companies. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. Depreciation is based on cost less the estimated salvage value. Furthermore, we have historically estimated the salvage values of our vessels to be $200 to $350 per light-weight ton depending on the vessels age and market conditions, while effective July 1, 2013 we adjusted prospectively the scrap rate used to $350 per light-weight ton for all vessels in our fleet. A decrease in the useful lifeinception of a containership or in her salvage value would havevoyage charter contract until the effect of increasing the annual depreciation charge. When regulations place limitations on the ability of a vessel to trade on a worldwide basis, the vessel's useful life is adjustedarrival at the date such regulationsloading port, are adopted.capitalized to Deferred Voyage Expenses and amortized ratably over the total transit time of the voyage (loading-to-discharge). Vessel voyage expenses that do not qualify as contract fulfillment costs, operating expenses and charter hire expense are expensed when incurred.
Impairment of Long-lived Assets
We evaluate the carrying amounts, primarily for vessels and related drydock costs, and periods over which our long-lived assets are depreciated to determine if events have occurred which would require modification to their carrying values or useful lives. When the estimate of future undiscounted net operating 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. Measurement of the impairment loss is based on the fair value of the asset. We determine the fair value of our assets based on our management'smanagement’s estimates and assumptions and by making use of available market data and taking into consideration third party valuations. In evaluating useful lives and carrying values of long-lived assets, management reviews certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. Recent economic and market conditions have had broad effects on participants in a wide variety of industries. The current conditions in the containershipsshipping market, including low charter rates and vessel market values, are conditions that we consider indicators of a potential impairment. Management also takes into account factors such as the vessels'vessels’ age and employment prospects under the then current market conditions, and determines the future undiscounted cash flows considering its various alternatives, including sale possibilities existing for each vessel as of the testing dates.
We determine future undiscounted net operating cash flows for each vessel and compare them to the vessel'svessel’s carrying value. The projected net operating cash flows are determined by considering the historical (excluding years with extraordinary figures) and estimated vessels'vessels’ performance and utilization, the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalentrate for the unfixed days based,(based, to the extent applicable, on the most recent ten-year blended, for modern and older vessels,10 year average historical 6-12 months time charter rates available for each type of vessel, considering also current market rates,vessel) over the remaining estimated life of each vessel, net of brokerage commissions, expected outflows for scheduled vessels'vessels’ maintenance and vessel operating expenses assuming an average annual inflation rate of 3.5%.rate. Effective fleet utilization is assumed atto 98%, in our exercise, if a vessel is not laid-up, taking into account the period(s) each vessel is expected to undergo itsher scheduled maintenance (drydocking(dry docking and special surveys), as well as an estimate of 1% off hire days each year, which assumptions are in line with our historical performance and our expectations for future fleet utilization under our current fleet deploymentemployment strategy. The review of the vessel'svessel’s carrying amounts in connection with the estimated recoverable amounts for 20172019 and 20162018 indicated impairment charges for certain of our vessels, amounting to $8.4$31.6 million and $118.9$20.7 million, respectively.
Set forth below is an analysis of the average estimated daily time charter equivalent rate used in our impairment analysis as of December 31, 2017:
| | | Average estimated daily time charter equivalent rate used | |
| Up to 4,000 TEU | | $ | 10,663 | |
| Between 4,000 TEU and 6,000 TEU | | $ | 12,810 | |
| Above 6,000 TEU | | $ | 21,638 | |
| Results of Operations | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2019 | | | 2018 | | | variation | | | % change | |
| | | in millions of U.S. dollars | | | | |
| Voyage and time-charter revenues | | | 26.8 | | | | 25.6 | | | | 1.2 | | | | 5 | % |
| Voyage expenses | | | (3.4 | ) | | | (1.3 | ) | | | (2.1 | ) | | | 162 | % |
| Vessel operating expenses | | | (11.3 | ) | | | (15.5 | ) | | | 4.2 | | | | -27 | % |
| Depreciation and amortization of deferred charges | | | (3.7 | ) | | | (4.9 | ) | | | 1.2 | | | | -24 | % |
| Management fees | | | (0.2 | ) | | | - | | | | (0.2 | ) | | | - | |
| General and administrative expenses | | | (8.2 | ) | | | (8.0 | ) | | | (0.2 | ) | | | 3 | % |
| Impairment losses | | | (31.6 | ) | | | (20.7 | ) | | | (10.9 | ) | | | 53 | % |
| Loss on vessels' sale | | | (0.1 | ) | | | (16.7 | ) | | | 16.6 | | | | -99 | % |
| Foreign currency (gains) / losses | | | - | | | | - | | | | - | | | | - | |
| Interest and finance costs | | | (0.7 | ) | | | (11.5 | ) | | | 10.8 | | | | -94 | % |
| Interest income | | | 0.3 | | | | 0.1 | | | | 0.2 | | | | 200 | % |
| Net loss | | | (32.1 | ) | | | (52.9 | ) | | | 20.8 | | | | -39 | % |
For the purposes of presenting our investors with additional information to determine how the Company's future results of operations may be impacted in the event that daily time charter rates do not improve from their current levels in future periods, we set forth below an analysis that shows the 1-year, 3-year and 5-year average blended rates and the effect the use of each of these rates would have on the Company's impairment analysis.
| | | 5-year period (in USD) | | | Impairment charge (in USD million) | | | 3-year period (in USD) | | | Impairment charge (in USD million) | | | 1-year period (in USD) | | | Impairment charge (in USD million) | |
| Up to 4,000 TEU | | | 7,725 | | | | 1.4 | | | | 7,953 | | | | 1.4 | | | | 8,046 | | | | 1.4 | |
| Between 4,000 - 6,000 TEU | | | 8,391 | | | | 5.5 | | | | 8,163 | | | | 5.5 | | | | 7,692 | | | | 5.5 | |
| Above 6,000 TEU | | | 20,679 | | | | 0.0 | | | | 17,063 | | | | 0.0 | | | | 15,229 | | | | 20.3 | |
Vessels held for sale
We dispose of vessels and other fixed assets when suitable opportunities occur and do not necessarily keep them until the end of their useful life. We classify assets or assets in disposal groups as being held for sale in accordance with ASC 360-10-45-9 "Long-Lived Assets Classified as Held for Sale", when the following criteria are met: (i) management possessing the necessary authority has committed to a plan to sell the asset (disposal group); (ii) the asset (disposal group) is immediately available for sale on an "as is" basis; (iii) an active program to find the buyer and other actions required to execute the plan to sell the asset (disposal group) have been initiated; (iv) the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year; and (v) the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value and 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. In case a long-lived asset is to be disposed of other than by sale (for example, by abandonment, in an exchange measured based on the recorded amount of the nonmonetary asset relinquished, or in a distribution to owners in a spinoff) we continue to classify it as held and used until its disposal date. Long-lived assets or disposal groups classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These assets are not depreciated once they meet the criteria to be held for sale. The review of the related criteria for the year ended December 31, 2017 resulted in held for sale classification for certain of our vessels.
Going Concern
The Company's policy is in accordance with ASU No. 2014-15, "Presentation of Financial Statements - Going Concern", issued in August 2014 by the FASB. ASU 2014-15 provides U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and on related required footnote disclosures. For each reporting period, management is required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued.
| Results of Operations | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2017 | | | 2016 | | | variation | | | % change | |
| | | in millions of U.S. dollars | | | | |
| Time charter revenues | | | 23.8 | | | | 37.0 | | | | (13.2 | ) | | | -36 | % |
| Prepaid charter revenue amortization | | | - | | | | (3.8 | ) | | | 3.8 | | | | -100 | % |
| Time charter revenues, net | | | 23.8 | | | | 33.2 | | | | (9.4 | ) | | | -28 | % |
| Voyage expenses | | | (1.7 | ) | | | (3.2 | ) | | | 1.5 | | | | -47 | % |
| Vessel operating expenses | | | (22.7 | ) | | | (30.2 | ) | | | 7.5 | | | | -25 | % |
| Depreciation and amortization of deferred charges | | | (8.1 | ) | | | (12.7 | ) | | | 4.6 | | | | -36 | % |
| General and administrative expenses | | | (8.4 | ) | | | (7.2 | ) | | | (1.2 | ) | | | 17 | % |
| Gain / (Loss) on vessels' sale | | | 0.9 | | | | (2.9 | ) | | | 3.8 | | | | -131 | % |
| Foreign currency losses | | | 0.1 | | | | 0.1 | | | | - | | | | 0 | % |
| Interest and finance costs | | | (13.8 | ) | | | (7.1 | ) | | | (6.7 | ) | | | 94 | % |
| Interest income | | | 0.1 | | | | 0.1 | | | | - | | | | 0 | % |
| Gain from bank debt write off | | | 42.2 | | | | - | | | | 42.2 | | | | - | |
Year ended December 31, 20172019 compared to the year ended December 31, 20162018
Net Income.Loss. Net incomeloss for 20172019 amounted to $3.8$32.1 million, compared to a net loss of $149.0$52.9 million for 2016. The net income for the year ended December 31, 2017, reflected a gain from a debt write-off, arising from the settlement agreement with respect to the secured loan facility with RBS, which was signed on June 30, 2017, and was partially offset by $8.4 million of impairment charges recorded during the year for two of our vessels. The specific gain, net of related expenses, amounted to $42.2 million.2018. The loss for 2016 mainly2019 includes $118.9$31.6 million ofin impairment charges for three vessels and $0.1 million of aggregate loss in connection with the sale of two vessels. The loss for 2018 includes $20.7 million in impairment charges for two vessels, $16.7 million of aggregate loss in connection with the sale of seven vessels, and $11.5 million of interest and finance costs incurred for our vessels.then outstanding loans with related and unrelated parties.
Voyage and Time Charter Revenues, net of prepaid charter revenue amortization.Revenues. Voyage and Time charter revenues net of prepaid charter revenue amortization of nil and $3.8 million for 2017 and 2016 respectively,in 2019 amounted to $23.8$26.8 million, for 2017, compared to $33.2$25.6 million in 2016.2018. The voyage and time charter revenues increased, mainly due to the revenues contributed by the tanker vessels Blue Moon and Briolette, acquired in August and November 2019, respectively, and the increase was partially off-set by the decreased mainly as a result ofrevenues derived following the gradual sale of the container vesselsHanjin Malta, Angeles March, Great, New Jersey, Sagitta, Centaurus, Puelo, Hamburg , Paminaand Doukato Pucon, from March 20162018 to May 2017 and the lay-up of the vessel New Jersey from October 2016 and onwards. This decrease was partially counterbalanced by increased time charter rates achieved for the majority of the remaining vessels in the fleet.November 2019.
Voyage Expenses. Voyage expenses for 20172019 amounted to $1.7$3.4 million, compared to $3.2$1.3 million in 2016.2018. Voyage expenses mainly consist of bunkers costs, port and canal expenses and commissions paid to third party brokers. The decreaseincrease in voyage expenses in 20172019 compared to 20162018 was mainly due to decreasedsignificantly increased bunkers costs and decreased commissions. In 2016 weport and canal expenses incurred, increased bunkersas a result of the employment of our tanker vessels in spot voyages, in which these costs are on the owners’ account. Commissions remained in 2019 at the times when certain of our vessels were off-hire and idle (orsame levels as in "hot" lay-up condition), while in 2017 our fleet utilization improved and our off-hire days mainly related to vessels' "cold" lay-up condition, when vessels incur no bunkers consumption. As commissions are a percentage of time charter revenues, they follow the same trend with time charter revenues.2018.
Vessel Operating Expenses. Vessel operating expenses amounted to $22.7$11.3 million in 2017,2019, compared to $30.2$15.5 million in the prior year and mainly consist of expenses for running and maintaining our vessels, such as crew wages and related costs, consumables and stores, insurances, repairs and maintenance, environmental compliance costs and lay-up expenses. The decrease in 2017vessel operating expenses in 2019 was attributable to the decrease in the size of our ownership days by 13% and also to the decrease offleet, although almost all major categories of operating expenses such ashave increased on a daily basis. The main average stores, sparesdaily increases are reflected in the repairs, maintenance and crew costs, as a result ofdue to increased "cold" lay-up days of the fleetvessels’ maintenance needs in 2017, changes in crew composition and overall reduced supply of spares and other consumables in 2017, as part of the Company's efforts2019 compared to keep operating costs at minimum.2018.
Depreciation and Amortization of Deferred Charges. Depreciation and amortization of deferred charges for 20172019 amounted to $8.1$3.7 million, compared to $12.7$4.9 million in 20162018 and mainly represents the depreciation expense of our containershipsvessels and the amortization charge of dry-docking costs for vessels. In 2017, the2019, depreciation expenseexpenses decreased, mainly as a result of the vessels' impairment charges recorded as of September 30, 2016 for sevendecrease in the size of our vessels. As of December 31, 2017, two of the Company's vessels were classified in current assets as held for sale, with no material effect in the vessels' depreciation expense.fleet.
General and Administrative Expenses. General and administrative expenses for 20172019 amounted to $8.4$8.2 million, compared to $7.2$8.0 million in 20162018 and mainly consist of payroll expenses of office employees, consultancy fees, brokerage services fees, compensation cost on restricted stock awards, legal fees and audit fees. The slight increase in general administrative expenses was mainly attributable to increased directors and officers insurance expense and compensation cost of restricted stock awards, and was partially counterbalanced by decreased audit and legal fees and shareholders' meeting fees, as a resultdecreased taxes connected with the payroll of increased corporate and capital activity in 2017.the office employees.
Impairment Losses. Impairment losses in 20172019 and 2018 amounted to $8.4$31.6 million and $20.7 million, respectively, and represent non-cash impairment charges recorded during the year for the vessels New JerseyPucon, Pamina and Centaurus,Rotterdam in 2019, and for which the Company'svessels Hamburg and Pamina in 2018, The impairment charges were recorded as the Company’s assessment concluded that theirthe book values as of December 31, 2017the respective vessels were not recoverable. In 2016, impairment losses amountedrecoverable, or due to $118.9 million and represent non-cash impairment charges recordedthe vessel’s classification as held for sale during the year for the vessels Sagitta, Centaurus, Domingo, Doukato, Great, March and Angeles.under consideration.
Gain/ (Loss)Loss on Vessels'Vessels’ Sale.Gain In 2019, loss on vessels'vessels’ sale amounted to $0.9 million in 2017, and relates to the sale of the vessel Doukato in May 2017, while in 2016, loss on vessels' sale amounted to $2.9$0.1 million and relates to the salesales of the vessels Hanjin MaltaPamina and AngelesPuelo in MarchOctober and November 2016,2019, respectively. In 2018, loss on vessels’ sale amounted to $16.7 million and relates to the sales of the vessels March, Great, New Jersey, Sagitta, Centaurus, Puelo and Hamburg from March to July 2018, respectively.
Foreign Currency (Gains) / Losses. Foreign currency lossesgains for 20172019 amounted to $51$7 thousand, and mainly consist of unrealized exchange differences derived from the year-end valuation of accounts other than the U.S. Dollar. In 2016,2018, there were foreign currency lossesgains of $111$44 thousand.
Interest and Finance Costs. Interest and finance costs for 20172019 amounted to $13.8$0.7 million, compared to $7.1$11.5 million for 20162018 and consist of the interest expenses relating to our average debt outstanding during the respective periods and other loan fees and expenses. The increasedecrease in 20172019 was mainly attributable to the increasedecrease of the interest expense, as a result of the full repayments of the DSI and Addiewell loans, together with the applicable discount premiums, in May and July 2018, respectively. Also, the average interest rates and the discount premium amortizationdecreased from 6.11% in our loan agreements with Addiewell and DSI, counterbalanced by the decrease of our average total debt outstanding.2018, to 4.68% in 2019.
Interest Income. Interest income for 20172019 and 20162018 amounted to $0.3 million and $0.1 million, respectively, and consists of interest income received on deposits of cash and cash equivalents and restricted cash.equivalents. Interest income in 2019 increased as a result of increased cash held during the year.
Gain from Bank Debt Write Off. Gain from bank debt write off amounted to $42.2 million in 2017, and relates to a gain arising from the full and final settlement of our secured loan facility with RBS, which was agreed to on June 30, 2017. There was no such gain in 2016.
Year ended December 31, 20162018 compared to the year ended December 31, 20152017
Net Loss. Net loss for 2016 amounted
Please refer to $149.0 million, compared to net loss of $17.5 million for 2015. The loss for 2016 includes $118.9 million of impairment charges for seven of our vessels and $2.9 million of direct sale and other charges for two vessels. The loss for the year ended December 31, 2015, includes $8.3 million of direct sale and other charges associated2018 20-F filed with the disposal of one vessel and $6.6 million of impairment charges of another vessel.
Time Charter Revenues, net of prepaid charter revenue amortization. Time charter revenues, net of prepaid charter revenue amortization of $3.8 million and $8.6 million for 2016 and 2015 respectively, amounted to $33.2 million for 2016, compared to $62.2 million in 2015. The time charter revenues decreased, mainly due to reduced employment opportunities and lower time charter rates, despite the increase of the ownership days by 4%. The decrease of the time charter revenues was partly offset by the decrease of the prepaid charter revenue amortization.
Voyage Expenses. Voyage expenses for 2016 amounted to $3.2 million, compared to $2.6 million in 2015. Voyage expenses mainly consist of bunkers costs and commissions paid to third party brokers. The increase in voyage expenses in 2016 compared to 2015 was mainly due to the increased bunkers costs that we incurred while certain of our vessels were off-hire and idle, and was partly offset by decreased commissions. As commissions are a percentage of time charter revenues, they follow the same trend with time charter revenues.
Vessel Operating Expenses. Vessel operating expenses amounted to $30.2 million in 2016, compared to $35.8 million in the prior year and mainly consist of expenses for running and maintaining the vessels, such as crew wages and related costs, consumables and stores, insurances, repairs and maintenance, environmental compliance costs and lay-up expenses. The decrease in 2016 was attributable to the decrease of all major categories of operating expenses, such as average insurance, stores, spares, repairs and maintenance and crew costs, as a result of the increased off-hire days leading to reduced vessels' operations.
Depreciation and Amortization of Deferred Charges. Depreciation and amortization of deferred charges for 2016 amounted to $12.7 million, compared to $13.1 million in 2015 and mainly represents the depreciation expense of our containerships and the amortization charge of drydocking costs for vessels. In 2016, despite the increase of our ownership days, the depreciation expense decreased, as a result of the vessels' impairment charges recorded as of September 30, 2016 for seven of our vessels.
General and Administrative Expenses. General and administrative expenses for 2016 amounted to $7.2 million, compared to $6.2 million in 2015 and mainly consist of payroll expenses of office employees, consultancy fees, brokerage services fees, compensation cost on restricted stock awards, legal fees and audit fees. The increase in general administrative expenses was mainly attributable to increased office personnel and increased payroll taxes payable by the Company, which both led to increased salaries, as well as to increased brokerage fees.Inflation
Impairment Losses. Impairment losses in 2016 amounted to $118.9 million and represent non-cash impairment charges recorded during the year for the vessels Sagitta, Centaurus, Domingo, Cap Doukato, Great, March and Angeles, for which the Company's assessment concluded that their book values as of September 30, 2016 were not recoverable. In 2015, impairment losses were $6.6 million and represented non-cash impairment charges recorded for the vessel Hanjin Malta.
Loss on Vessels' Sale. Loss on vessels' sale amounted to $2.9 million in 2016, and relates to the sale of the vessels Hanjin Malta and Angeles in March and November 2016, respectively, while in 2015, Loss on vessels' sale amounted to $8.3 million and relates to the sale of the vessel Garnet in September 2015.
Foreign Currency Losses / (Gains). Foreign currency losses for 2016 amounted to $111 thousand, and mainly consist of unrealized exchange differences derived from the year-end valuation of accounts other than the U.S. Dollar. In 2015, there were foreign currency gains of $55 thousand.
Interest and Finance Costs. Interest and finance costs for 2016 amounted to $7.1 million, compared to $7.2 million for 2015 and consist of the interest expenses relating to our average debt outstanding during the respective periods and other loan fees and expenses. The slight decrease in 2016 was mainly attributable to reduced loan expenses and related fees in connection with our loan agreements with RBS and DSI, despite the increase of our average total debt resulting in higher bank interest expense.
Interest Income. Interest income for 2016 and 2015 amounted to $0.1 million, and consists of interest income received on deposits of cash, cash equivalents and restricted cash.
Inflation
Inflation does not have a material effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financing costs.
| B. | Liquidity and Capital Resources |
We have historically financed our capital requirements with cash flow from operations, equity contributions from shareholders and long- and medium-term debt. Our operating cash flow is generated from charters on our vessels, through our subsidiaries. Our main uses of funds have been capital expenditures for the acquisition of new vessels, expenditures incurred in connection with ensuring that our vessels comply with international and regulatory standards, repayments of loans and payments of dividends (which our board of directors determined to suspend in 2016). At times when we are not restricted by our lenders from acquiring additional vessels, we will require capital to fund vessel acquisitions and debt service.
During 2016, we amended our then existing $148.0 million loan facility with RBS and our then existing $50.0 million loan facility with DSI, and agreed, among others, to amend the repayment schedules of both loans. As of December 31, 2016, due to the significant decline in the market value of2019 and 2018, our vessels, following the prolonged weak charter market conditions, we were not in compliance with certain financial covenants in the RBS loan, as well as with the minimum required security cover (hull cover ratio). Due to these technical breaches of the covenants as of December 31, 2016, we classified the long-term portion of our bank debt of $124.8 million in current liabilities. On June 30, 2017, we repaid to RBS an amount of $85.0 million as full and final settlement of our loan obligation and the loan agreement was terminated. The repayment of the loan was partially funded with $10.0 million from our own cash, with $40.0 million from a refinance of the then existing loan with DSI, and with $35.0 million from a new loan agreement with Addiewell Ltd, or Addiewell, an unrelated party. Both new loans mature in 18 months from their signing, or on December 31, 2018. As a result, working capital, which is current assets minus current liabilities, resulted in a deficitincluding the current portion of $73.2long-term debt, was $27.3 million at December 31, 2017, and $107.0$9.1 million, as at December 31, 2016. Given the prolonged market downturn in the containership segment and the continued depressed outlook on charter rates and vessels' market values werespectively. We expect that we will fund our operations with cash on hand, cash generated from operations, bank debt and cash provided by operating activities will not be sufficient to cover our liquidity needs that become due withinequity offerings, or a combination thereof, in the twelve-month period ending one year after the date thatfinancial statements' issuance.
However, beginning in February 2020, due in part to fears associated with the spread of COVID-19, global financial markets, and starting in late February, financial markets in the U.S., experienced even greater relative volatility and a steep and abrupt downturn, which volatility and downturn may continue as COVID-19 continues to spread. Credit markets and the debt and equity capital markets have been distressed and the uncertainty surrounding the future of the global credit markets has resulted in reduced access to credit worldwide, particularly for the shipping industry. These issues, along with significant write-offs in the financial statements are issued.services sector, the repricing of credit risk and the current weak economic conditions, have made, and will likely continue to make, it difficult to obtain additional financing. The abovecurrent state of global financial markets and current economic conditions raise substantial doubts aboutmight adversely impact our ability to continue as a going concern and our independent registered public accounting firm has issued their opinion with an explanatory paragraphissue additional equity at prices that expresses substantial doubt about our ability to continue as a going concern.
However, on March 22, 2017, we announced an up to $150.0 million securities offering through the sale of 3,000 newly-designated Series B-1 convertible preferred shares, preferred warrants to purchase 6,500 Series B-1 convertible preferred shares and preferred warrants to purchase 140,500 newly-designated Series B-2 convertible preferred shares. During 2017, we received $32.5 million of gross proceeds, and since December 31, 2017, we have received an additional $7.5 million of gross proceeds from the sale of preferred shares and exercise of preferred warrants. As of March 14, 2018, 110,000 warrants remain outstanding. In addition, in March 2018, we sold the vessel New Jersey, for which we collected proceeds of $9.4 million, net of commissions to the buyers, and we used these proceeds for loan repayments. Furthermore, we have contracted to sell the vessels March, Great, Sagitta and Centaurus, for an aggregate gross purchase price of $46.6 million and the deliveries to the new owners are expected by the end of April 2018. However, as the covenants of our current loan agreements stipulate that proceeds from the exercise of such warrants and the sale of vessels be used to prepay our indebtedness, such proceeds will not be availabledilutive to fund working capital requirements until we repay our loans in full. We are also exploring several alternatives aiming to manage our working capital requirements, including potential sales of additional vessels, seeking for more favorable chartering opportunitiesexisting shareholders or a combination thereof. Therefore, our financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might be necessary if we are unable to continue as a going concern.preclude us from issuing equity at all.
Cash Flow
As atof December 31, 2017,2019, cash and cash equivalents amounted to $6.4$26.4 million, compared to $8.3$10.5 million for the prior year. We consider highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are primarily held in U.S. dollars.
Net Cash Provided by/ (Used in)Used in Operating Activities
Net cash used in operating activities in 20172019, 2018 and 20162017 amounted to $4.2 million, $0.3 million and $12.7 million, and $12.0 million, respectively, and in 2015 net cash provided by operating activities amounted to $17.4 million.respectively. Cash from operations in 2019 was weaker compared to the prior year, as trade accounts receivables, inventories and prepaid and other assets had significantly higher balances as of December 31, 2019 compared to December 31, 2018. These changes are mainly attributable to the employment of certain of our vessels for the first time in the spot market, where freight under these type of contracts is typically paid at the end of the voyage and the owners bear the cost of bunkers, compared to the time-charter contracts where revenue is typically paid in advance and fuel cost are on charterers’ account. Cash from operations in 2018 was marginally negative and its improvement compared to the prior years reflected the market improvement from the low vessels’ performance in 2016 and 2017, and 2016 was negative due towhen the prolonged weak charter market conditions in the containership sector which led to low fleet utilization during both years through vessel lay-ups, increased off-hire days and reduced time charter rates.
Net Cash Provided by/ (Used in) Investing Activities
Net cash used in investing activities in 2019 was $18.5 million and consists of $28.9 million net proceeds received from the sale of two container vessels during the year, $50.2 million that we paid for the acquisition of two tanker vessels, $17 thousand we paid as vessel’s advances, $2.8 million received, representing insurance settlements, and $38 thousand paid for equipment additions.
Net cash provided by investing activities in 2018 was $93.2 million and consists of $92.9 million received from the sale of seven vessels during the year, $0.1 million paid for equipment additions, and finally $0.4 million received, representing insurance settlements.
Net cash provided by investing activities in 2017 was $6.7 million and consists of $5.9 million received from the sale of one vessel during the year, $15 thousand paid for equipment additions, and finally $0.8 million received, representing insurance settlements.
Net cash provided by investing activities in 2016 was $10.6 million and consists of $10.6 million received from the sale of two vessels during the year, $0.2 million paid for additional capitalized costs for one vessel, $29 thousand paid for equipment additions, and finally $0.2 million received, representing insurance settlements.89
Net cash used in investing activities in 2015 was $111.8 million and consists of $113.0 million paid for the four vessels that we acquired during the year, $6.0 million paid for time charter agreements attached to the memoranda of agreement for two vessels acquired during the year, $7.0 million received from the sale of one vessel during the year, $39 thousand paid for equipment additions, and finally $0.3 million received, representing insurance settlements.
Net Cash Provided by/by / (Used in) Financing Activities
Net cash provided by financing activities in 2019 was $38.6 million and consists of $33.0 million of bank loan proceeds, $0.5 million of bank debt repayments, $6.5 million of net proceeds from equity offering, and finally $0.4 million of paid equity issuance and finance costs.
Net cash used in financing activities in 2018 was $88.8 million and consists of $87.6 million of debt repayments to related parties, $18.5 million of debt repayments to unrelated parties, $17.4 million of net proceeds from our equity offering, and finally $0.1 million of finance costs that we paid for our loan agreements.
Net cash used in financing activities in 2017 was $4.1$4.9 million and consists of $75.0 million of loan proceeds from our new loan facilities with Addiewell and DSI, $111.5 million of debt repayments to unrelated parties, $32.0 million of net proceeds from our equity offering and $0.4 million of finance costs that we paid for our new loan agreements and $9.0 million being a reduction of our restricted cash as part of the termination of our loan agreement with RBS.agreements.
Net cash used in financing activities in 2016 was $19.7 million and consists of $19.2 million of debt repayments, $0.2 million of finance costs that we paid for our new loan agreement with RBS and $0.4 million of cash dividends paid to investors.
Net cash provided by financing activities in 2015 was $41.7 million and consists of $148.0 million of loan proceeds received under our new loan agreement with The Royal Bank of Scotland plc, $103.3 million of debt repayments and prepayments, $3.2 million of finance costs that we paid for our new loan agreement with RBS and for our amendment of the DSI loan agreement, $0.7 million of cash dividends paid to investors and $0.9 million of reduced restricted cash required under our loan facility with The Royal Bank of Scotland plc.
Loan Facilities
As at December 31, 2019, we had $32.5 million of long-term debt outstanding under our facility with Nordea, and until the date of this annual report we have additionally drawn down $26.0 million from the same lenders to support the acquisition cost of the tanker vessels P. Fos and P. Kikuma.The Royalfacility with Nordea is described below.
Nordea Bank of Scotland plc – Term Loan:Abp, Filial i Norge (Nordea):
On September 10, 2015,July 24, 2019, we, through ninetwo of our wholly-owned subsidiaries (the “Initial Borrowers”), entered into a loan agreement with RBSNordea for a senior secured term loan facility of up to $148.0 million,$33.0 million. The purpose of the loan facility was to re-financepartially finance the acquisition cost of seventhe tanker vessels Blue Moon and Briolette. An arrangement fee of our vessels, including the full prepayment of the then existing facility agreement with RBS, and to support the acquisition of the two newly acquired vessels, the m/v Hamburg and the m/v Rotterdam. Until December 31, 2015, we drew down the full amount of$330 thousand was paid on signing the loan agreement and paid arrangement and structuring fees amounting to $1.9 million. We also paid commitment commissions of 1.375%0.9625% per annum were calculated on the undrawn amounts from July 30, 2015, the date of acceptance ofsigning the lenders' offer letter,loan agreement until the drawdown dates. In July and November 2019, the Initial Borrowers drew down the maximum amount of $16.5 million each.
The loan, until its amendment discussed below, bore interest at the rate of 2.75% per annum over LIBOR and wasBlue Moon tranche is repayable in 20 quarterly installments of $0.52 million and a balloon paymentof $6.10 million payable together with the last installment, while the Briolette tranche is repayable in September 2021. The loan was secured by first preferred mortgages on nine vessels19 quarterly installments of our fleet, first priority deeds of assignments of insurances, earnings, charter rights and requisition compensation$0.57 million and a corporate guarantee. The loan agreement also contained customary financial covenants, minimum security valueballoon of the mortgaged vessels, required minimum liquidity of $0.5$5.67 million per vessel in the fleet and restricted cash of $9.0 million to be deposited by the borrowerspayable together with the lenders for the duration of the loan. There were also restrictions as to changes in our loan agreement with DSI, in the securities purchase agreement that we entered into in connection with a private placement inlast installment. Both tranches mature on July 2014 with DSI30, 2024 and two unaffiliated institutional investors, in certain shareholdings and management of the vessels. Finally, we were not permitted to pay any dividends that would result in a breach of the financial covenants.
On September 12, 2016, we entered into an amendment of our loan agreement with RBS, according to which the Company prepaid an amount of $7.6 million and agreed to change the repayment schedule and recommence repaying the principal on September 15, 2017. Moreover, the loan amendment provided for changes to the borrowers and to the mortgaged vessels and required an amendment to our loan agreement with DSI. It also prohibited the incurrence of additional indebtedness and the acquisition of additional vessels until September 15, 2018, and the payment of dividends until the later of: (a) prepayment or repayment in full on June 15, 2021 of the deferred tranche of $8.9 million which was created out of the reallocation of amounts due under the existing tranches, and (b) September 15, 2018. Furthermore, the minimum security covenant (hull cover ratio) was reduced from 140% to 125% until September 30, 2018, certain financial covenants were amended while the application of others was deferred to 2019, and the interest rate margin increased from 2.75% per annum to 3.10% per annum until December 31, 2018. Finally, we paid an amendment fee of $0.2 million at the signing of the agreement and an additional fee of $0.2 million was payable on December 31, 2018.
As of September 30, 2016 and thereafter, due to a significant decline in the market value of our vessels, we were not in compliance with two financial covenants in the RBS loan, as well as with the required covenant for the minimum required security cover (hull cover ratio). As advised by the lenders, to rectify the shortfall of the minimum required security cover, we would have to repay to RBS an amount of $18.9 million, or provide additional security. Due to these technical breaches in our loan covenants, we had classified our bank debt of $128.9 million as of December 31, 2016 in current liabilities.
On June 30, 2017, we signed a Settlement Agreement with RBS, whereby we repaid an amount of $85.0 million as full and final settlement of the loan obligation. The then outstanding principal balance was $128.9 million and the settlement resulted in a net gain of $42.2 million for us, which includes the gain from the write off of the principal balance and other fees due to the lenders, net of the unamortized deferred financing costs write off and other costs incurred in connection with the transaction. The repayment of the loan was partially funded by $10.0 million from our own cash, $40.0 million from the DSI loan refinance, as discussed below, and $35.0 million from the new Addiewell loan, as also discussed below.
Diana Shipping Inc. (DSI): On May 20, 2013, we, through our subsidiary Eluk Shipping Company Inc., entered into an unsecured loan agreement of up to $50.0 million with DSI, to be used to fund vessel acquisitions and for general corporate purposes. The loan was guaranteed by the Company and, until the amendment discussed below, it bore interest at a rate of LIBOR plus a margin of 5.0% per annum and a fee of 1.25% per annum ("back-end fee") on any amounts repaid upon any repayment or voluntary prepayment dates. In August 2013, the full amount was drawn down under the loan agreement which was originally repayable on August 20, 2017.
On September 9, 2015, and in relation with the RBS refinance discussed above, the loan agreement with DSI was amended. The new loan agreement was extended until March 15, 2022 or such earlier date on which the outstanding principal balance of the loan was paid in full, provided for annual repayments of $5.0 million, plus a balloon installment at the final maturity date, and borebear interest at LIBOR plus a margin of 3.0%2.75% per annum. We also agreed to pay at the date of the amendment the accumulated back-end fee, amounting to $1.3 million, and that no additional back-end fee would be charged thereafter. Furthermore, we agreed that we would pay at the final maturity date a flat fee of $0.2 million.
On September 12, 2016December 23, 2019, we, through the “Initial Borrowers” and in relation withone new wholly-owned subsidiary (collectively “the Borrowers”), entered into the RBS amended loan agreement discussed above, we further amended thefirst amendment and restatement loan agreement with DSI.Nordea for a senior secured term loan facility of up to $47.0 million. The loan was undertaken by our wholly-owned subsidiary Kapa Shipping Company Inc. and its repayment was immediately suspended and would not recommence until the later of: (i) September 15, 2018 and (ii) until the deferred tranchepurpose of the RBS supplementalamended agreement was fully repaid on June 15, 2021 or prepaid. Finally,to provide additional finance of up to $14.0 million for the margin was revised to 3.35% per annum until December 31, 2018, thereafter reverting to 3.0% per annum until maturity.
On May 30, 2017, we issued 100 shares of our newly-designated Series C Preferred Stock, par value $0.01 per share, to DSI, in exchange for a reduction of $3.0 million in the principal amount of our outstanding loan, thus leaving an outstanding principal balance of $42.4 million as of that date.
On June 30, 2017, we refinanced our existing unsecured loan facility with DSI. The principal amountacquisition of the new secured loan is $82.6 milliontanker vessel P. Fos (ex Virgo Sun), and includes the $42.4 million outstanding principal balance as of June 30, 2017, increased by the flat fee of $0.2 million which was payable at maturity, and an additional $40.0 million, which was drawnin all other respects included identical terms to partially repay our existing loan with RBS. The new DSI loan matures on December 31, 2018, however the lenders have the option to request for full repayment after twelve months from the initial drawing. The loan also provides for an additional $5.0 million interest-bearing "discount premium", which is payable at maturity, but will be permanently waived and cancelled, in case the lenders exercise their option for full repayment within twelve months from drawing, subject to the termsagreement of the Intercreditor Agreement with Addiewell. Moreover, the DSI loan is subordinated to the Addiewell loan, is secured by second priority mortgages over our vessels, bears interest at the rate of 6% per annum for the first twelve months, scaled to 9% per annum for the next three months, and further scaled to 12% per annum for the remaining three months until maturity, includes financial and other covenants which stipulate the repayment with proceeds from the sale of our assets, proceeds from the issuance of new equity and proceeds from the exercise of existing warrants to purchase Series B Convertible Preferred Shares, and prohibits the payment of dividends.
As of December 31, 2017, $82.6 million of principal balance, and the additional $5.0 million discount premium remained outstanding under our loan facility with DSI. As of March 14, 2018,July 2019. On January 22, 2020, we have repaid $8.4 million of our loan agreement with DSI by making use of vessels' sales proceeds.
Addiewell Ltd (Addiewell) – Loan Facility: On June 30, 2017, we partially funded the refinancing of the RBS loan, discussed above, with proceeds under a new secured loan facility with Addiewell Ltd., an unaffiliated third party, indrew down the amount of $35.0 million. $14.0 million to support the acquisition of the vessel P. Fos (ex Virgo Sun), whose delivery took place on January 27, 2020.
The loan matures on December 31, 2018, however the lenders have the option to request for full repayment after twelve months from the initial drawing. The loan also provides for an additional $10.0 million interest-bearing "discount premium", which is also payable at maturity, but will be permanently waived and cancelled in case the lenders exercise their option for full repayment within twelve months from drawing. Moreover, the loan, which ranks senior to the loan agreement with DSI,guaranteed by Performance Shipping Inc., is secured by first priority mortgages over the financed tanker vessels, first priority assignments of earnings, insurances and of any charters exceeding durations of two years, pledge over the borrowers’ shares and over their earnings accounts, and vessels’ managers undertakings. The loan agreement requires a minimum hull value of the financed vessels, imposes restrictions as to dividend distribution following the occurrence of an event of default and changes in shareholding, includes customary financial covenants and requires minimum cash liquidity of $7.0 million at all times during the facility period plus $1.0 million per additional tanker vessel acquired. As at December 31, 2019, the compensating cash balance required under the loan agreement amounted to $7.0 million. As at December 31, 2019, and the date of this report, we were in compliance with all of our vessels, bears interest atloan covenants.
On March 20, 2020, we signed the ratesecond amendment and restatement loan agreement with Nordea for a senior secured term loan facility of 6% per annumup to $59.0 million. The purpose of the second amendment and restatement loan agreement was to provide additional finance of up to $12.0 million for the first twelve months, scaled to 9% per annum for the next three months, and further scaled to 12% per annum for the remaining three months until maturity. Finally, the new loan facility includes financial and other covenants which stipulate the repaymentacquisition of the facility with proceeds fromtanker vessel P. Kikuma (ex FSL Shanghai), and in all other respects included identical terms to the saleprior agreement of our assets, proceeds fromDecember 2019. On March 26, 2020, we drew down the issuanceamount of new equity and proceeds from the exercise of existing warrants$12.0 million. The vessel P. Kikuma has been delivered to purchase Series B Convertible Preferred Shares and prohibits the payment of dividends. During 2017, we prepaid $26.5 million of our outstanding loan balance with Addiewell.us on March 30, 2020.
As of December 31, 2017, $8.5 million of principal balance, and the additional $10.0 million discount premium remained outstanding under our loan agreement with Addiewell. Up to March 14, 2018, we repaid an additional $8.5 million from our outstanding principal balance by making use of equity and vessels' sales proceeds.
As at December 31, 20172019 and the date of this annual report, we have not used any derivative instruments for hedging purposes or other purposes.
Capital Expenditures
Our future capital expenditures relate to the purchase of containershipsvessels and vessel upgrades.
We also expect to incur additional capital expenditures when our vessels undergo surveys. This process of recertification may require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our operating days during the period. The loss of earnings associated with the decrease in operating days, together with the capital needs for repairs and upgrades results in increased cash flow needs which we fund with cash on hand.
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| C. | Research and Development, Patents and Licenses |
From time to time, we incur expenditures relating to inspections for acquiring new vessels that meet our standards. Such expenditures are capitalized to vessel'svessel’s cost upon such vessel'svessel’s acquisition or expensed, if the vessel is not acquired, however, historically, such expenses were not material.
Our results of operations depend primarily
Container Shipping Market
Pressure on the charter hire rates thatworld economy following the outbreak of COVID-19 has led to factory closures and supply chain impacts, which we are ableanticipate will impact the liner trade. Following year end, we expect the container market to realize. Charter hire rates paid for containerships are primarilybe negatively impacted as a functionresult of the underlying balanceoutbreak of COVID-19, with a slowdown in global and, in particular, in Chinese production during the first months of 2020. It remains difficult to assess the effects on trade flows, with a further slowdown in consumer spending expected.
In 2019, total seaborne container trade demand grew at around 1.7% as the global economic growth began to decelerate. During the year, the trade dispute between vesselChina and United States escalated, with both countries imposing tariffs in selective imported goods. As a result, global trade lost momentum and business confidence and global capital expenditure declined.
Total containership supply and demand.
With some exceptions,grew at around 4% in 2019 as demolitions drop during the year. However, the supply of containerships with capacity above 12,000 TEU, added pressure on the industry. However, according to Clarksons Research, 1.5% of total containership supply was absorbed by scrubber retrofits. As a result, time charter rates for all containership sizes increased steadily from 2002 into 2005, in some cases rising by as much as 50.0%, as charter markets experienced significant growth. and values on average maintained their 2018 levels, but with the bigger and younger vessels performing significantly better.
Demand for containership transportation services especially for larger vessels increased during the year as liner companies started to prepare for the introduction of the IMO regulations. Idle fleet represented 6.1% of the total fleet at the end of 2019. However, since the first quarter of 2019, idle fleet includes vessels undergoing scrubber retrofit installations. For instance, out of the 1.4 million inactive TEU capacity, about 1 million TEU capacity is linked to vessels undergoing scrubber installations. With the exclusion of vessels linked to scrubber installations, idle fleet was largely spurred on1.5%. The containerships with capacity of more than 6,000 TEU captured the greater benefit by growth in the volume of exports from China. In 2006, timeearning higher charter rates weakened due to supply rising fasterthe scrubber retrofit installations. Containership ordering in 2019 decreased to 789,000 TEU with the total order book remaining historically low at 11% of the total fleet at the end of 2019. However, since vessels with more than demand and also market perception. This trend continued in 2007 and 2008, and in 2009 rates fell even further due to rising supply and very weak demand. With12,000 TEU capacity constituted 67% of the recovery in demand since 2009 charter rates across most sizes have improved fromorderbook, there is concern that the lows of 2009, although in a historical context they still remain low. As such, we cannot assure investors that weindustry will be ablepressed if the improved containership demand is not sustainable.
Tanker Shipping Market
The global outbreak of COVID-19 is creating wide ranging operational disruptions and a potential major demand “shock” on the oil market. The impact may even reach 1.7m barrels per day (bpd) in 2020. However, the low oil price and the production surge following Saudi Arabia’s decision to fix our vessels, upon expirationincrease output to 12.3m bpd has driven a strong tanker market (VLCCs averaged $279,000/day as at 13 March).
‘Headline’ fundamentals across the crude tanker sector currently appear relatively balanced in 2020, although downside risks to the Aframax market outlook have clearly built. Crude Aframax dwt demand is currently projected to increase marginally (by c.0.3%) in 2020, with support from growing US-Europe and intra-UKC crude trade volumes. However, there remain headwinds to the demand outlook, including ongoing OPEC-led supply cuts, continued disruption to Venezuelan crude exports, and the recent coronavirus outbreak in China, which has significantly impacted Chinese refinery runs in recent weeks and is likely to impact Aframax crude trade on some intra-Asian routes. Significant downside potential remains to the crude tanker demand outlook if disruption in China continues for an extended period.
According to Clarksons Research, the average spot earnings for an Aframax tanker trading on selected routes (e.g. Intra-Asia, Med-Med, Black Sea-Med and others) in 2019 was a daily TCE rate of their current charters, at average rates higher than or similar$ 26,225. This compares to those achievedan estimated daily TCE rate of $16,175 in previous years.2018.
The total ‘trading’ crude tanker fleet is projected to grow by c.3% in 2020, although crude Aframax fleet capacity is expected to remain steady, with deliveries projected to slow to the lowest level since 2015.
| E. | Off-balance Sheet Arrangements |
As of the date of this annual report, we do not have any off-balance sheet arrangements.
| F. | Tabular Disclosure of Contractual Obligations |
The following table presents our contractual obligations, in thousands of US Dollars, and their maturity dates as of December 31, 2017.2019, as adjusted to reflect the early termination of the Steamship Brokerage agreement on March 1, 2020.
| | | Payments due by period | |
| Contractual Obligations | | Total Amount | | | Less than 1 year | | | 2-3 years | | | 4-5 years | | | More than 5 years | |
| | | (in thousands of US dollars) | |
| Broker Services Agreement (1) | | $ | 280 | | | $ | 280 | | | $ | - | | | $ | - | | | $ | - | |
| Nordea Loan Agreement | | | 32,481 | | | | 4,340 | | | | 8,680 | | | | 19,461 | | | | | |
| Estimated Interest Payments on Loan Agreement (2) | | | 4,858 | | | | 1,432 | | | | 2,239 | | | | 1,187 | | | | | |
| Operating Leases - Office Rent Payments (3) | | | 213 | | | | 77 | | | | 134 | | | | 2 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 37,832 | | | $ | 6,129 | | | $ | 11,053 | | | $ | 20,650 | | | $ | - | |
| | | Payments due by period | |
| Contractual Obligations | | Total Amount | | | Less than 1 year | | | 2-3 years | | | 4-5 years | | | More than 5 years | |
| | | (in thousands of US dollars) | |
| Broker Services Agreement (1) | | $ | 420 | | | $ | 420 | | | $ | - | | | $ | - | | | $ | - | |
| Unrelated Party Debt (2) | | | 8,500 | | | | 8,500 | | | | - | | | | - | | | | - | |
| Interest bearing Discount Premium to the unrelated party debt (2) | | | 10,000 | | | | 10,000 | | | | | | | | | | | | | |
| Related Party Debt (3) | | | 82,617 | | | | 82,617 | | | | - | | | | - | | | | - | |
| Interest bearing Discount Premium to the related party debt (3) | | | 5,000 | | | | 5,000 | | | | | | | | | | | | | |
| Total | | $ | 106,537 | | | $ | 106,537 | | | $ | - | | | $ | - | | | $ | - | |
| (1) | Our agreement with Steamship Shipbroking Enterprises Inc., dated April 1, 2017, expires2019, originally due to expire on March 31, 2018.2020, was early terminated on March 1, 2020. Please see "Item“Item 6. Directors, Senior Management and Employees - B. Compensation"Compensation” and "Item“Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions"Transactions” for more details. |
| (2) | The amounts in the table under "Unrelated Party Debt" do not includeEstimated interest payments represent projected interest payments on our loan with Addiewell Ltd,long-term debt, which will be calculated with a fixed interest rate of 6% per annum until June 30, 2018, 9% per annum until September 30, 2018 and 12% per annum until December 31, 2018,are based on the applicable discount premium and any principal amount outstanding.weighted average LIBOR rate in 2019 plus the margin of our loan agreement in 2019. |
| (3) | We pay rent for our offices in Athens, Greece, in Euro. The amounts presented in the table under "Related Party Debt" do not include projected interest payments on our loan with Diana Shipping Inc., which will be calculatedabove have been denominated to USD with a fixed interest rate of 6% per annum until June 30, 2018, 9% per annum until September 30, 2018 and 12% per annum until December 31, 2018, on the applicable discount premium and any principal amount outstanding.1.124. |
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See the section entitled "Forward-looking Statements"“Forward-looking Statements” at the beginning of this annual report.
| Item 6. | Directors, Senior Management and Employees |
| A. | Directors and Senior Management |
Set forth below are the names, ages and positions of our directors and executive officers. Our board of directors is elected annually on a staggered basis, and each director elected holds office for a three-year term and until his or her successor is elected and has qualified, except in the event of such director'sdirector’s death, resignation, removal or the earlier termination of his or her term of office. Officers are appointed from time to time by our board of directors and hold office until a successor is elected.
All
On February 18, 2020, the re-election of Mr. Antonios Karavias and the election of Mr. Andreas Nikolaos Michalopoulos as Class I Directors was approved by the requisite vote at our 2020 Annual Meeting. Also effective February 18, 2020, Mr. Anastasios Margaronis, Mr. Nikolaos Petmezas and Mr. Ioannis Zafirakis have resigned from our board of directors due to other business commitments. Our board of directors has appointed Mr. Christos Glavanis and Mrs. Aliki Paliou to the board of directors, effective as of February 28, 2020, to fill the existing vacancies created by the resignations of Messrs Margaronis and Petmezas. Until February 18, 2020, all of our executive officers arewere also executive officers of Diana Shipping. Among our current board of directors, only Symeon Palios, our Chief Executive Officer and Chairman of the Board also serves as an executive officer of Diana Shipping, Inc. (NYSE: DSX).where he acts as Chief Executive Officer and Chairman of the Board of Diana Shipping.
| Name | | Age | | Position |
Symeon Palios | 78 | | 76 | | Class III Director, Chief Executive Officer and Chairman of the Board |
Anastasios Margaronis Andreas Michalopoulos | 48 | | 62 | | Class II Director and President |
Ioannis Zafirakis | | 46 | | Class I Director , Deputy Chief OperatingExecutive Officer, and Secretary |
Andreas Michalopoulos | | 46 | | Chief Financial Officer, Treasurer and TreasurerSecretary |
Aliki Paliou | 45 | | Class II Director |
Giannakis (John) Evangelou | 75 | | 73Class III Director |
Antonios Karavias | 78 | | Class I Director |
Christos Glavanis | 66 | | Class III Director |
Antonios Karavias Reidar Brekke | 59 | | 76 | | Class I Director |
Nikolaos Petmezas | | 69 | | Class III Director |
Reidar Brekke | | 57 | | Class II Director |
The term of the Class II directors expires in 2018, the term of the Class III directors expires in 2019, and2022, the term of the Class I directors expires in 2020.2023 and the term of the Class II directors expires in 2021.
The business address of each officer and director is the address of our principal executive offices, which are located at Pendelis 18, 175 64 Palaio Faliro, Athens, Greece.
Biographical information concerning the directors and executive officers listed aboveas of the date of this annual report is set forth below.
Symeon Palioshas served as our Chief Executive Officer and Chairman of the Board since January 13, 2010 and has served as Chief Executive Officer and Chairman of the Board of Diana Shipping Inc. since February 21, 2005 and as a Director of that company since March 9, 1999. Mr. Palios also serves currently as the President of Diana Shipping Services S.A. Prior to November 12, 2004, Mr. Palios was the Managing Director of Diana Shipping Agencies S.A. Since 1972, when he formed Diana Shipping Agencies S.A., Mr. Palios has had overall responsibility for its activities. Mr. Palios has experience in the shipping industry since 1969 and expertise in technical and operational issues. He has served as an ensign in the Greek Navy for the inspection of passenger boats on behalf of Ministry of Merchant Marine and is qualified as a naval architect and engineer. Mr. Palios is a member of various leading classification societies worldwide and he is a member of the board of directors of the United Kingdom Freight Demurrage and Defense Association Limited. Since October 7, 2015, Mr. Palios has also served as President of the Association "Friends“Friends of Biomedical Research Foundation, Academy of Athens" since 2015.Athens.” He holds a bachelor'sbachelor’s degree in Marine Engineering from Durham University.
Anastasios MargaronisAndreas Michalopoulos has served as our DirectorDeputy Chief Executive Officer since October 2019 and President since January 13, 2010. He has also served as Director and President of Diana Shipping Inc. since February 21, 2005. Mr. Margaronis is a Deputy President of Diana Shipping Services S.A., where he also serves as a Director and Secretary. Prior to February 21, 2005, Mr. Margaronis was employed by Diana Shipping Agencies S.A. and performed the services he now performs as President. He joined Diana Shipping Agencies in 1979 and has been responsible for overseeing our vessels' insurance matters, including hull and machinery, protection and indemnity, loss of hire and war risks insurances. Mr. Margaronis has had experience in the shipping industry, including in ship finance and insurance, since 1980. He is a member of the United Kingdom Mutual Steam Ship Assurance Association (Europe) Limited and a member of the Greek National Committee of the American Bureau of Shipping. He holds a bachelor's degree in Economics from the University of Warwick and a master's of science degree in Maritime Law from the Wales Institute of Science and Technology.
Ioannis Zafirakis serves as our Director, Chief Operating Officer and Secretary. He also serves as Director, Chief Operating Officer and Secretary of Diana Shipping Inc. In addition, he is the Chief Operating Officer of Diana Shipping Services S.A., where he also serves as Director and Treasurer. Since June 1997 and up to February 2005 Mr. Zafirakis was employed by Diana Shipping Agencies S.A. where he held a number of positions in its finance and accounting department. Mr. Zafirakis is also a member of the Business Advisory Committee of the MSc in International Shipping and Finance at ICMA Centre, Henley Business School, University of Reading. He holds a bachelor's degree in Business Studies from City University Business School in London and a master's degree in International Transport from the University of Wales in Cardiff.
Andreas Michalopoulos has served as our Chief Financial Officer and Treasurer since January 13, 20102010. He served as Chief Financial Officer and has served in these positions withTreasurer of Diana Shipping Inc. sincefrom March 8, 2006. Mr. Michalopoulos2006 to February 2020, and he also served as a Director of Diana Shipping Inc. from August 2018 to February 2020. He started his career in 1993 when he joined Merrill Lynch Private Banking in Paris. In 1995, he became an International Corporate Auditor with Nestle SA based in Vevey, Switzerland and moved in 1998 to the position of Trade Marketing and Merchandising Manager. From 2000 to 2002, he worked for McKinsey and Company in Paris, France as an Associate Generalist Consultant before joining a major Greek Pharmaceutical Group with U.S. R&D activity as a Vice President of International Business Development and Member of the Executive Committee in 2002 where he remained until 2005. From 2005 to 2006, he joined Diana Shipping Agencies S.A. as a Project Manager. Mr. Michalopoulos graduated from Paris IX Dauphine University with Honors in 1993 obtaining an MSc in Economics and a master'smaster’s degree in Management Sciences specialized in Finance. In 1995, he also obtained a master'smaster’s degree in Business Administration from Imperial College, University of London. Mr. Andreas Michalopoulos is married to the youngestAliki Paliou, who is also one of our Directors and daughter of Mr. Symeon Palios.Palios, our Chief Executive Officer and Chairman.
Aliki Paliou has served as a Director since February 2020. She has also served as Director, Vice-President and Treasurer of Unitized Ocean Transport Limited since January 2020. From 2010 to 2015 she was employed as a Director and Treasurer of Alpha Sigma Shipping Corp. Ms. Paliou studied Theatre Studies at the University of Kent in Canterbury, UK and obtained an M.A. in Scenography at Central Saint Martins School of Art and Design in London, UK. In 2005 she graduated with honors from the Greek School of Fine Art in Athens, Greece. She is the daughter of Symeon Palios, our Chief Executive Officer and Chairman, and is married to Andreas Michalopoulos, our Director, Deputy Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary.
Giannakis (John) Evangelou has served as an independent Director and as the Chairman of our Audit Committee since February 8, 2011. Mr. Evangelou is also a member of the Board of Directors of Baker Tilly South East Europe, a professional services company. Mr. Evangelou retired from Ernst & Young (Hellas), which he joined as a partner in 1998, on June 30, 2010. During his 12 years at Ernst & Young, he acted as Transaction Support leader for Greece and a number of countries in Southeast Europe including Turkey, Bulgaria, Romania and Serbia. In addition to his normal duties as a partner, Mr. Evangelou held the position of Quality and Risk Management leader for Transaction Advisory Services responsible for a sub-area comprising 18 countries spanning from Poland and the Baltic in the North to Cyprus and Malta in the South. From 1986 through 1997, Mr. Evangelou held the position of Group Finance director at Manley Hopkins Group, a Marine Services Group of Companies. From 1991 through 1997, Mr. Evangelou served as Chief Accounting Officer for Global Ocean Carriers, a shipping company that was listed on a U.S. stock exchange during that time. From 1996 to 1998, Mr. Evangelou was an independent consultant and a member of the team that prepared Royal Olympic Cruises for its listing on Nasdaq. From 1974 through 1986, Mr. Evangelou was a partner of Moore Stephens in Greece. Additionally, Mr. Evangelou is a Fellow of the Institute of Chartered Accountants in England and Wales, a member of The Institute of Certified Public Accountants of Cyprus and a member of the Institute of Certified Accountants—Auditors of Greece.
Antonios Karavias has served as an independent Director and as the Chairman of our Compensation Committee and member of our Audit Committee since the completion of the private offering. He also serves as a member of our Audit Committee and as a member of our Compensation Committee (where he was previously Chairman from April 2010 - February 2020). Since 2007 Mr. Karavias has served as an Independent Advisor to the Management of Société Générale Bank and Trust and Marfin Egnatia Bank. Previously, Mr. Karavias was with Alpha Bank from 1999 to 2006 as a Deputy Manager of Private Banking and with Merrill Lynch as a Vice President from 1980 to 1999. He holds a bachelor'sbachelor’s degree in Economics from Mississippi State University and a master'smaster’s degree in Economics from Pace University. As
Christos Glavanis has served as an independent Director and as Chairman of 2012,our Compensation Committee since February 2020. He also served as a Director of Diana Shipping Inc. from August 1, 2018 to February 19, 2020. Mr. KaraviasGlavanis has over 30 years of experience in the audit profession, serving in several senior roles at Ernst & Young, including as Chairman and Managing Partner of EY Greece from 1987 to 2010 and Managing Partner of EY Southeast Europe from 1996 to 2010. Mr. Glavanis was also a main Board Member of EY EMEIA Regional and a member of EY Global Council. Currently, Mr. Glavanis is a non-executive board member of W S Karoulias S.A., a beverage distribution company based in Athens, Greece and BuyaPowa Ltd., a London, England based online platform allowing users to design, launch, and analyze social sales campaigns. He is also the trustee of Phase Worldwide, a United Kingdom charity. He previously served as a non-executive board member and chairman of the Audit Committee of Korres S.A, a Greece based cosmetics company, chairman of the Audit Committee of the Hellenic Financial Stability Fund, board member and audit committee member of Eurobank SA and a non-executive board member of Pharmaten S.A. Greece based pharmaceutical company.
Reidar Brekke has served as an independent Director since June 1, 2010. Mr. Brekke has been a principal, advisor and deal-maker in the international energy, container logistics and transportation sector for the last 20+ years. Mr. Brekke is currently Partner of Brightstar Capital Partners, a private equity firm focused on investing in closely held, middle-market companies. From 2012 – Sept 2018, he was President of UNION F.Z.Intermodal Holdings LP, a company investing in intermodal assets. In 2008 he started his own firm, Energy Capital Solutions Inc., (New York and Florida) providing strategic and financial advisory services to international shipping, logistics and energy related companies. From 2003-2008 he served as Manager of Poten Capital Services LLC, a registered broker-dealer specializing in the maritime sector. Prior to 2003, Mr. Brekke was C.F.O., then President and C.O.O., of SynchroNet Marine, a logistics service provider to the global container transportation industry. From 1994 to 2000, he held several senior positions with American Marine Advisors, including Fund Manager of American Shipping Fund I LLC, and C.F.O. of its broker dealer subsidiary. Prior to this, Mr. Brekke was an Advisor for the Norwegian Trade Commission in New York and Oslo, Norway, and a financial advisor in Norway. Mr. Brekke graduated from the New Mexico Military Institute in 1986 and in 1990 he obtained a MBA from the University of Nevada, Reno. He has been an adjunct professor at Columbia University’s School of International and Public Affairs – Center for Energy, Marine Transportation and Public Policy, and is currently on the board of directors of Scorpio Tankers Inc. (NYSE: STNG) and two privately-held companies involved in compact equipment sales and rentals and container rentals, sales and modifications.
Biographical information concerning certain directors and executive officers, who resigned from their director positions effective as of the date of the 2020 shareholder meeting and resigned from their executive officer position effective as of February 28, 2020 is set forth below.
Anastasios Margaronis served as our Director from January 13, 2010 through February 18, 2020 and as our President from January 13, 2010 to February 28, 2020. He has also served as Director and President of Diana Shipping Inc. since February 21, 2005. Mr. Margaronis is a Deputy President of Diana Shipping Services S.A., where he also serves as a Director and Secretary. Prior to February 21, 2005, Mr. Margaronis was employed by Diana Shipping Agencies S.A. and performed the services company registeredhe now performs as President. He joined Diana Shipping Agencies S.A. in 1979 and has been responsible for overseeing our vessels' insurance matters, including hull and machinery, protection and indemnity, loss of hire and war risks insurances. Mr. Margaronis has had experience in the U.A.E.shipping industry, including in ship finance and insurance, since 1980. He is a member of the Greek National Committee of the American Bureau of Shipping. He holds a bachelor's degree in Economics from the University of Warwick and a master's of science degree in Maritime Law from the Wales Institute of Science and Technology. On February 18, 2020 Mr. Margaronis resigned as a Director and on February 28, 2020 Mr. Margaronis resigned as our President, due to other business commitments.
Ioannis Zafirakis had served as our Director, Chief Strategy Officer and Secretary until February 2020. Under his capacity as Chief Strategy Officer, Mr. Zafirakis was responsible for establishing and reviewing key strategic priorities and translating them into a comprehensive strategic plan, monitoring the execution of the plan, facilitating and driving key strategic initiatives through inception phase. He was also responsible for communicating the Company's strategy and overall goals internally and externally. He serves as Director, Interim Chief Financial Officer, Chief Strategy Officer, Treasurer and Secretary of Diana Shipping Inc. In addition, he is the Chief Strategy Officer of Diana Shipping Services S.A., where he also serves as Director and Treasurer. Since February 2005, Mr. Zafirakis served for the same companies in various positions such as Chief Operating Officer, Executive Vice-President and Vice-President. From June 1997 to February 2005, Mr. Zafirakis was employed by Diana Shipping Agencies S.A. where he held a number of positions in its finance and accounting department. From January 2010 to November 2018 Mr. Zafirakis served as Director, Chief Operating Officer and Secretary of Performance Shipping Inc. Mr. Zafirakis is a member of the Business Advisory Committee of the Shipping Programs of ALBA Graduate Business School at The American College of Greece. He holds a bachelor's degree in Business Studies from City University Business School in London and a master's degree in International Transport from the University of Wales in Cardiff. On February 18, 2020, Mr. Zafirakis resigned as a Director and on February 28, 2020, he resigned as our Chief Strategy Officer and Secretary, due to other business commitments.
Nikolaos Petmezashas served as an independent Director and as a member of our Compensation Committee sincefrom the completion of our private offering in 2010.2010 to February 18, 2020. From 2001 until mid-2015, Mr. Petmezas served as the Chief Executive Officer of Maersk-Svitzer-Wijsmuller B.V. Hellenic Office and, prior to its acquisition by Maersk, as a Partner and as Chief Executive Officer of Wijsmuller Shipping Company B.V. He has also served since 1989 as the Chief Executive Officer of N.G. Petmezas Shipping and Trading, S.A., and since 1984 as the Chief Executive Officer of Shipcare Technical Services Shipping Co. LTD. Since 1995, Mr. Petmezas has served as the Managing Director of Kongsberg Gruppen A.S. (Hellenic Office) and, from 1984 to 1995, as the Managing Director of Kongsberg Vaapenfabrik A.S. (Hellenic Branch Office). Mr. Petmezas served on the Board of Directors of Neorion Shipyards, in Syros, Greece from 1989 to 1992. Mr. Petmezas began his career in shipping in 1977, holding directorship positions at Austin & Pickersgill Ltd. Shipyard and British Shipbuilders Corporation until 1983. Mr. Petmezas has been a member of the Advisory Committee of Westinghouse Electric and Northrop Grumman since 1983 and a Honorary Consul under the General Consulate of Sri Lanka in Greece since 1995. Mr. Petmezas holds degrees in Law and in Political Sciences and Economics from the Aristotle University of Thessaloniki and an LL.M. in Shipping Law from London University. On February 18, 2020, Mr. Petmezas resigned as a Director due to other business commitments.
Reidar BrekkeSemiramis Paliou has served as an independentChief Operating Officer of Performance Shipping Inc. from November 2018 to February 2020. Mrs. Paliou has 20 years of experience in shipping operations, technical management and crewing. Mrs. Paliou began her career at Lloyd's Register of Shipping from 1996 to 1998 as a trainee ship surveyor. She was then employed by Diana Shipping Agencies S.A. From 2007 to 2010 she was employed as a Director since June 1, 2010. Mr. Brekke has been a principal, advisor and deal-maker in the international energy, container logistics and transportation sector for the last 20+ years. Mr. Brekke is currently President of Intermodal Holdings LP, a company investing in intermodal assets.Alpha Sigma Shipping Corp. From 2008-2012, heFebruary 2010 to November 2015 she was the Head of the Operations, Technical and Crew department of Diana Shipping Services S.A. From November 2015 to October 2016 she served as Vice President of Energy Capital Solutionsthe same company. Since March 2015, Mrs. Semiramis Paliou serves as a Director of Diana Shipping Inc., (New York and Florida) providing strategic and financial advisory services From November 2016 to international shipping, logistics and energy related companies. From 2003-2008 hethe end of July 2018, she served as ManagerManaging Director and Head of Poten Capitalthe Technical, Operations, Crew and Supply department of Unitized Ocean Transport Limited. As of August 2018, she is the Chief Operating Officer of Diana Shipping Inc. and Diana Shipping Services LLC,S.A. Mrs. Paliou obtained her BSc in Mechanical Engineering from Imperial College, London and her MSc in Naval Architecture from University College, London. In 2016 she completed a registered broker-dealer specializingcourse in Finance for Senior Executives at Harvard Business School. She is the maritime sector. Prior to 2003, Mr. Brekke was C.F.O., then Presidentdaughter of Symeon Palios, our Chief Executive Officer and C.O.O.,Chairman, and is a member of SynchroNet Marine,the Greek committee of Det Norske Veritas - Germanischer Lloyd, a logistics service provider tomember of the global container transportation industry. From 1994 to 2000, he held several senior positions with American Marine Advisors, including Fund ManagerGreek committee of American Shipping Fund I LLC, and C.F.O. of its broker dealer subsidiary. Prior to this, Mr. Brekke was an Advisor for the Norwegian Trade Commission in New York and Oslo, Norway,Nippon Kaiji Kyokai and a financial advisor in Norway. Mr. Brekke graduated frommember of the New Mexico Military Institute in 1986 and in 1990 he obtained a MBA from the UniversityGreek committee of Nevada, Reno. He has been an adjunct professor at Columbia University's School of International and Public Affairs – Center for Energy, Marine Transportation and Public Policy, andBureau Veritas. Since March 2018, Mrs. Paliou is currently on the boardBoard of directorsDirectors of Scorpio Tankers Inc. (NYSE: STNG) and a privately-held company involved in container leasing and container modifications.the Hellenic Marine Environment Protection Association. On February 28, 2020, Mrs. Paliou resigned as our Chief Operating Officer, due to other business commitments.
Since June 1, 2010 and through March 1, 2020, the members of our senior management have been compensated through their affiliation with Steamship Shipbroking Enterprises Inc. (or Steamship, formerly Diana Enterprises Inc.)Steamship), a related party controlled by our Chief Executive Officer and Chairman of the Board Mr. Symeon Palios, as described under "Item“Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions".Transactions.” Pursuant to the respective Broker Services Agreements, fees and bonuses payable to Steamship for brokerage services provided to us in 2017, 2016,2019, 2018 and 2015,2017, amounted to $2.1 million, $2.0$2.1 million and $1.5$2.1 million, respectively. On March 1, 2020, we early terminated our Broker Services Agreement with Steamship, which was originally due to expire on March 31, 2020, at no cost.
In 2018, our board of directors approved an award of restricted common stock, which was proposed by our Compensation Committee, with an aggregate value of $5.0 million to our executive officers and non-executive directors, as a one-time special award, in recognition of the successful refinancing of the RBS loan in 2017, which resulted in a significant gain of $42.2 million, net of expenses. The number of restricted common shares was determined in February 2019, at which time an aggregate of 5,747,786 restricted common shares were issued, of which 4,915,863 shares were issued to our executive officers. One third of these shares vested on the issuance date and the remainder will vest ratably over two years from the issuance date. In 2017, our Boardboard of Directorsdirectors approved an award of restricted common stock with an aggregate value of $380,000 to our executive officers and non-executive directors. The number of restricted common shares was determined in February 2018, at which time an aggregate of 161,700 restricted common shares were issued, of which 138,296 shares were issued to our executive officers. One third of these shares vested on the issuance date and the remainder will vest ratably over two years from the issuance date. In 2016 and 2015, our executive officers also received a number of restricted stock awards, which however were adjusted to almost zero as a result of the reverse stock splits effected in 2017 and 2016. In 2017, 2016, and 2015, compensation costs relating to the aggregate amount of restricted stock awards amounted to $1.2 million, $1.1 million and $0.9 million, respectively.
Our non-executive directors receive annual compensation in the aggregate amount of $40,000 plus reimbursement of their out-of-pocket expenses incurred while attending any meeting of the board of directors or any board committee. In addition, a committee chairman receives an additional $20,000 annually, and other committee members receive an additional $10,000 annually. As noted above, in 2018, our board of directors approved an award of restricted common stock with an aggregate value of $5.0 million to our executive officers and non-executive directors. The number of restricted common shares was determined in February 2019, at which time an aggregate of 5,747,786 restricted common shares were issued, of which 831,923 shares were issued to our non-executive directors. Also, in 2017, our Boardboard of Directorsdirectors approved an award of restricted common stock with an aggregate value of $380,000 to our executive officers and non-executive directors. The number of restricted common shares was determined in February 2018, at which time an aggregate of 161,700 restricted common shares were issued, of which 23,404 shares were issued to our non-executive directors. One third of these shares vested on the issuance date and the remainder will vesthas vested ratably over two years from the issuance date. In 2016 our non-executive directors also received a number of restricted stock awards, which however were adjusted to zero as a result of the reverse stock splits effected in 2017 and 2016. We do not have a retirement plan for our officers or directors. For 2017, 2016,2019, 2018 and 2015,2017, fees, bonuses and expenses to non-executive directors amounted to $0.3 million, $0.3 million and $0.3 million, respectively.
Finally, in February
In 2019, 2018 our Board of Directors approved a one-time awardand 2017, compensation costs relating to the aggregate amount of restricted common stock which was proposed by our Compensation Committee, with an aggregate value of $5.0awards amounted to $1.8 million, to our executive officers$1.6 million and non-executive directors, in recognition of the successful refinancing of our RBS loan in 2017, which resulted in a significant gain of $42.2$1.2 million, net of expenses. The award will be granted on February 15, 2019 and the exact number of shares for the grantees will be defined based on the share closing price of February 15, 2019. One third of the shares will vest on the issuance date and the remainder will vest ratably over two years from the issuance date.respectively.
2015 Equity Incentive Plan
On May 5, 2015, we adopted an equity incentive plan, which we refer to as the 2015 Equity Incentive Plan, as amended from time to time, under which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates would be eligible to receive options to acquire common stock, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock. The plan will expire ten years from its date of adoption unless terminated earlier by our board of directors. On February 9, 2018, our board of directors adopted Amendment No 1 to the 2015 Equity Incentive Plan, solely to increase the aggregate number of common shares issuable under the plan to 550,000 shares. As of the date of this annual report, we have issued 161,700 restricted shares under our 2015 Equity Incentive Plan, as amended, to our executive officers and non-executive directors and 388,300 remain available for issuance.
Upon adoption of the 2015 Equity Incentive Plan, we terminated the 2012 Amended and Restated Equity Incentive Plan, adopted on February 21, 2012, which included substantially the same terms and provisions as the 2015 Equity Incentive Plan. We refer to this prior plan as the 2012 Equity Incentive Plan. As of the date of this annual report, we have issued a total of 48 restricted shares under our 2012 Equity Incentive Plan to our executive officers and non-executive directors, of which 40 shares have vested.
The 2015 Equity Incentive Plan is administered by our compensation committee, or such other committee of our board of directors as may be designated by the board to administer the plan.
Under the terms of the 2015 Equity Incentive Plan, stock options and stock appreciation rights granted under the plan will have an exercise price per common share equal to the market value of a common share on the date of grant, unless otherwise specifically provided in an award agreement, but in no event will the exercise price be less than the greater of (i) the market value of a common share on the date of grant and (ii) the par value of one share of common stock. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan administrator, but in no event will they be exercisable later than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting and forfeiture provisions and other terms and conditions as determined by the plan administrator in accordance with the terms of the plan. Following the vesting of a restricted stock unit, the award recipient will be paid an amount equal to the number of restricted stock units that then vest multiplied by the market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization or other extraordinary event. In the event of a "change“change in control"control” (as defined in the plan), unless otherwise provided by the plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
Our board of directors may amend the plan and may amend outstanding awards issued pursuant to the plan, provided that no such amendment may be made that would materially impair any rights, or materially increase any obligations, of a grantee under an outstanding award without the consent of such grantee. Shareholder approval of plan amendments will be required under certain circumstances. The plan administrator may cancel any award and amend any outstanding award agreement except no such amendment shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the outstanding award.
Actions by our Board of Directors
Our amended and restated bylaws provide that vessel acquisitions and disposals from or to a related party and long term time charter employment with any charterer that is a related party will require the unanimous approval of the independent members of our board of directors and that all other material related party transactions shall be subject to the approval of a majority of the independent members of the board of directors.
Committees of our Board of Directors
We have established an Audit Committee, comprised of two members of our board of directors, which is responsible for reviewing our accounting controls, recommending to the board of directors the engagement of our independent auditors, and pre-approving audit and audit-related services and fees. Each member has been determined by our board of directors to be "independent"“independent” under Nasdaq rules and the rules and regulations of the SEC. As directed by its written charter, the Audit Committee is responsible for reviewing all related party transactions for potential conflicts of interest and all related party transactions are subject to the approval of the Audit Committee. Mr. John Evangelou has served as the Chairman of the Audit Committee since February 8, 2011. We believe that Mr. Evangelou qualifies as an Audit Committee financial expert as such term is defined under SEC rules. Mr. Antonios Karavias serves as a member of our Audit Committee.
In addition, we have established a Compensation Committee, comprised of two independent directors, which, as directed by its written charter, is responsible for recommending to the board of directors our senior executive officers'officers’ compensation and benefits. Until February 2020, Mr. Antonios Karavias servesserved as the Chairman of the Compensation Committee and Mr. Nikolaos Petmezas served as a member of our Compensation Committee, and since then, Mr. Christos Glavanis serves as the Chairman of the Compensation Committee and Mr. Antonios Karavias serves as a member of our Compensation Committee.
We have also established an Executive Committee, which is responsible for the overall management of our business. Until February 2020, our Executive Committee was comprised of three directors, Mr. Symeon Palios, our Chief Executive Officer and Chairman of the Board, Mr. Anastasios Margaronis, our President until February 2020, and Mr. Ioannis Zafirakis, our Chief OperatingStrategy Officer and Secretary. TheSecretary until February 2020. Since February 2020, the Executive Committee is responsible forcomprised of Mr. Symeon Palios, our Chief Executive Officer and Chairman of the overall management ofBoard, and Mr. Andreas Michalopoulos, our business.Director, Deputy Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary.
We also maintain directors'directors’ and officers'officers’ insurance, pursuant to which we provide insurance coverage against certain liabilities to which our directors and officers may be subject, including liability incurred under U.S. securities law.
We crew our vessels primarily with Greek and Filipino, and secondarily with Ukrainian and Romanian officers and seamen. We are responsible for identifying our Greek officers, which are hired by our in-house fleet manager on behalf of the vessel-owning subsidiaries. Our Filipino officers and seamen are referred to us by Crossworld Marine Services Inc., an independent crewing agency.agencies. The crewing agency handlesagencies handle each seaman'sseaman’s training and payroll. We ensure that all our seamen have the qualifications and licenses required to comply with international regulations and shipping conventions. Additionally, our seafaring employees perform most commissioning work and supervise work at shipyards and drydock facilities. We typically man our vessels with more crew members than are required by the country of the vessel'svessel’s flag in order to allow for the performance of routine maintenance duties.
The following table presents the number of shoreside personnel employed by our in-house manager and the number of seafaring personnel employed by our vessel-owning subsidiaries as of December 31, 2017, 20162019, 2018 and 2015:
| | | As of December 31, 2017 | | | As of December 31, 2016 | | | As of December 31, 2015 | |
| Shoreside | | | 36 | | | | 39 | | | | 40 | |
| Seafaring | | | 220 | | | | 178 | | | | 308 | |
| Total | | | 256 | | | | 217 | | | | 348 | |
| | As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2017 |
| Shoreside | 28 | 37 | 36 |
| Seafaring | 84 | 100 | 220 |
| Total | 112 | 137 | 256 |
With respect to the total amount of common stock owned by our officers and directors individually and as a group, see "Item“Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders."”
| Item 7. | Major Shareholders and Related Party Transactions |
The following table sets forth current information regarding ownership of our common stock and Series C preferred voting stock of which we are aware as of March 14, 2018,April 9, 2020, for (i) beneficial owners of five percent or more of our common shares and Series C preferred voting shares and (ii) our officers and directors, individually and as a group. All of our shareholders, including the shareholders listed in this table, are entitled to (i) one vote for each common share held and (ii) up to 250,000 votes for each Series C preferred share held, subject to a cap such that the aggregate voting power of any holder of Series C preferred stock together with its affiliates does not exceed 49.0% of the total number of votes eligible to be cast on all matters submitted to a vote of our shareholders.held.
Beneficial ownership is determined in accordance with SEC rules. In computing percentage ownership of each person, common shares subject to options held by that person that are currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this report, are deemed to be beneficially owned by that person. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
As of March 14, 2018,April 9, 2020, we had 7,053,11050,520,385 common shares issued and outstanding and 100 Series C preferred shares issued and outstanding and the percentages of beneficial ownership reported below are based on these figures:
| | | Common Shares Beneficially Owned | | | Series C Preferred Shares Beneficially Owned | |
| Identity of person or group | | Number | | | Percentage | | | Number | | | Percentage | |
| | | | | | | | | | | | | |
| Diana Shipping Inc. (1) | | | 0 | | | | 0 | % | | | 100 | | | | 100 | % |
| Symeon Palios (2) | | | 63,084 | | | | * | | | | 0 | | | | 0 | % |
| Anastasios Margaronis | | | 29,153 | | | | * | | | | 0 | | | | 0 | % |
| Ioannis Zafirakis | | | 0 | | | | 0 | % | | | 0 | | | | 0 | % |
| Andreas Michalopoulos | | | 0 | | | | 0 | % | | | 0 | | | | 0 | % |
| Non-executive directors | | | 23,404 | | | | * | | | | 0 | | | | 0 | % |
| All directors and officers, as a group | | | 115,641 | | | | 1.6 | % | | | 0 | | | | 0 | % |
| | Common Shares Beneficially Owned | |
| Identity of person or group | Number | Percentage | |
| Symeon Palios (1) | 23,436,446 | 46.39% | |
| All officers and directors as a group (2) | 25,040,504 | 49.57% | |
| (1) | As at December 31, 2017, 2016, and 2015, Diana Shipping Inc. owned 0%, 25.7%, and 26.1% of our common stock, respectively. Diana Shipping Inc. acquired 100% of our newly-issued Series C preferred voting stock on May 30, 2017. See "Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions". |
(2) | Of these shares, Mr. Symeon Palios indirectly may be deemed to beneficially own 31,806 common23,436,446 shares beneficially owned by Steamship Shipbroking Enterprises Inc., through Taracan Investments S.A., 3 common shares through Corozal Compania Naviera S.A., 6 common shares through Ironwood Trading Corp.,as the result of his ability to control the vote and 31,269 common shares through Abra Marinvest Inc. and Mitzela Corp., companies for which he is the controlling person, for an aggregatedisposition of 63,084 common shares.such entity. As atof December 31, 2017, 2016,2019, 2018, and 2015,2017, Mr. Palios beneficially owned 0.0%47.81%, 4.5%0.22% and 8.7%0.00%, respectively, of our common shares.
|
| (2) | Mr. Symeon Palios is our only director that beneficially owns 5% or more of our outstanding common stock. Mr. Andreas Michalopoulos may be deemed to beneficially own 943,123 shares, or 1.87% of our outstanding common stock, beneficially owned through Mitzela Corp. All other officers and directors each own less than 1% of our outstanding common stock. |
As of December 31, 2019, 2018, and 2017, Diana Shipping owned 0% of our common stock. Diana Shipping acquired 100% of our Series C preferred voting stock on May 30, 2017 and on March 14, 2018,26, 2020 we re-purchased and cancelled all of the shares of our Series C Preferred Stock. See “Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions.”
As of April 9, 2020, we had 12 shareholders of record, 2 of which were located in the United States and held an aggregate of 6,895,62624,255,190 of our common shares, representing 97.8%48.01% of our outstanding common shares. However, one of the U.S. shareholders of record is CEDE & CO., a nominee of The Depository Trust Company, which held 6,891,37124,099,676 of our common shares as of March 14, 2018.April 9, 2020. Accordingly, we believe that the shares held by CEDE & CO. include common shares beneficially owned by both holders in the United States and non-U.S. beneficial owners. Additionally, as of March 14, 2018, we had one Series C preferred shareholder of record, which was located outside of the United States and held an aggregate of 100 of our Series C preferred shares, representing 100% of our outstanding Series C preferred shares. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.
B.
| B. | Related Party Transactions |
Steamship Shipbroking Enterprises Inc.
Steamship Shipbroking Enterprises Inc. (formerly Diana Enterprises Inc.), an affiliated entity that is controlled by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, provides toprovided us brokerage services for an annual fee pursuant to a Brokerage Services Agreement.Agreement through March 1, 2020. In 2017, 20162019, 2018 and 2015,2017, brokerage fees and bonuses amounted to $2.1 million, $2.0$2.1 million and $1.5$2.1 million, respectively. The terms of this relationship are currently governed by a Brokerage Services Agreement dated April 1, 2017,2019, originally due to expire on March 31, 2018. Our Brokerage Services Agreement with Steamship does not contain any exclusivity provisions, and as such, it does not restrict Steamship from providing to other third parties, from time to time, brokerage or other services.2020, was early terminated on March 1, 2020, at no cost.
Diana Shipping Inc.
Non-Competition Agreement
We and Diana Shipping had entered into a non-competition agreement whereby we had agreed that, during the term of the Administrative Services Agreement with DSS and any vessel management agreements entered into with DSS, and for six months thereafter, we would not acquire or charter any vessel, or otherwise operate in, the drybulk sector and Diana Shipping would not acquire or charter any vessel, or otherwise operate in, the containership sector. On March 1, 2013, in connection with the appointment of UOT as our new Manager,fleet manager, we amended and restated the initial non-competition agreement with Diana Shipping, where we agreed that, as long as any of our current or continuing executive officers also serves as an executive for Diana Shipping, and for six months thereafter, we will not acquire or charter any vessel, or otherwise operate in, the drybulk sector and Diana Shipping will not acquire or charter any vessel, or otherwise operate in, the containership sector.
Loan Agreement and Series C Preferred Stock
On May 20, 2013, we entered into a loan agreement of up to $50.0 million with Diana Shipping, which was subsequently amended on July 28, 2014, September 9, 2015 and September 12, 2016. The loan was further amended on May 30, 2017, in connection with the issuance of 100 shares of our newly-designated Series C Preferred Stock to Diana Shipping, in exchange for a reduction of $3.0 million in the principal amount of the loan. The Series C Preferred Stock hashad no dividend or liquidation rights. The Series C Preferred Stock votesvoted with our common shares, and each share of the Series C Preferred Stock entitlesentitled the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series C Preferred Stock together with its affiliates doeswould not exceed 49.0% of the total number of votes eligible to be cast on all matters submitted to a vote of our stockholders.
On June 30, 2017, our loan with Diana Shipping was refinanced and replaced with a secured loan facility of $82.6 million, plus an additional $5.0 million interest-bearing discount premium. This loan facility was fully repaid during 2018 - Please see "Item“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Loan Facilities."”
On March 25, 2020 we agreed with DSI for the repurchase of all 100 shares of Series C Preferred Stock outstanding and on March 26, 2020, we paid the purchase price of $1.5 million. The facility matures on December 31, 2018. Asdisinterested members of December 31, 2017, $82.6 millionour board of principal balance anddirectors approved the additional $5.0 million discount premium remained outstanding underre-purchase, after obtaining a fairness opinion from an independent third party that the facility, and in March 2018, we repaid $8.4 milliontransaction was fair from a financial point of view. We cancelled the Series C Preferred Stock upon the conclusion of the principal balance.transaction on March 26, 2020.
Altair Travel Agency S.A
Effective March 1, 2013, Altair Travel Agency S.A., or Altair, an affiliated entity that is controlled by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, provides us with travel related services. In 2017, 20162019, 2018 and 2015,2017, the expenses we incurred in exchange for travel services provided by Altair, amounted to $0.7$0.4 million, $0.9$0.6 million and $1.1$0.7 million, respectively. We believe that the amounts that we pay to Altair for acquiring tickets and other travel related services are no greater than fees we would pay to an unrelated third party for comparable services.
C.
Diana Wilhelmsen Management Limited
In December 2019, we appointed Diana Wilhelmsen Management Limited, or DWM, to provide management services to the container vessels Rotterdam and Domingo. DWM was deemed a related party to us until the resignation of certain of the Company’s board of directors’ members and officers within February 2020, on the basis that members of our management and our board of directors also acted as board of directors’ members at DWM. For 2019, management fees to DWM amounted to $5,000.
| C. | Interests Of Experts And Counsel |
Not applicable.
| Item 8. | Financial information |
| A. | Consolidated Statements and Other Financial Information |
See "Item“Item 18. Financial Statements."”
Legal Proceedings
Between October 23, 2017 and December 15, 2017, three largely similar lawsuits were filed against the Company and three of its executive officers. On October 23, 2017, a complaint captioned Jimmie O. Robinson v. Diana Containerships Inc., Case No. 2:17-cv-6160, was filed in the United States District Court for the Eastern District of New York ("(“Eastern District"District”). The complaint is brought as a purported class action lawsuit on behalf of a putative class consisting of purchasers of common shares of the Company between January 26, 2017 and October 3, 2017. On October 25, 2017, a complaint captioned Logan Little v. Diana Containerships Inc., Case No. 2:17-cv-6236, was filed in the Eastern District. The complaint is brought as a purported class action lawsuit on behalf of a putative class consisting of purchasers of common shares of the Company between January 26, 2017 and October 3, 2017. On December 15, 2017, a complaint captioned Emmanuel S. Austin v. Diana Containerships Inc., Case No. 2:17-cv-7329, was filed in the Eastern District. The complaint is brought as a purported class action lawsuit on behalf of a putative class consisting of purchasers of common shares of the Company between June 9, 2016 and October 3, 2017. The complaints name as defendants, among others, the Company and three of its executive officers. The complaints assert claims under Sections 9, 10(b) and/or 20(a) of the Securities Exchange Act of 1934. The Company has not yet respondedOn April 30, 2018, the Court consolidated the three lawsuits into the first-filed Robinson lawsuit, appointed lead plaintiffs and approved lead plaintiffs’ selection of lead plaintiffs’ counsel. On July 13, 2018, lead plaintiffs filed a consolidated amended complaint (superseding the three initial complaints). On September 21, 2018, the defendants filed a motion to these complaints, and does not expect to do so until afterdismiss the court appoints a lead plaintiff in the matter, which has yet to happen.lawsuit. Briefing on that motion was concluded on November 30, 2018. The Company and its management believe that the complaints are without merit and plan to vigorously defend themselves against the claims.
Except as set forth above, we have not been involved in any legal proceedings which may have, or have had a significant effect on our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Dividend Policy
Effective with the quarter ended June 30, 2016, our board of directors decided to suspend the quarterly cash dividend on our common shares. The decision to suspendWhile we have declared and paid cash dividends on our common shares in the dividend reflectedpast, we do not currently, and there can be no assurance that in the future our board of director's determinationdirectors will approve the payment of dividends.
In the future, assuming we are not legally restricted by our lenders from doing so and that our cash flows allow it, was in the best long-term interest of the Company and its shareholders to aggressively preserve liquidity to manage market conditions andwe might be in a position to benefit from an eventual sector recovery. Our board of directors may reviewdeclare and amend our dividend policy from time to time, in light of our plans for future growth and other factors.
Our policy, historically, was to declarepay a variable quarterly dividend each February, May, August and November equal to available cash from operations during the previous quarter after the payment of cash expensespayments for debt repayment and interest expense and reserves for the replacement of our vessels, scheduled drydockings, intermediate and special surveys and other purposes as our board of directors may from time to time determine are required, after taking into account contingent liabilities, the terms of any credit facility, our growth strategy and other cash needs and the requirements of Marshall Islands law.
82Marshall Islands law generally prohibits the payment of dividends other than from surplus, or while
a company is insolvent or would be rendered insolvent by the payment of such a dividend.
While we have declaredOur board of directors may review and paid cash dividends onamend our common sharesdividend policy from time to time, in the past, we do not currently,light of our plans for future growth and there can be no assurance that dividends will be paid in the future.other factors. The actual timing and amount of dividend payments, if any, will be determined by our board of directors and could be affected by various factors, including our cash earnings, financial condition and cash requirements, the loss of a vessel, the acquisition of one or more vessels, required capital expenditures, reserves established by our board of directors, increased or unanticipated expenses, a change in our dividend policy, additional borrowings or future issuances of securities, many of which will be beyond our control. We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments. In addition, anyour existing or future credit facilities that we may enter into in the future may include restrictions on 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 by the payment of such a dividend.
We may continue to have insufficient cash available for distribution as dividends. The containershipshipping sector is cyclical and volatile. We cannot predict with accuracy the amount of cash flows our operations will generate in any given period. Factors beyond Even if in the future we re-instate our control may affect the charter market fordividend policy, our vesselsquarterly dividends, if any, will vary significantly from quarter to quarter as a result of variations in our operating performance, cash flow and our charterers' ability to satisfy their contractual obligations to us,other contingencies, and we cannot assure you that dividends will actually be declared or paid in the future. We cannot assure you that we will be able to resume payment of regular quarterlygenerate available cash for distribution in any quarter, and so we may not declare and pay any dividends and ourin certain quarters, or at all. Our ability to resume payment of dividends will be subject to the limitations set forth above and in the section of this annual report titled "Item“Item 3. Key Information – D. Risk Factors."”
In times when we have debt outstanding, we intend to limit our dividends per share, if dividend payment is reinstated, to the amount that we would have been able to pay if we were financed entirely with equity. Our board of directors may review and amend our dividend policy from time to time, in light of our plans for future growth and other factors.
There have been no significant changes since the date of the annual consolidated financial statements included in this annual report, other than those described in "Note 16—“Note 14—Subsequent Events"Events” of our annual consolidated financial statements.
| Item 9. | The Offer and Listing |
| A. | Offer and Listing Details |
Our common shares have traded on The Nasdaq Global Market under the symbol "DCIX" since January 19, 2011 and on The Nasdaq Global Select Market since January 2, 2013. The table below sets forth the high and low closing prices for each of the periods indicated, as adjusted for the six reverse stock splits effected in 2016 and 2017. See "Item 4. Information on the Company—A. History and Development of the Company."
| Years | Low | | High | |
| | | | | | | |
| Year-ended December 31, 2013 | | $ | 173,365.92 | | | $ | 347,225.75 | |
| Year-ended December 31, 2014 | | | 91,375.20 | | | | 210,409.92 | |
| Year-ended December 31, 2015 | | | 34,080.48 | | | | 131,382.73 | |
| Year-ended December 31, 2016 | | | 12,718.44 | | | | 79,397.66 | |
| Year-ended December 31, 2017 | | | 2.10 | | | | 20,003.71 | |
| | | | | | | | | |
| Periods | Low | | High | |
| | | | | | | | | |
| 1st Quarter ended March 31, 2016 | | $ | 17,781.12 | | | $ | 39,513.61 | |
| 2nd Quarter ended June 30, 2016 | | | 20,682.90 | | | | 49,392.01 | |
| 3rd Quarter ended September 30, 2016 | | | 20,312.46 | | | | 25,683.84 | |
| 4th Quarter ended December 31, 2016 | | | 12,718.44 | | | | 79,397.66 | |
| | | | | | | | | |
| 1st Quarter ended March 31, 2017 | | $ | 8,026.18 | | | $ | 20,003.71 | |
| 2nd Quarter ended June 30, 2017 | | | 2,037.41 | | | | 7,161.82 | |
| 3rd Quarter ended September 30, 2017 | | | 4.34 | | | | 1,728.72 | |
| 4th Quarter ended December 31, 2017 | | | 2.10 | | | | 20.19 | |
| | | | | | | | | |
| Months | Low | | High | |
| | | | | | | | | |
| September 2017 | | $ | 4.34 | | | $ | 11.34 | |
| October 2017 | | | 2.24 | | | | 4.13 | |
| November 2017 | | | 2.10 | | | | 20.19 | |
| December 2017 | | | 4.06 | | | | 7.21 | |
| January 2018 | | | 2.82 | | | | 4.09 | |
| February 2018 | | | 1.90 | | | | 2.94 | |
| March 2018 (through March 14, 2018) | | | 1.73 | | | | 2.05 | |
Not Applicable.
Our common shares have traded on The Nasdaq Global Market under the symbol "DCIX" since January 19, 2011, and on The Nasdaq Global Select Market under the same symbol since January 2, 2013.2013 and on The Nasdaq Capital Market since March 6, 2020. Our ticker symbol was “DCIX” through March 30, 2020, at which date it has changed to “PSHG.”
| D.B. | Selling ShareholdersPlan of Distribution |
Not Applicable.
Our common shares have traded on The Nasdaq Global Market since January 19, 2011, on The Nasdaq Global Select Market since January 2, 2013 and on The Nasdaq Capital Market since March 6, 2020. Our ticker symbol was “DCIX” through March 30, 2020, at which date it was changed to “PSHG.”
D.Selling Shareholders
Not Applicable.
Not Applicable.
Not Applicable.
Item 10. | Additional Information |
Item 10.Additional Information
Not Applicable.
| B. | Memorandum and Articles of Association |
Our amended and restated articles of incorporation and bylaws were filed as exhibits 3.1 and 3.2, respectively, to our registration statement on Form F-4 (File No. 333-169974) filed with the SEC on October 15, 2010. The information contained in these exhibits is incorporated by reference herein.
Our amended and restated articles of incorporation were amended on (i) June 8, 2016, in connection with our one-for-eight reverse stock split, (ii) July 3, 2017, in connection with our one-for-seven reverse stock split, (iii) July 25, 2017, in connection with our one-for-six reverse stock split, (iv) August 23, 2017, in connection with our one-for-seven reverse stock split, (v) September 22, 2017, in connection with our one-for-three reverse stock split, and (vi) November 1, 2017, in connection with our one-for-seven reverse stock split. Copies of these articles of amendment to the amended and restated articles of incorporation of the Company were filed as exhibit 3.1 to our reports on Form 6-K filed with the SEC on June 9, 2016, July 6, 2017, July 28, 2017, August 28, 2017, September 26, 2017, and November 3, 2017, respectively. The information contained in these exhibits is incorporated by reference herein. Additionally, (i) on March 21, 2017, we filed a Statement of Designations, Preferences and Rights of our Series B-1 Convertible Preferred Stock, (ii) on March 21, 2017, we filed a Statement of Designations, Preferences and Rights of our Series B-2 Convertible Preferred Stock, and (iii) on May 30, 2017, we filed a Statement of Designations of Rights, Preferences and Privileges of our Series C Preferred Stock. Our amended and restated articles of incorporation were further amended on February 25, 2019, in connection with our name change from Diana Containerships Inc. to Performance Shipping Inc. A copy of these articles of amendment to the amended and restated articles of incorporation is filed as an exhibit to this annual report and the information contained in such exhibit is incorporated by reference herein.
A description of the material terms of our amended and restated articles of incorporation and bylaws is included in the section entitled "Description“Description of Capital Stock" in the accompanying prospectus to our Registration Statement on Form F-3 (File No. 333-215748) filed with the SEC on January 26, 2017,Securities,” attached hereto as amended,Exhibit 2.7 and is incorporated by reference herein, provided that since that date and as of March 14, 2018, the number of issued and outstanding common shares has changed to 7,053,110 and the number of issued and outstanding Series B-2 preferred shares has changed to 296.
Description of Common Stock
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of our preferred shares having liquidation preferences, if any, the holders of our common shares will be entitled to receive pro rata our remaining assets available for distribution. Holders of our common shares do not have conversion, redemption or preemptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of common shares are subject to the rights of the holders of our preferred shares, including our existing classes of preferred shares and any preferred shares we may issue in the future.
Description of Preferred Stock
Our amended and restated articles of incorporation authorize our board of directors to establish one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including the designation of the series; the number of shares of the series; the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and the voting rights, if any, of the holders of the series.
Series B-1 Convertible Preferred Stock
In March 2017, we issued 3,000 shares of newly-designated Series B-1 convertible preferred stock, par value $0.01 per share, and warrants to purchase an additional 6,500 shares of Series B-1 convertible preferred stock. As of December 31, 2017, zero Series B-1 convertible preferred shares were issued and outstanding. For a summary description of the rights, preferences and restrictions attaching to our Series B-1 convertible preferred stock, please see the section entitled "Description of Series B-1 Convertible Preferred Shares" in the prospectus supplement dated March 21, 2017, to the prospectus included in our registration statement on Form F-3 (File No. 333-215748), declared effective by the SEC on March 7, 2017. Such summary description is qualified in all respects by the terms of the Statement of Designations, Preferences and Rights of the Series B-1 Convertible Preferred Stock, which was filed as an exhibit to our report on Form 6-K filed with the SEC on March 21, 2017. The information contained in this exhibit is incorporated by reference herein.
Series B-2 Convertible Preferred Stock
In March 2017, we issued warrants to purchase 140,500 shares of newly-designated Series B-2 convertible preferred stock, par value $0.01 per share. As of December 31, 2017, 289 Series B-2 convertible preferred shares were issued and outstanding. For a description of our Series B-2 convertible preferred stock, please see the section entitled "Description of Series B-2 Convertible Preferred Shares" in the prospectus included in our registration statement on Form F-3 (File No. 333-216944), declared effective by the SEC on May 11, 2017. Such summary description is qualified in all respects by the terms of the Statement of Designations, Preferences and Rights of the Series B-2 Convertible Preferred Stock, which was filed as an exhibit to our report on Form 6-K filed with the SEC on March 21, 2017. The information contained in this exhibit is incorporated by reference herein.
Series C Preferred Stock
In May 2017, we issued 100 shares of newly-designated Series C preferred stock, par value $0.01 per share, to Diana Shipping Inc. The Series C preferred stock has no dividend or liquidation rights. The Series C preferred stock votes with our common shares, and each share of the Series C preferred stock entitles the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series C preferred stock together with its affiliates does not exceed 49.0% of the total number of votes eligible to be cast on all matters submitted to a vote of our stockholders. A copy of the Statement of Designation of Rights, Preferences and Privileges of the Series C Preferred Stock is filed as an exhibit to our report on Form 6-K filed with the SEC on June 6, 2017. The information contained in this exhibit is incorporated by reference herein.
Amended and Restated Stockholders Rights Agreement
On August 29, 2016, we entered into a First Amended and Restated Stockholders Rights Agreement, or the Rights Agreement, with Computershare Inc. as Rights Agent. The Rights Agreement amended and restated in its entirety the original Stockholders Rights Agreement between the Company and Mellon Investor Services LLC, dated as of August 2, 2010, as amended on July 28, 2014. Pursuant to the Rights Agreement, each share of our common stock includes one right, or a Right, that entitles the holder to purchase from us a unit consisting of one one-thousandth of a share of our Series A Participating Preferred Stock at an exercise price of $50.00, subject to specified adjustments. The Rights will separate from the common stock and become exercisable only if a person or group acquires beneficial ownership of 15% or more of our common stock in a transaction not approved by our Boardboard of Directors.directors. In that situation, each holder of a Right (other than the acquiring person, whose Rights will become void and will not be exercisable) will have the right to purchase, upon payment of the exercise price, a number of shares of our common stock having a then-current market value equal to twice the exercise price. In addition, if the Company iswe are acquired in a merger or other business combination after an acquiring person acquires 15% or more of our common stock, each holder of the Right will thereafter have the right to purchase, upon payment of the exercise price, a number of shares of common stock of the acquiring person having a then-current market value equal to twice the exercise price. The acquiring person will not be entitled to exercise these Rights. Under the Stockholders Rights Agreement's terms, it will expire on August 2, 2020. In June 2019, we entered into Amendment No. 1 to the First Amended and Restated Shareholders Rights Agreement, to amend the definition of “Acquiring Person” set out in the Rights Agreement.
A copy of the Stockholders Rights Agreement is filed as Exhibit 4.1 to our report on Form 6-K filed with the SEC on August 31, 2016.
The contracts included as exhibits to this annual report are the contracts we consider to be both material and not entered into in the ordinary course of business, which (i) are to be performed in whole or in part on or after the filing date of this annual report or (ii) were entered into not more than two years before the filing date of this annual report. Other than these agreements, we have no material contracts, other than contracts entered into in the ordinary course of business, to which the Companywe or any member of the group is a party. We refer you to Item 5.B for a discussion of our loan facilities, Item 4.B and Item 7.B for a discussion of our agreements with companies controlled by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, and Item 6.B for a discussion of our 2012 Equity Incentive Plan and our 2015 Equity Incentive Plan.
Under Republic of the 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 securities.
The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations of the ownership and disposition by a U.S. Holder and a Non-U.S. Holder, each as defined below, with respect toof the common stock. 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 or commodities, financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates, persons liable for the alternative minimum tax, persons who hold common stock as part of a straddle, hedge, conversion transaction or integrated investment, U.S. Holders whose functional currency is not the United States dollar, persons required to recognize income for U.S. federal income tax purposes no later than when such income is reported on an “applicable financial statement”, persons subject to the “base erosion and anti-avoidance” tax and investors that own, actually or under applicable constructive ownership rules, 10% or more of the Company'sCompany’s 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 U.S. federal, state, local or foreign law of the ownership of common stock.
Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax consequences of the Company'sCompany’s activities to the Company and of the ownership of the Company'sCompany’s common stock to its shareholders. The Company is incorporated in the Marshall Islands. Under current Marshall Islands law, the Company is not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by the Company to its shareholders.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, the Company'sCompany’s U.S. counsel, the following are the material U.S. federal income tax consequences to the Company of its activities and to U.S. Holders and Non-U.S Holders, each as defined below, of the common stock. The following discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, all of which are subject to change, possibly with retroactive effect.
Taxation of Operating Income: In General
The following discussion addresses the U.S. federal income taxation of our operating income if we are engaged in the international operation of vessels.
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation is subject to U.S. federal income taxation in respect of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating agreement, code sharing arrangements or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as "shipping“shipping income,"” to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the United States, which we refer to as "U.S.-source“U.S.-source shipping income."”
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are not permitted by law to engage in transportation that produces income which is considered to be 100% from sources within the United States. Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any U.S. federal income tax.
Exemption of Operating Income from U.S. Federal Income Taxation
Under Section 883 of the Code, or Section 883, we will be exempt from U.S. federal income taxation on our U.S.-source shipping income if:
• we are organized in a foreign country that grants an "equivalent exemption"“equivalent exemption” to corporations organized in the United States, or U.S. corporations; and
either:
more than 50% of the value of our common stock is owned, directly or indirectly, by qualified shareholders, which we refer to as the "50%“50% Ownership Test,"” or
our common stock is "primarily“primarily and regularly traded on an established securities market"market” in a country that grants an "equivalent exemption"“equivalent exemption” to U.S. corporations or in the United States, which we refer to as the "Publicly-Traded“Publicly-Traded Test."”
The Marshall Islands, the jurisdiction where we are incorporated, grant an "equivalent exemption"“equivalent exemption” to U.S. corporations. We anticipate that any of our shipowning subsidiaries will be incorporated in a jurisdiction that provides an "equivalent exemption"“equivalent exemption” to U.S. corporations. Therefore, we will be exempt from U.S. federal income taxation with respect to our U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.
We do not currently anticipate a circumstance under which we would be able to satisfy the 50% Ownership Test. Our ability to satisfy the Publicly-Traded Test is discussed below.
Publicly-Traded Test
In order to satisfy the Publicly-Traded Test, our common stock must be primarily and regularly traded on one or more established securities markets. The regulations under Section 883 provide, in pertinent part, that shares 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 shares that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. Our common shares are "primarily traded"“primarily traded” on The Nasdaq Global Select Market.
Under the regulations, stock of a foreign corporation will be considered to be "regularly traded"“regularly traded” on an established securities market if one or more classes of stock representing more than 50% of the outstanding stock, by both total combined voting power of all classes of shares entitled to vote and total value, are listed on such market, to which we refer as the "listing“listing threshold."” Since our common shares are listed on The Nasdaq Global Select Market, we expect to satisfy the listing threshold.
It is further required that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of shares is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, which we refer to as the trading frequency test; and (ii) the aggregate number of stock of such class of shares 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 or as appropriately adjusted in the case of a short taxable year, which we refer to as the trading volume test. Even if these tests are not satisfied, the regulations provide that such trading frequency and trading volume tests will be deemed satisfied if, as is expected to be the case with our common shares, such class of stock is traded on an established securities market in the United States and such shares are regularly quoted by dealers making a market in such shares, such as being traded and quoted on the Nasdaq Global Select Market.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that a class of shares will not be considered to be "regularly traded"“regularly traded” on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned, actually or constructively under specified share attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of such class of stock, to which we refer as the "Five“Five Percent Override Rule."”
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and value of our common stock, or "5%“5% Shareholders,"” the regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the SEC, as owning 5% or more of our common stock. The regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
In the event the Five Percent Override Rule is triggered, the regulations provide that the Five Percent Override Rule will nevertheless not apply if we can establish that within the group of 5% Shareholders, there are sufficient qualified shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group from owning 50% or more of our common stock for more than half the number of days during the taxable year.
We believeBased on Schedules 13D and 13G filings, during the 2019 taxable year, less than 50% of the Company’s common stock was owned by 5% Shareholders. Therefore, the Company believes that we wereit is not subject to the Five Percent5% Override Rule but nonethelessand thus has satisfied the Publicly-TradedPublicly Traded Test for the 20172019 taxable year becauseyear. However, there were nonqualifiedcan be no assurance that the Company will continue to satisfy the Publicly Traded Test in future taxable years. For example, the Company could be subject to the 5% Override Rule if another 5% Shareholder in combination with the Company’s existing 5% Shareholders did notwere to own 50% or more thanof the Company’s common stock. In such a case, the Company would be subject to the 5% Override Rule unless it could establish that, among the shares of the common stock owned by the 5% Shareholders, sufficient shares are owned by qualified shareholders, for purposes of Section 883 of the Code, to preclude non-qualified shareholders from owning 50% or more of ourthe Company’s common stock for more than half the number of the days during the taxable year. We intendThe requirements of establishing this exception to the 5% Override Rule are onerous and there is no assurance the Company will be able to satisfy them.
Based on the foregoing, the Company believes that it satisfied the Publicly Traded Test and therefore believes that it was exempt from U.S. federal income tax under Section 883 of the Code, during the 2019 taxable year, and intends to take this position on our 2017its 2019 U.S. federal income tax returns.
Taxation in Absence of Exemption
To the extent the benefits of Section 883 are unavailable, our U.S.-source shipping income, to the extent not considered to be "effectively connected"“effectively connected” with the conduct of a U.S. trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the 4% gross basis tax regime. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent our U.S.-source shipping income is considered to be "effectively connected"“effectively connected” with the conduct of a U.S. trade or business, as described below, any such "effectively connected"“effectively connected” U.S.-source shipping income, net of applicable deductions, would be subject to the U.S. federal corporate income tax currently imposed at a rate of 21%. By statutory exclusion, the benefits of the section 883 exemption are not available to income that is "effectively connected"“effectively connected” with the conduct of a U.S. trade or business. In addition, we may be subject to an additional 30% "branch profits"“branch profits” tax 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 U.S. trade or business.
Our U.S.-source shipping income would be considered "effectively connected"“effectively connected” with the conduct of a U.S. trade or business only if:
we have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and
substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States (or, in the case of income from the bareboat chartering of a vessel, is attributable to a fixed place of business in the United States).
We do not anticipate that we will have any vessel operating to or from 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 do not anticipate that any of our U.S.-source shipping income will be "effectively connected"“effectively connected” with the conduct of a U.S. trade or business.
United States Federal Income Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder"“U.S. Holder” means a beneficial owner of common stock that is an individual U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
If a partnership holds the 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 the common stock, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of the passive foreign investment company, or PFIC, rules below, distributions made by us with respect to our common stock, other than certain pro-rata distributions of our common stock, to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified“qualified dividend income"income” as described in more detail below, to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder'sHolder’s tax basis in his common 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 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 income from sources outside the United States and will generally constitute "passive“passive category income"income” or, in the case of certain types of U.S. Holders, "general“general category income"income” for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate, which we refer to as a U.S. Individual Holder, will generally be treated as "qualified“qualified dividend income"income” that is taxable to such U.S. Individual Holders at preferential tax rates, provided that (1) the common stock is readily tradable on an established securities market in the United States such as The Nasdaq Global Select Market, on which our common stock is traded; (2) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year, as discussed below; (3) the U.S. Individual Holder has held 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 to make related payments with respect to positions in substantially 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. Any distributions out of earnings and profits we pay 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“extraordinary dividend,"” generally, a dividend paid by us in an amount which is equal to or in excess of ten percent of a U.S. Holder'sHolder’s adjusted tax basis, or fair market value in certain circumstances, in a share of our common stock. If we pay an "extraordinary dividend"“extraordinary dividend” on our common stock that is treated as "qualified“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
Subject to the discussion of the PFIC rules below, 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'sHolder’s tax basis in such stock. A U.S. Holder'sHolder’s tax basis in the common stock generally will equal the U.S. Holder'sHolder’s acquisition cost less any prior return of capital. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder'sHolder’s holding period is greater than one year at the time of the sale, exchange or other disposition and will generally be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Holder'sHolder’s ability to deduct capital losses is subject to certain limitations.
PFIC Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such U.S. 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), which we refer to as the income test; 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 the asset test.
For purposes of determining whether we are a PFIC, cash will be treated as an asset which is held for the production of passive income. In addition, 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'ssubsidiary’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"“passive income” unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Our status as a PFIC will depend upon the operations of our vessels. Therefore, we can give no assurances as to whether we will be a PFIC with respect to any taxable year. In making the determination as to whether we are a PFIC, we intend to treat the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of us or any of our wholly owned subsidiaries as services income, rather than rental income. Correspondingly, in the opinion of Seward & Kissel LLP, 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, should not constitute passive assets for purposes of determining whether we are a PFIC. There is substantial legal authority supporting this position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. In the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with the opinion of Seward & Kissel LLP. On the other hand, any income we derive from bareboat chartering activities will likely be treated as passive income for purposes of the income test. Likewise, any assets utilized in bareboat chartering activities will likely be treated as generating passive income for purposes of the asset test.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder makes an election to treat us as a "Qualified“Qualified Electing Fund,"” which election we refer to as a "QEF“QEF election,"” or a "mark-to-market"“mark-to-market” election with respect to the common stock. In addition, if we are a PFIC, a U.S. Holder will be required to file with respect to taxable years ending on or after December 31, 2013 IRS Form 8621 with the IRS.
Taxation of U.S. Holders Making a Timely QEF Election.
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an "Electing“Electing Holder,"” the Electing Holder must report each year for 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, regardless of whether or not distributions were received from us by the Electing Holder. The Electing Holder'sHolder’s adjusted tax basis in the common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common stock. A U.S. Holder would make a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with his U.S. federal income tax return. After the end of each taxable year, we will determine whether we were a PFIC for such taxable year. If we determine or otherwise become aware that we are a PFIC for any taxable year, we will provide each U.S. Holder with all necessary information, including a PFIC Annual Information Statement, in order to allow such holder to make a QEF election for such taxable year.
Taxation of U.S. Holders Making a "Mark-to-Market"“Mark-to-Market” Election.
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will continue to be the case, our shares are treated as "marketable“marketable stock,"” a U.S. Holder would be allowed to make a "mark-to-market"“mark-to-market” election with respect to our common stock, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common stock at the end of the taxable year over such holder'sholder’s adjusted tax basis in the common stock. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder'sHolder’s adjusted tax basis in the common stock over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder'sHolder’s tax basis in his common stock would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common stock would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election.
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who has not timely made a QEF or mark-to-market election for the first taxable year in which it holds our common stock and during which we are treated as PFIC, whom we refer to as a "Non-Electing“Non-Electing Holder,"” would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our 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'sHolder’s holding period for the common stock), and (2) any gain realized on the sale, exchange or other disposition of our common stock. Under these special rules:
the excess distribution or gain would be allocated ratably to each day over the Non-Electing Holders'Holders’ aggregate holding period for the common stock;
the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
These adverse tax consequences would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of our common stock. In addition, if a Non-Electing Holder who is an individual dies while owning our common stock, such holder'sholder’s successor generally would not receive a step-up in tax basis with respect to such common stock.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common stock, other than a partnership or entity treated as a partnership for U.S. Federal income tax purposes, that is not a U.S. Holder is referred to herein as a Non-U.S. Holder.
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on dividends received from us with respect to our common stock, unless that income is effectively connected with the Non-U.S. Holder'sHolder’s conduct of a trade or business in the United States. In general, if the Non-U.S. Holder is entitled to the benefits of certain U.S. income tax treaties 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.
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common stock, unless:
the gain is effectively connected with the Non-U.S. Holder'sHolder’s conduct of a trade or business in the United States. In general, if the Non-U.S. Holder is entitled to the benefits of certain income tax treaties with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common stock, 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 U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. Such payments will also be subject to backup withholding tax if you are a non-corporate U.S. Holder and you:
fail to provide an accurate taxpayer identification number;
are notified by the IRS that you have failed to report all interest or dividends required to be shown on your U.S. federal income tax returns; or
in certain circumstances, fail to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an applicable IRS Form W-8.
If you sell your common stock through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless you certify that you are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common stock through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to you outside the United States, if you sell your common stock through a non-U.S. office of a broker that is a U.S. person or has certain other contacts with the United States, unless you certify that you are a non-U.S. person, under penalty of perjury, or you otherwise establish an exemption.
Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your U.S. federal income tax liability by timely filing a refund claim with the IRS.
U.S. Holders who are individuals (and to the extent specified in applicable Treasury Regulations, certain U.S. entities) who hold "specified“specified foreign financial assets"assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our common stock, unless the common stock is held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event a U.S. Holder who is an individual (and to the extent specified in applicable Treasury regulations, a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed.
| 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, orare available from the SEC'sSEC’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.www.sec.gov.
Not Applicable.
| Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
Interest Rates
Total
We are exposed to market risks associated with changes in interest incurred underrates relating to our loan facilitiesfacility, according to which we pay interest at LIBOR plus a margin; and relatedas such increases in interest rates during 2017, 2016 and 2015 was as follows:
| | | 2017 | | | 2016 | | | 2015 | |
| Interest expense (in millions of USD) | | $ | 7.4 | | | $ | 6.6 | | | $ | 5.8 | |
| Weighted average interest rate (LIBOR plus margin) | | | 4.95 | % | | | 3.54 | % | | | 3.65 | % |
| Interest rates range during the year (LIBOR including margin) | | 4.04% to 6.00% | | | 3.12% to 4.06% | | | 3.09% to 5.20% | |
could affect our results of operations. An average increase of 1% in 20172019 interest rates would have resulted in interest expenses of $8.9$0.5 million, instead of $7.4$0.4 million, an increase of about 20%25%.
As of December 31, 2017,2019, we had $8.5$32.5 million of principal debt outstanding and $10.0 million of discount premium payable to Addiewell, and also $82.6 million of principal debt outstanding and $5.0 million of discount premium payable to DSI. Currently,outstanding. In the future, we have $10.0 million of discount premium payable to Addiewell, and also $74.2 million of principal debt outstanding and $5.0 million of discount premium payable to DSI. We expect to manage any exposure in interest rates through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Global financial markets and economic conditions have been, and continue to be, volatile. Specifically, due to the COVID-19 outbreak, credit markets and the debt and equity capital markets have been distressed, and the uncertainty surrounding the future of the global credit markets has resulted in reduced access to credit worldwide, particularly for the shipping industry. These issues, along with significant write-offs in the financial services sector, the repricing of credit risk and the current weak economic conditions, have made, and will likely continue to make, it difficult to obtain additional financing.
95
As of December 31, 2019, 2018 and 2017 and as of the date of this annual report, we did not and have not designated any financial instruments as accounting hedging instruments.
Currency and Exchange Rates
We generate all of our revenues in U.S. dollars, but currently incur less than halfa significant portion of our operating expenses (around 34%35% in 20172019 and 41%40% in 2016)2018) and less than half of our general and administrative expenses (around 36%41% in 20172019 and 47%37% in 2016)2018) in currencies other than the U.S. dollar, primarily the Euro. For accounting purposes, expenses incurred in Euros are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. The amount and frequency of some of these expenses, such as vessel repairs, supplies and stores, may fluctuate from period to period. Since approximately 2002, the U.S. dollar has depreciated against the Euro. Depreciation in the value of the dollar relative to other currencies increases the dollar cost to us of paying such expenses. The portion of our expenses incurred in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations.
While we have not mitigated the risk associated with exchange rate fluctuations through the use of financial derivatives, we may determine to employ such instruments from time to time in the future in order to minimize this risk. Our use of financial derivatives would involve certain risks, including the risk that losses on a hedged position could exceed the nominal amount invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual obligations, which could have an adverse effect on our results. Currently, we do not consider the risk from exchange rate fluctuations to be material for our results of operations and therefore, we are not engaged in derivative instruments to hedge part of those expenses.
Item 12. | Description of Securities Other than Equity Securities |
Item 12.Description of Securities Other than Equity Securities
Not Applicable.
PART II
Item 13. | Defaults, Dividend Arrearages and Delinquencies |
Item 13.Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds
Pursuant to the Stockholders Rights Agreement dated August 29, 2016, as amended in June 2019, each share of our common stock includes one preferred stock purchase right that entitles the holder to purchase from us a unit consisting of one-thousandth of a share of our Series A Participating Preferred Stock if any third-party acquires beneficial ownership of 15% or more of our common stock without the approval of our Boardboard of Directors.directors. See "Item“Item 10.B—Memorandum and Articles of Association—Amended and Restated Stockholders Rights Agreement."”
Please also see "Item 10. Additional Information—B. Memorandum and Articles of Association" for a description of the rights of holders of our Series B-1 and Series B-2 convertible preferred shares and Series C preferred voting stock relative to the rights of holders of our common shares.
Item 15. | Controls and Procedures |
Item 15.Controls and Procedures
a) Disclosure Controls and Procedures
Management, including our Chief Executive Officer and our Deputy Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Deputy Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Companyus in the reports that it fileswe file or submitssubmit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
b) Management'sManagement’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company'sOur internal control over financial reporting is a process designed under the supervision of the Company'sour Chief Executive Officer and our Deputy Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company'sour financial statements for external reporting purposes in accordance with U.S. GAAP.
Management has conducted an assessment of the effectiveness of the Company'sour internal control over financial reporting based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, management has determined that the Company'sour internal control over financial reporting as of December 31, 20172019 is effective.
The registered public accounting firm that audited the financial statements included in this annual report containing the disclosure required by this Item 15 has issued an attestation report on management's assessment of our internal control over financial reporting.
c) Attestation Report of Independent Registered Public Accounting Firm
The attestation report on the Company's internal control over financial reporting issued by the registered public accounting firm that audited the Company's consolidated financial statements, Ernst Young (Hellas) Certified Auditors Accountants S.A., appears on page F-3 of the financial statements filed as part of this annual report.
Not applicable.
d) Changes in Internal Control over Financial Reporting
None.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our Deputy 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'ssystem’s objectives will be met. 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. | Item 16A. Audit Committee Financial Expert |
Mr. John Evangelou serves as the Chairman of the Company'sour Audit Committee. Our board of directors has determined that Mr. Evangelou qualifies as an "audit“audit committee financial expert"expert” and is "independent" according to SEC rules.
Item 16B. |
Item 16B. Code of Ethics |
We have adopted a code of ethics that applies to officers, directors, employees and agents. Our code of ethics is posted on our website, http://www.dcontainerships.com,www.pshipping.com, under "About“About Us—Code of Ethics."” Copies of our Code of Ethics are available in print, free of charge, upon request to Diana ContainershipsPerformance Shipping Inc., Pendelis 18, 175 64 Palaio Faliro, Athens, Greece. We intend to satisfy any disclosure requirements regarding any amendment to, or waiver from, a provision of this Code of Ethics by posting such information on our website.
Item 16C. |
Item 16C. Principal Accountant Fees and Services |
a) Audit Fees
Our principal accountants, Ernst and Young (Hellas), Certified Auditors Accountants S.A., have billed us for audit services.
Audit
In 2019 and 2018, audit fees in 2017 amounted to Euro 199,50068,250 or about $215,000,$77,000 and in 2016 amounted to Euro 211,50094,500 or about $237,000$108,000, respectively, and relate to audit services provided in connection with the audit and AS 4105 interim reviews of our consolidated financial statements and the audit of internal control over financial reporting.statements.
b) Audit-Related Fees
In 2017, our principal accountants, Ernst and Young (Hellas), Certified Auditors Accountants S.A., have also billed us for audit services provided for the Company's registration statements, which amounted to Euro 17,000 or about $18,000.
c) Tax Fees
During 2017
No tax fees were incurred in 2019 and 2016, we received or accrued for tax services for which fees amounted to $8,750 and $16,100, respectively, and relate to the calculation of Earnings and Profits of the Company.2018.
d) All Other Fees
None.
e) Audit Committee'sCommittee’s Pre-Approval Policies and Procedures
Our Audit Committee is responsible for the appointment, replacement, compensation, evaluation and oversight of the work of our independent auditors. As part of this responsibility, the Audit Committee pre-approves all audit and non-audit services performed by the independent auditors in order to assure that they do not impair the auditor'sauditor’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 auditors may be pre-approved.
f) Audit Work Performed by Other Than Principal Accountant if Greater Than 50%
Not applicable.
Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Not applicable.
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16F. | Change in Registrant's
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers On January 14, 2020, we announced that our board of directors authorized a share repurchase program to purchase up to an aggregate of $6.0 million of our common shares. The timing and amount of the repurchases are determined by our management team and depend on market conditions, capital allocation alternatives, applicable securities laws, and other factors. Our board of directors’ authorization of the repurchase program will expire on December 21, 2020. We cancel the common shares repurchased as part of this program.
In January 2020, we repurchased 46,706 common shares having an aggregate gross value of $38,000, and cancelled them.
In February 2020, we repurchased 406,062 common shares having an aggregate gross value of $327,000, and cancelled them.
Also, on March 23, 2020, the disinterested members of our board of directors approved the repurchase of all 100 shares of our Series C Preferred Stock outstanding, held by Diana Shipping since 2017, for a purchase price of $1.5 million. The disinterested members of our board of directors had previously received a fairness opinion from an independent third party that the transaction was fair from a financial point of view. On March 25, 2020, we agreed with DSI for the repurchase of the shares and on March 26, 2020, we paid the purchase price of $1.5 million and cancelled all of the shares of our Series C Preferred Stock upon the conclusion of the transaction.
On April 6, 2020, our board of directors approved the repurchase of all 400 outstanding Series B-2 Preferred Shares, for a purchase price of $400,000. On April 7, 2020, we entered into an agreement with Kalani and repurchased and cancelled all of our outstanding Series B-2 convertible preferred stock.
Item 16F. Change in Registrant’s Certifying Accountant |
Not applicable.
Item 16G. |
Item 16G. Corporate Governance |
We have certified to Nasdaq that our corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we are exempt from many of Nasdaq's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification to Nasdaq of non-compliance with Nasdaq corporate governance practices, prohibition on disparate reduction or restriction of shareholder voting rights, and the establishment of an audit committee satisfying Nasdaq Listing Rule 5605(c)(3) and ensuring that such audit committee's members meet the independence requirement of Listing Rule 5605(c)(2)(A)(ii). The practices we follow in lieu of Nasdaq's corporate governance rules applicable to U.S. domestic issuers are as follows:
| · | As a foreign private issuer, we are not required to have an audit committee comprised of at least three members. Our audit committee is comprised of two members; |
| · | As a foreign private issuer, we are not required to adopt a formal written charter or board resolution addressing the nominations process. We do not have a nominations committee, nor have we adopted a board resolution addressing the nominations process; |
99As a foreign private issuer, we are not required to adopt a formal written charter or board resolution addressing the nominations process. We do not have a nominations committee, nor have we adopted a board resolution addressing the nominations process;
As a foreign private issuer, we are not required to hold regularly scheduled board meetings at which only independent directors are present;
| · | As a foreign private issuer, we are not required to hold regularly scheduled board meetings at which only independent directors are present; |
In lieu of obtaining shareholder approval prior to the issuance of designated securities, we will comply with provisions of the Marshall Islands Business Corporations Act, which allows the board of directors to approve share issuances;
| · | In lieu of obtaining shareholder approval prior to the issuance of designated securities, we will comply with provisions of the Marshall Islands Business Corporations Act, which allows the Board of Directors to approve share issuances; |
As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law and as provided in our bylaws, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our bylaws provide that shareholders must give us between 150 and 180 days advance notice to properly introduce any business at a meeting of shareholders.
| · | As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law and as provided in our bylaws, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our bylaws provide that shareholders must give us between 150 and 180 days advance notice to properly introduce any business at a meeting of shareholders. |
Other than as noted above, we are in compliance with all other Nasdaq corporate governance standards applicable to U.S. domestic issuers.
Item 16H. Mine Safety Disclosure
Not applicable.
PART III
| Item 17. | Financial Statements |
See Item 18.
| Item 18. | Financial Statements |
The financial statements required by this Item 18 are filed as a part of this annual report beginning on page F-1.
(a) Exhibits
Exhibit Number | Description |
1.1 | |
1.2 | |
1.3 | |
1.4 | |
1.5 | |
1.6 | |
1.7 | |
1.8 | |
1.9 | |
2.1 | |
2.2 | |
2.3 | |
2.42.7 | |
2.5 | |
2.6 | |
4.1 | |
4.2 | |
4.3 | |
4.4 | |
4.5 | |
4.6 | |
4.7 | |
4.8 | |
4.9 | |
4.10 | |
4.11 | |
4.12 | |
4.13 | |
4.14 | |
4.15 | |
4.16 | |
4.17 | |
4.18 | |
4.19 | |
4.204.11 | |
4.21 | |
4.22 | |
4.23 | |
4.24 | |
4.25 | |
4.26 | |
4.27 | |
4.28 | |
4.29 | |
4.30 | |
4.31 | |
4.32 | |
4.33 | |
8.1 | |
12.1 | |
12.2 | |
13.1 | |
13.2 | |
15.1
|
|
| |
| 101 | The following financial information from Diana ContainershipsPerformance Shipping Inc.'s Annual Report on Form 20-F for the fiscal year ended December 31, 2017,2019, formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets as atof December 31, 20172019 and 2016;2018; (2) Consolidated Statements of Operations for the years ended December 31, 2017, 20162019, 2018 and 2015;2017; (3) Consolidated Statements of Comprehensive Income / (Loss) for the years ended December 31, 2017, 20162019, 2018 and 2015;2017; (4) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 20162019, 2018 and 2015;2017; (5) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162019, 2018 and 2015;2017; and (6) Notes to Consolidated Financial Statements. |
(1) Filed as Exhibit 3.1 to the Company's Registration Statement on Form F-4 (File No. 333-169974) on October 15, 2010.
(2) Filed as Exhibit 3.3 to the Company'sCompany’s report on Form 6-K, filed with the SEC on June 9, 2016.
(3) Filed as Exhibit 3.1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on July 6, 2017.
(4) Filed as Exhibit 3.1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on July 28, 2017.
(5) Filed as Exhibit 3.1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on August 28, 2017.
(6) Filed as Exhibit 3.1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on September 26, 2017.
(7) Filed as Exhibit 3.1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on November 3, 2017.
(8) Filed as Exhibit 1.8 to the Company's Annual Report on Form 20-F on March 18, 2019.
(9) Filed as Exhibit 3.2 to the Company's Registration Statement on Form F-4 (File No. 333-169974) on October 15, 2010.
(9)(10) Filed as Exhibit 4.1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on November 3, 2017.
(10) Filed as Exhibit 3.3 to the Company's report on Form 6-K, filed with the SEC on March 21, 2017.
(11) Filed as Exhibit 4.4 to the Company's Registration Statement on Form F-4 (File No. 333-169974) on October 15, 2010.
(12) Filed as Exhibit 3.1 to the Company's report on Form 6-K, filed with the SEC on March 21, 2017.
(13) Filed as Exhibit 3.2 to the Company's report on Form 6-K, filed with the SEC on March 21, 2017.
(14) Filed as Exhibit 3.1 to the Company's report on Form 6-K, filed with the SEC on June 6, 2017.
(15) Filed as Exhibit 4.2 to the Company's Registration Statement on Form F-4 (File No. 333-169974) on October 15, 2010.
(16)(13) Filed as Exhibit 4.1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on August 31, 2016.
(17)(14) Filed as Exhibit 4.44.1 to the Company's Annual ReportCompany’s report on Form 20-F6-K, filed with the SEC on February 23, 2012.June 21, 2019.
(18)(15) Filed as Exhibit 4.5 to the Company's Annual Report on Form 20-F on March 21, 2016.
(19)(16) Filed as Exhibit 4.8 to the Company's Annual Report on Form 20-F on March 26, 2014.
(20)(17) Filed as Exhibit 4.11 to the Company's Annual Report on Form 20-F on March 26, 2014.
(21)(18) Filed as Exhibit 4.12 to the Company's Annual Report on Form 20-F on March 26, 2014.
(22) Filed as Exhibit 4.16 to the Company's Annual Report on Form 20-F on February 23, 2012.
(23) Filed as Exhibit 4.17 to the Company's Annual Report on Form 20-F on February 23, 2012.
(24) Filed as Exhibit 4.30 to the Company's Annual Report on Form 20-F on March 26, 2014.
(25) Filed as Exhibit 4.31 to the Company's Annual Report on Form 20-F on March 26, 2014.
(26)Filed as Exhibit 4.14 to the Company's Annual Report on Form 20-F on June 28, 2011.
(27) Filed as Exhibit 4.15 to the Company's Annual Report on Form 20-F on June 28, 2011.
(28) Filed as Exhibit 99.1 to the Company's Current Report on Form 6-K on July 30, 2014.
(29) Filed as Exhibit 99.2 to the Company's Current Report on Form 6-K on July 30, 2014.
(30) Filed as Exhibit 4.21 to the Company's Annual Report on Form 20-F on February 16, 2017.
(31) Filed as Exhibit 4.23 to the Company's Annual Report on Form 20-F on February 16, 2017.
(32) Filed as Exhibit 4.24 to the Company's Annual Report on Form 20-F on February 16, 2017.
(33)(19) Filed as Exhibit 1 to the Company'sCompany’s report on Form 6-K, filed with the SEC on February 15, 2018.
(34)** Filed as Exhibit 4.1 to the Company's report on Form 6-K, filed with the SEC on March 21, 2017.herewith.
(35) Filed as Exhibit 10.1 to the Company's report on Form 6-K, filed with the SEC on March 21, 2017.
SIGNATURES
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.
| | DIANA CONTAINERSHIPSPERFORMANCE SHIPPING INC. | |
| | | |
| | By: | /s/ Andreas Michalopoulos | |
| | | Andreas Michalopoulos | |
Director, Deputy Chief Executive Officer, Chief Financial Officer, Treasurer and TreasurerSecretary |
Dated: March 16, 2018April 10, 2020
105
DIANA CONTAINERSHIPSPERFORMANCE SHIPPING INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | Page |
| | |
| Report of Independent Registered Public Accounting Firm | | F-2 |
| | |
Report of Independent Registered Public Accounting Firm | | F-3 |
| | |
Consolidated Balance Sheets as at December 31, 20172019 and 20162018 | | F-4 |
| | F-3 |
Consolidated Statements of Operations for the years ended December 31, 2017, 20162019, 2018 and 20152017 | | F-5 |
| | F-4 |
Consolidated Statements of Comprehensive Income / (Loss) for the years ended December 31, 2017, 20162019, 2018 and 20152017 | | F-5 |
| | F-4 |
Consolidated Statements of Stockholders'Stockholders’ Equity for the years ended December 31, 2017, 20162019, 2018 and 20152017 | | F-6 |
| | F-5 |
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162019, 2018 and 20152017 | | F-7 |
| | F-6 |
| Notes to Consolidated Financial Statements | | F-8F-7 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Diana ContainershipsPerformance Shipping Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Diana ContainershipsPerformance Shipping Inc. (the Company) as of December 31, 20172019 and 2016,2018, the related consolidated statements of operations, comprehensive income/(loss),loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the "consolidated“consolidated financial statements"statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 2018, expressed an unqualified opinion thereon.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'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 includeincluded examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young (Hellas) Certified Auditors-AccountantsAuditors Accountants S.A.
We have served as the Company'sCompany’s auditor since 2010.
Athens, Greece
March 16, 2018
April 10, 2020
| PERFORMANCE SHIPPING INC. | | | | |
| Consolidated Balance Sheets as at December 31, 2019 and 2018 | | | | |
| (Expressed in thousands of U.S. Dollars, except for share and per share data) | | | | |
| | | | | | | |
| ASSETS | | December 31, 2019 | | | December 31, 2018 | |
| CURRENT ASSETS: | | | | | | |
| Cash and cash equivalents | | $ | 26,363 | | | $ | 10,493 | |
| Accounts receivable, trade | | | 4,685 | | | | 110 | |
| Deferred voyage expenses | | | 69 | | | | - | |
| Inventories | | | 2,847 | | | | 634 | |
| Prepaid expenses and other assets | | | 1,400 | | | | 743 | |
| Total current assets | | | 35,364 | | | | 11,980 | |
| | | | | | | | | |
| FIXED ASSETS: | | | | | | | | |
| Advances for vessel acquisitions and other vessels' costs (Note 4) | | | 11,017 | | | | - | |
| Vessels, net (Note 5) | | | 82,871 | | | | 85,870 | |
| Property and equipment, net | | | 993 | | | | 998 | |
| Total fixed assets | | | 94,881 | | | | 86,868 | |
| | | | | | | | | |
| Right of use asset under operating leases (Note 7) | | | 190 | | | | - | |
| Deferred charges, net | | | 134 | | | | 1,238 | |
| Total assets | | $ | 130,569 | | | $ | 100,086 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Current portion of long-term debt, net of unamortized deferred financing costs (Note 6) | | $ | 4,282 | | | $ | - | |
| Accounts payable, trade and other | | | 1,972 | | | | 1,192 | |
| Due to related parties (Note 3) | | | 8 | | | | 4 | |
| Accrued liabilities | | | 1,732 | | | | 1,360 | |
| Deferred revenue | | | - | | | | 305 | |
| Lease liabilities, current (Note 7) | | | 72 | | | | - | |
| Total current liabilities | | | 8,066 | | | | 2,861 | |
| | | | | | | | | |
| Long-term debt, net of unamortized deferred financing costs (Note 6) | | | 28,001 | | | | - | |
| Other liabilities, non-current | | | 146 | | | | 1,649 | |
| Long-term lease liabilities (Note 7) | | | 118 | | | | - | |
| Commitments and contingencies (Note 7) | | | - | | | | - | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY: | | | | | | | | |
Preferred stock, $0.01 par value; 25,000,000 shares authorized, 1,600 and 350 issued and outstanding as at December 31, 2019 and 2018, respectively (Note 8) | | | - | | | | - | |
Common stock, $0.01 par value; 500,000,000 shares authorized; 49,021,001 and 1 4,463,231 issued and outstanding as at December 31, 2019 and 2018, respectively (Note 8) | | | 489 | | | | 143 | |
| Additional paid-in capital (Note 8) | | | 458,888 | | | | 428,527 | |
| Other comprehensive income | | | 69 | | | | 57 | |
| Accumulated deficit | | | (365,208 | ) | | | (333,151 | ) |
| Total stockholders' equity | | | 94,238 | | | | 95,576 | |
| Total liabilities and stockholders' equity | | $ | 130,569 | | | $ | 100,086 | |
| | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Diana Containerships Inc.
Opinion on Internal Control over Financial Reporting
We have audited Diana Containerships Inc.'s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Diana Containerships Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Diana Containerships Inc. as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income/(loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and our report dated March 16, 2018, expressed an unqualified opinion thereon that included an explanatory paragraph regarding the Company's ability to continue as a going concern.
Basis for Opinion
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 are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations on Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
Athens, Greece
March 16, 2018
| DIANA CONTAINERSHIPS INC. | | | | |
| Consolidated Balance Sheets as at December 31, 2017 and 2016 | | | | |
| (Expressed in thousands of U.S. Dollars, except for share and per share data) | | | | |
| | | | | | | |
ASSETS | | 2017 | | | 2016 | |
| CURRENT ASSETS: | | | | | | |
| Cash and cash equivalents | | $ | 6,444 | | | $ | 8,316 | |
| Accounts receivable, trade | | | 428 | | | | 471 | |
| Inventories | | | 1,667 | | | | 2,581 | |
| Prepaid expenses and other assets | | | 1,083 | | | | 2,507 | |
| Restricted cash (Note 6) | | | - | | | | 9,000 | |
| Vessels held for sale (Note 5) | | | 18,378 | | | | - | |
| Total current assets | | | 28,000 | | | | 22,875 | |
| | | | | | | | | |
| FIXED ASSETS: | | | | | | | | |
| Vessels, net (Note 5) | | | 201,308 | | | | 240,352 | |
| Property and equipment, net | | | 911 | | | | 946 | |
| Total fixed assets | | | 202,219 | | | | 241,298 | |
| | | | | | | | | |
| Deferred charges, net | | | 2,088 | | | | 2,358 | |
| Total assets | | $ | 232,307 | | | $ | 266,531 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Bank and other debt, net of unamortized deferred financing costs (Note 6) | | $ | 12,119 | | | $ | 127,129 | |
| Related party financing, net of unamortized deferred financing costs (Note 4) | | | 84,832 | | | | - | |
| Accounts payable, trade and other | | | 1,715 | | | | 1,471 | |
| Due to related parties, current (Note 4) | | | 65 | | | | 105 | |
| Accrued liabilities | | | 2,045 | | | | 1,050 | |
| Deferred revenue | | | 439 | | | | 108 | |
| Total current liabilities | | | 101,215 | | | | 129,863 | |
| | | | | | | | | |
| Related party financing, non-current (Note 4) | | | - | | | | 45,617 | |
| Other liabilities, non-current | | | 320 | | | | 171 | |
| Commitments and contingencies (Note 7) | | | - | | | | - | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY: | | | | | | | | |
| Preferred stock, $0.01 par value; 25,000,000 shares authorized, 389 and 0 issued and outstanding as at December 31, 2017 and 2016, respectively (Note 8) | | | 0 | | | | - | |
| Common stock, $0.01 par value; 500,000,000 shares authorized; 4,051,266 and 1,533 issued and outstanding as at December 31, 2017 and 2016, respectively (Note 8) | | | 40 | | | | 0 | |
| Additional paid-in capital (Note 8) | | | 410,982 | | | | 374,975 | |
| Other comprehensive income / (loss) | | | 6 | | | | (20 | ) |
| Accumulated deficit | | | (280,256 | ) | | | (284,075 | ) |
| Total stockholders' equity | | | 130,772 | | | | 90,880 | |
| Total liabilities and stockholders' equity | | $ | 232,307 | | | $ | 266,531 | |
| | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | |
| PERFORMANCE SHIPPING INC. | | | | | | | | | |
| Consolidated Statements of Operations | | | | |
| For the years ended December 31, 2019, 2018 and 2017 | | | | |
| (Expressed in thousands of U.S. Dollars – except for share and per share data) | | | | |
| | | | | | | | | | |
| | | 2019 | | | 2018 | | | 2017 | |
| REVENUES: | | | | | | | | | |
| Voyage and time charter revenues (Note 1) | | $ | 26,846 | | | $ | 25,566 | | | $ | 23,806 | |
| | | | | | | | | | | | | |
| EXPENSES: | | | | | | | | | | | | |
| Voyage expenses | | | 3,447 | | | | 1,267 | | | | 1,702 | |
| Vessel operating expenses | | | 11,321 | | | | 15,453 | | | | 22,732 | |
| Depreciation and amortization of deferred charges (Note 5) | | | 3,684 | | | | 4,945 | | | | 8,147 | |
| Management fees (Notes 1 and 3) | | | 147 | | | | - | | | | - | |
| General and administrative expenses (Notes 3 and 8) | | | 8,162 | | | | 8,030 | | | | 8,366 | |
| Impairment losses (Note 5) | | | 31,629 | | | | 20,654 | | | | 8,363 | |
| Loss / (Gain) on vessels' sale (Note 5) | | | 127 | | | | 16,700 | | | | (945 | ) |
| Foreign currency (gains) / losses | | | (7 | ) | | | (44 | ) | | | 51 | |
| Operating loss | | $ | (31,664 | ) | | $ | (41,439 | ) | | $ | (24,610 | ) |
| | | | | | | | | | | | | |
| OTHER INCOME / (EXPENSES) | | | | | | | | | | | | |
| Interest and finance costs (Note 9) | | | (651 | ) | | | (11,520 | ) | | | (13,843 | ) |
| Interest income | | | 258 | | | | 64 | | | | 87 | |
| Gain from bank debt write off | | | - | | | | - | | | | 42,185 | |
| Total other income / (expenses), net | | $ | (393 | ) | | $ | (11,456 | ) | | $ | 28,429 | |
| | | | | | | | | | | | | |
| Net income / (loss) | | $ | (32,057 | ) | | $ | (52,895 | ) | | $ | 3,819 | |
| | | | | | | | | | | | | |
| Earnings / (Loss) per common share, basic and diluted (Note 10) | | $ | (1.12 | ) | | $ | (5.60 | ) | | $ | 8.94 | |
| | | | | | | | | | | | | |
| Weighted average number of common shares, basic (Note 10) | | | 28,646,763 | | | | 9,450,555 | | | | 427,333 | |
| | | | | | | | | | | | | |
| Weighted average number of common shares, diluted (Note 10) | | | 28,646,763 | | | | 9,450,555 | | | | 427,361 | |
| PERFORMANCE SHIPPING INC. | | | | | | | | | |
| Consolidated Statements of Comprehensive Income / (Loss) | | | | |
| For the years ended December 31, 2019, 2018 and 2017 | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | |
| | | | | | | | | | |
| | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | |
| Net income / (loss) | | $ | (32,057 | ) | | $ | (52,895 | ) | | $ | 3,819 | |
| Other comprehensive income (Actuarial gain) | | | 12 | | | | 51 | | | | 26 | |
| | | | | | | | | | | | | |
| Comprehensive income / (loss) | | $ | (32,045 | ) | | $ | (52,844 | ) | | $ | 3,845 | |
| | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | | | | | |
| PERFORMANCE SHIPPING INC. | | | | | | | | | | |
| Consolidated Statements of Stockholders' Equity | |
| For the years ended December 31, 2019, 2018 and 2017 | |
| (Expressed in thousands of U.S. Dollars – except for share and per share data) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Preferred Stock | | | Additional | | | Other | | | | | | | |
| | | # of | | | Par | | | # of | | | Par | | | Paid-in | | | Comprehensive | | | Accumulated | | | | |
| | | Shares | | | Value | | | Shares | | | Value | | | Capital | | | Income / (Loss) | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2016 | | | 1,533 | | | $ | - | | | | - | | | $ | - | | | $ | 374,975 | | | $ | (20 | ) | | $ | (284,075 | ) | | $ | 90,880 | |
| - Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,819 | | | | 3,819 | |
| - Issuance of Series B preferred stock, net of expenses | | | - | | | | - | | | | 32,500 | | | | - | | | | 31,989 | | | | - | | | | - | | | | 31,989 | |
| - Conversion of Series B preferred stock to common stock | | | 4,049,733 | | | | 40 | | | | (32,211 | ) | | | - | | | | (40 | ) | | | - | | | | - | | | | - | |
| - Issuance of Series C preferred stock (Notes 3 and 8) | | | - | | | | - | | | | 100 | | | | - | | | | 3,000 | | | | - | | | | - | | | | 3,000 | |
| - Compensation cost on restricted stock (Note 8) | | | - | | | | - | | | | - | | | | - | | | | 1,058 | | | | - | | | | - | | | | 1,058 | |
| - Actuarial gain | | | - | | | | - | | | | - | | | | - | | | | - | | | | 26 | | | | - | | | | 26 | |
| Balance, December 31, 2017 | | | 4,051,266 | | | $ | 40 | | | | 389 | | | $ | - | | | $ | 410,982 | | | $ | 6 | | | $ | (280,256 | ) | | $ | 130,772 | |
| - Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (52,895 | ) | | | (52,895 | ) |
| - Issuance of Series B preferred stock, net of expenses | | | - | | | | - | | | | 17,490 | | | | - | | | | 17,413 | | | | - | | | | - | | | | 17,413 | |
| - Conversion of Series B preferred stock to common stock | | | 10,250,265 | | | | 102 | | | | (17,529 | ) | | | - | | | | (102 | ) | | | - | | | | - | | | | - | |
| - Issuance of restricted stock and compensation cost on restricted stock (Note 8) | | | 161,700 | | | | 1 | | | | - | | | | - | | | | 234 | | | | - | | | | - | | | | 235 | |
| - Actuarial gain | | | - | | | | - | | | | - | | | | - | | | | - | | | | 51 | | | | - | | | | 51 | |
| Balance, December 31, 2018 | | | 14,463,231 | | | $ | 143 | | | | 350 | | | $ | - | | | $ | 428,527 | | | $ | 57 | | | $ | (333,151 | ) | | $ | 95,576 | |
| - Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (32,057 | ) | | | (32,057 | ) |
| - Issuance of Series B preferred stock, net of expenses (Note 8) | | | - | | | | - | | | | 6,470 | | | | - | | | | 6,452 | | | | - | | | | - | | | | 6,452 | |
| - Conversion of Series B preferred stock to common stock (Note 8) | | | 7,100,510 | | | | 71 | | | | (5,220 | ) | | | - | | | | (71 | ) | | | - | | | | - | | | | - | |
| - Issuance of restricted stock and compensation cost on restricted stock (Note 8) | | | 5,747,786 | | | | 58 | | | | - | | | | - | | | | 3,197 | | | | - | | | | - | | | | 3,255 | |
| - Issuance of common stock in exchange for entities acquisition (Note 3) | | | 21,709,474 | | | | 217 | | | | - | | | | - | | | | 20,783 | | | | - | | | | - | | | | 21,000 | |
| - Actuarial gain | | | - | | | | - | | | | - | | | | - | | | | - | | | | 12 | | | | - | | | | 12 | |
| Balance, December 31, 2019 | | | 49,021,001 | | | $ | 489 | | | | 1,600 | | | $ | - | | | $ | 458,888 | | | $ | 69 | | | $ | (365,208 | ) | | $ | 94,238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | |
| DIANA CONTAINERSHIPS INC. | | | | | | | | | |
| Consolidated Statements of Operations | | | | |
| For the years ended December 31, 2017, 2016 and 2015 | | | | |
| (Expressed in thousands of U.S. Dollars – except for share and per share data) | | | | |
| | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
| REVENUES: | | | | | | | | | |
| Time charter revenues (Note 1) | | $ | 23,806 | | | $ | 36,992 | | | $ | 70,746 | |
| Prepaid charter revenue amortization | | | - | | | | (3,798 | ) | | | (8,566 | ) |
| Time charter revenues, net | | | 23,806 | | | | 33,194 | | | | 62,180 | |
| | | | | | | | | | | | | |
| EXPENSES: | | | | | | | | | | | | |
| Voyage expenses | | | 1,702 | | | | 3,169 | | | | 2,619 | |
| Vessel operating expenses | | | 22,732 | | | | 30,213 | | | | 35,847 | |
| Depreciation and amortization of deferred charges (Note 5) | | | 8,147 | | | | 12,740 | | | | 13,140 | |
| General and administrative expenses (Note 4 and 8(d)) | | | 8,366 | | | | 7,241 | | | | 6,194 | |
| Impairment losses (Note 5) | | | 8,363 | | | | 118,861 | | | | 6,607 | |
| (Gain) / Loss on vessels' sale (Note 5) | | | (945 | ) | | | 2,899 | | | | 8,300 | |
| Foreign currency losses / (gains) | | | 51 | | | | 111 | | | | (55 | ) |
| Operating loss | | $ | (24,610 | ) | | $ | (142,040 | ) | | $ | (10,472 | ) |
| | | | | | | | | | | | | |
| OTHER INCOME/(EXPENSES) | | | | | | | | | | | | |
| Interest and finance costs (Notes 4, 6 and 9) | | $ | (13,843 | ) | | $ | (7,094 | ) | | $ | (7,166 | ) |
| Interest income | | | 87 | | | | 120 | | | | 107 | |
| Gain from bank debt write off (Note 6) | | | 42,185 | | | | - | | | | - | |
| Total other income /(expenses), net | | $ | 28,429 | | | $ | (6,974 | ) | | $ | (7,059 | ) |
| | | | | | | | | | | | | |
| Net income / (loss) | | $ | 3,819 | | | $ | (149,014 | ) | | $ | (17,531 | ) |
| | | | | | | | | | | | | |
| Earnings / (Loss) per common share, basic (Note 10) | | $ | 8.94 | | | $ | (100,821.38 | ) | | $ | (11,917.74 | ) |
| | | | | | | | | | | | | |
| Earnings / (loss) per common share, diluted (Note 10) | | $ | 8.94 | | | $ | (100,821.38 | ) | | $ | (11,917.74 | ) |
| | | | | | | | | | | | | |
| Weighted average number of common shares, basic (Note 10) | | | 427,333 | | | | 1,478 | | | | 1,471 | |
| Weighted average number of common shares, diluted (Note 10) | | | 427,361 | | | | 1,478 | | | | 1,471 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| DIANA CONTAINERSHIPS INC. | | | | | | | | | |
| Consolidated Statements of Comprehensive Income / (Loss) | | | | |
| For the years ended December 31, 2017, 2016 and 2015 | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | |
| | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | | | | | | | | |
| Net income / (loss) | | $ | 3,819 | | | $ | (149,014 | ) | | $ | (17,531 | ) |
| Other comprehensive income / (loss) (Actuarial gain / (loss)) | | | 26 | | | | (25 | ) | | | 73 | |
| Comprehensive income / (loss) | | $ | 3,845 | | | $ | (149,039 | ) | | $ | (17,458 | ) |
| | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | | | | | |
| DIANA CONTAINERSHIPS INC. | | | | | | | | | | |
| Consolidated Statements of Stockholders' Equity | |
| For the years ended December 31, 2017, 2016 and 2015 | |
| (Expressed in thousands of U.S. Dollars – except for share and per share data) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Preferred Stock | | | Additional | | | Other | | | | | | | |
| | | # of | | | Par | | | # of | | | Par | | | Paid-in | | | Comprehensive | | | Accumulated | | | | |
| | | Shares | | | Value | | | Shares | | | Value | | | Capital | | | Income / (Loss) | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2014 | | | 1,509 | | | $ | - | | | | - | | | $ | - | | | $ | 372,928 | | | $ | (68 | ) | | $ | (116,417 | ) | | $ | 256,443 | |
| - Net loss | | | - | | | | - | | | | | | | | | | | | - | | | | - | | | | (17,531 | ) | | | (17,531 | ) |
| - Issuance of restricted stock and compensation cost on restricted stock (Note 8) | | | 10 | | | | - | | | | - | | | | - | | | | 928 | | | | - | | | | - | | | | 928 | |
| - Actuarial gain | | | - | | | | - | | | | - | | | | - | | | | - | | | | 73 | | | | - | | | | 73 | |
| - Dividends declared and paid (at $123.48, $123.48, $123.48 and $123.48 per share) (Note 10) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (739 | ) | | | (739 | ) |
| Balance, December 31, 2015 | | | 1,519 | | | $ | - | | | | - | | | $ | - | | | $ | 373,856 | | | $ | 5 | | | $ | (134,687 | ) | | $ | 239,174 | |
| - Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (149,014 | ) | | | (149,014 | ) |
| - Issuance of restricted stock and compensation cost on restricted stock (Note 8) | | | 14 | | | | - | | | | - | | | | - | | | | 1,119 | | | | - | | | | - | | | | 1,119 | |
| - Actuarial loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (25 | ) | | | - | | | | (25 | ) |
| - Dividends declared and paid (at $123.48, $123.48, $0.00 and $0.00 per share) (Note 10) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (374 | ) | | | (374 | ) |
| Balance, December 31, 2016 | | | 1,533 | | | $ | - | | | | - | | | $ | - | | | $ | 374,975 | | | $ | (20 | ) | | $ | (284,075 | ) | | $ | 90,880 | |
| - Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,819 | | | | 3,819 | |
| - Issuance of Series B preferred stock, net of expenses | | | - | | | | - | | | | 32,500 | | | | - | | | | 31,989 | | | | - | | | | - | | | | 31,989 | |
| - Conversion of Series B preferred stock to common stock (Note 8) | | | 4,049,733 | | | | 40 | | | | (32,211 | ) | | | - | | | | (40 | ) | | | - | | | | - | | | | - | |
| - Issuance of Series C preferred stock (Note 4) | | | - | | | | - | | | | 100 | | | | - | | | | 3,000 | | | | | | | | | | | | 3,000 | |
| - Compensation cost on restricted stock (Note 8) | | | | | | | - | | | | - | | | | - | | | | 1,058 | | | | - | | | | - | | | | 1,058 | |
| - Actuarial gain | | | - | | | | - | | | | - | | | | - | | | | - | | | | 26 | | | | - | | | | 26 | |
| Balance, December 31, 2017 | | | 4,051,266 | | | $ | 40 | | | | 389 | | | $ | - | | | $ | 410,982 | | | $ | 6 | | | $ | (280,256 | ) | | $ | 130,772 | |
The accompanying notes are an integral part of these consolidated financial statements. | |
| PERFORMANCE SHIPPING INC. | | | | | | | | | |
| Consolidated Statements of Cash Flows | | | | |
| For the years ended December 31, 2019, 2018 and 2017 | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | |
| | | 2019 | | | 2018 | | | 2017 | |
| Cash Flows used in Operating Activities: | | | | | | | | | |
| Net income /(loss) | | $ | (32,057 | ) | | $ | (52,895 | ) | | $ | 3,819 | |
| Adjustments to reconcile net income/(loss) to net cash used in operating activities: | | | | | | | | | | | | |
| Depreciation and amortization of deferred charges (Note 5) | | | 3,684 | | | | 4,945 | | | | 8,147 | |
| Amortization of deferred financing costs | | | 154 | | | | 176 | | | | 322 | |
| Amortization of discount premium | | | - | | | | 8,990 | | | | 6,010 | |
| Impairment losses (Note 5) | | | 31,629 | | | | 20,654 | | | | 8,363 | |
| Loss / (Gain) on vessels' sale | | | 127 | | | | 16,700 | | | | (945 | ) |
| Compensation cost on restricted stock awards (Note 8) | | | 1,791 | | | | 1,587 | | | | 1,171 | |
| Right of use asset under operating leases | | | (190 | ) | | | - | | | | - | |
| Lease liabilities under operating leases | | | 190 | | | | - | | | | - | |
| Gain from bank debt write off | | | - | | | | - | | | | (42,185 | ) |
| Actuarial gain | | | 12 | | | | 51 | | | | 26 | |
| (Increase) / Decrease in: | | | | | | | | | | | | |
| Accounts receivable, trade | | | (4,575 | ) | | | 318 | | | | 43 | |
| Deferred voyage expenses | | | (69 | ) | | | - | | | | - | |
| Inventories | | | (2,213 | ) | | | 1,033 | | | | 914 | |
| Prepaid expenses and other assets | | | (3,488 | ) | | | (32 | ) | | | 639 | |
| Increase / (Decrease) in: | | | | | | | | | | | | |
| Accounts payable, trade and other | | | 780 | | | | (455 | ) | | | 175 | |
| Due to related parties | | | 4 | | | | (61 | ) | | | (40 | ) |
| Accrued liabilities | | | 372 | | | | (685 | ) | | | 995 | |
| Deferred liabilities | | | (305 | ) | | | (134 | ) | | | 331 | |
| Other liabilities, non current | | | (40 | ) | | | (22 | ) | | | 36 | |
| Drydock costs | | | - | | | | (500 | ) | | | (474 | ) |
| Net Cash used in Operating Activities | | $ | (4,194 | ) | | $ | (330 | ) | | $ | (12,653 | ) |
| Cash Flows provided by / (used in) Investing Activities: | | | | | | | | | | | | |
| Advances for vessel acquisitions and other vessel costs (Note 4) | | | (17 | ) | | | - | | | | - | |
| Vessel acquisitions and other vessels' costs (Note 5) | | | (50,161 | ) | | | - | | | | - | |
| Proceeds from sale of vessels, net of expenses (Note 5) | | | 28,868 | | | | 92,905 | | | | 5,895 | |
| Property and equipment additions | | | (38 | ) | | | (126 | ) | | | (15 | ) |
| Insurance settlements | | | 2,831 | | | | 372 | | | | 785 | |
| Net Cash provided by / (used in) Investing Activities | | $ | (18,517 | ) | | $ | 93,151 | | | $ | 6,665 | |
| Cash Flows provided by / (used in) Financing Activities: | | | | | | | | | | | | |
| Proceeds from related party loans | | | - | | | | - | | | | 40,000 | |
| Proceeds from unrelated party loans (Note 6) | | | 33,000 | | | | - | | | | 35,000 | |
| Repayments of related party loans (Note 3) | | | - | | | | (87,617 | ) | | | - | |
| Repayments of unrelated parties' loans | | | (519 | ) | | | (18,500 | ) | | | (111,500 | ) |
| Issuance of preferred stock, net of expenses (Note 8) | | | 6,452 | | | | 17,413 | | | | 31,989 | |
| Payments of equity issuance costs and financing costs | | | (352 | ) | | | (68 | ) | | | (373 | ) |
| Net Cash provided by / (used in) Financing Activities | | $ | 38,581 | | | $ | (88,772 | ) | | $ | (4,884 | ) |
| Net increase / (decrease) in cash, cash equivalents and restricted cash | | $ | 15,870 | | | $ | 4,049 | | | $ | (10,872 | ) |
| Cash, cash equivalents and restricted cash at beginning of the year | | $ | 10,493 | | | $ | 6,444 | | | $ | 17,316 | |
| Cash, cash equivalents and restricted cash at end of the year | | $ | 26,363 | | | $ | 10,493 | | | $ | 6,444 | |
| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | | | | | | | | | |
| Cash and cash equivalents at the end of the year | | $ | 26,363 | | | $ | 10,493 | | | $ | 6,444 | |
| Restricted cash at the end of the year | | | - | | | | - | | | | - | |
| Cash, cash equivalents and restricted cash at the end of the year | | $ | 26,363 | | | $ | 10,493 | | | $ | 6,444 | |
| SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Related party loan reduction in exchange for preferred shares (Note 3) | | $ | - | | | $ | - | | | $ | 3,000 | |
| Issuance of common stock in exchange for entities acquisition (Note 3) | | $ | 21,000 | | | $ | - | | | $ | - | |
| Reclassification of compensation cost of issued restricted stock awards from other liabilities to stockholders' equity (Note 8) | | $ | 1,464 | | | $ | - | | | $ | - | |
| Interest payments, net of amounts capitalized | | $ | 408 | | | $ | 2,355 | | | $ | 7,724 | |
| | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | | | | | |
| DIANA CONTAINERSHIPS INC. | | | | | | | | | |
| Consolidated Statements of Cash Flows | | | | |
| For the years ended December 31, 2017, 2016 and 2015 | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
| Cash Flows provided by/ (used in) Operating Activities: | | | | | | | | | |
| Net income/ (loss) | | $ | 3,819 | | | $ | (149,014 | ) | | $ | (17,531 | ) |
| Adjustments to reconcile net income /(loss) to net cash provided by /(used in) operating activities: | | | | | | | | | | | | |
| Depreciation and amortization of deferred charges (Note 5) | | | 8,147 | | | | 12,740 | | | | 13,140 | |
| Amortization of deferred financing costs (Note 9) | | | 322 | | | | 427 | | | | 268 | |
| Amortization of discount premium (Notes 4 and 6) | | | 6,010 | | | | - | | | | - | |
| Amortization of deferred revenue | | | - | | | | - | | | | (50 | ) |
| Amortization of prepaid charter revenue | | | - | | | | 3,798 | | | | 8,566 | |
| Impairment losses (Note 5) | | | 8,363 | | | | 118,861 | | | | 6,607 | |
| (Gain) / Loss on vessels' sale (Note 5) | | | (945 | ) | | | 2,899 | | | | 8,300 | |
| Compensation cost on restricted stock awards (Note 8) | | | 1,171 | | | | 1,119 | | | | 928 | |
| Gain from bank debt write off (Note 6) | | | (42,185 | ) | | | - | | | | - | |
| Actuarial gain / (loss) | | | 26 | | | | (25 | ) | | | 73 | |
| (Increase) / Decrease in: | | | | | | | | | | | | |
| Accounts receivable, trade | | | 43 | | | | 282 | | | | (62 | ) |
| Inventories | | | 914 | | | | 1,123 | | | | (1,397 | ) |
| Prepaid expenses and other assets | | | 639 | | | | (1,617 | ) | | | (487 | ) |
| Increase / (Decrease) in: | | | | | | | | | | | | |
| Accounts payable, trade and other | | | 175 | | | | (1,236 | ) | | | 900 | |
| Due to related parties | | | (40 | ) | | | - | | | | 604 | |
| Accrued liabilities | | | 995 | | | | (291 | ) | | | 289 | |
| Deferred revenue | | | 331 | | | | (539 | ) | | | 206 | |
| Other liabilities | | | 36 | | | | 50 | | | | (48 | ) |
| Drydock costs | | | (474 | ) | | | (540 | ) | | | (2,861 | ) |
| Net Cash provided by /(used in) Operating Activities | | $ | (12,653 | ) | | $ | (11,963 | ) | | $ | 17,445 | |
| | | | | | | | | | | | | |
| Cash Flows provided by / (used in) Investing Activities: | | | | | | | | | | | | |
| Vessel acquisitions and other vessel costs | | | - | | | | (194 | ) | | | (113,020 | ) |
| Proceeds from sale of vessels, net of expenses (Note 5) | | | 5,895 | | | | 10,618 | | | | 7,045 | |
| Acquisition of time charter | | | - | | | | - | | | | (6,000 | ) |
| Property and equipment additions | | | (15 | ) | | | (29 | ) | | | (39 | ) |
| Insurance settlements | | | 785 | | | | 179 | | | | 263 | |
| Net Cash provided by / (used in) Investing Activities | | $ | 6,665 | | | $ | 10,574 | | | $ | (111,751 | ) |
| | | | | | | | | | | | | |
| Cash Flows provided by / (used in) Financing Activities: | | | | | | | | | | | | |
| Proceeds from a related party loan (Note 4) | | | 40,000 | | | | - | | | | - | |
| Proceeds from an unrelated party loan (Note 6) | | | 35,000 | | | | - | | | | 148,000 | |
| Repayments of debt (Note 6) | | | (111,500 | ) | | | (19,159 | ) | | | (103,263 | ) |
| Issuance of preferred stock, net of issuance costs (Note 8) | | | 31,989 | | | | - | | | | - | |
| Payments of financing costs | | | (373 | ) | | | (150 | ) | | | (3,177 | ) |
| Cash dividends (Note 10) | | | - | | | | (374 | ) | | | (739 | ) |
| Changes in restricted cash (Note 6) | | | 9,000 | | | | - | | | | 870 | |
| Net Cash provided by / (used in) Financing Activities | | $ | 4,116 | | | $ | (19,683 | ) | | $ | 41,691 | |
| | | | | | | | | | | | | |
| Net decrease in cash and cash equivalents | | $ | (1,872 | ) | | $ | (21,072 | ) | | $ | (52,615 | ) |
| Cash and cash equivalents at beginning of period | | $ | 8,316 | | | $ | 29,388 | | | $ | 82,003 | |
| Cash and cash equivalents at end of period | | $ | 6,444 | | | $ | 8,316 | | | $ | 29,388 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | | | | | |
| Related party loan reduction in exchange for preferred shares (Notes 4 and 8) | | $ | 3,000 | | | $ | - | | | $ | - | |
| Interest payments, net of amounts capitalized | | | 7,724 | | | | 6,626 | | | | 5,571 | |
| | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | |
F-7
PERFORMANCE SHIPPING INC.DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The accompanying consolidated financial statements include the accounts of Diana ContainershipsPerformance Shipping Inc. ("DCI"(or “Performance”) and its wholly-owned subsidiaries (collectively, the "Company"“Company”). Performance was incorporated as Diana Containerships Inc. was incorporated on January 7, 2010, under the laws of the Republic of the Marshall Islands for the purpose of engaging in any lawful act or activity under the Marshall Islands Business Corporations Act.
During 2017 On February 19, 2019, the Company’s Annual Meeting of Shareholders approved an amendment to the Company’s Amended and 2016,Restated Articles of Incorporation to change the name of the Company from “Diana Containerships Inc.” to “Performance Shipping Inc.,” which was effected a number reverse stock splits on its issuedFebruary 25, 2019. The Company’s common shares traded on the Nasdaq Global Select Market until March 5, 2020, and outstanding common stock (Note 8). All share and per share amounts disclosed ineffective March 6, 2020, they trade on the accompanying consolidated financial statements give effectNasdaq Capital Market. The Company’s ticker symbol has been “DCIX” until March 30, 2020, at which date it changed to these reverse stock splits retroactively and thus affect all periods presented.“PSHG”.
The Company is engaged in the seabornea global provider of shipping transportation industryservices through the ownership of containershipscontainer vessels since its incorporation and also through the ownership of tanker vessels since August 2019, and operates its fleet through Unitized Ocean Transport Limited, a wholly-owned subsidiary, while Wilhelmsen Ship Management LTD, an unaffiliated third party, provides management servicesor, from time to time, through other managers, as described below.
Following the acquisition of the tanker vessels during 2019 (Notes 3, 4, 5 and 14), the Company has determined that it operates under two reportable segments, one relating to its operations of container vessels (containers segment) and one to the laid-upoperations of tanker vessels (tankers segment). The accounting policies that apply to the reportable segments are the same as those used in the preparation of the Company's fleet, for a fixed monthly fee for each vessel. The fees payable to Wilhelmsen Ship Management LTD, amounted to $697, $604consolidated financial statements (Notes 2 and $0 for 2017, 2016 and 2015, respectively, and are included in Vessel operating expenses in the accompanying consolidated statement of operations.13).
As at December 31, 2017,2019, the Company was the sole owner of all outstanding shares of the following subsidiaries:
| a/a | Company | Place of Incorporation | Vessel | Flag | TEU | Date built | Date acquired | Date sold |
| Vessel Owning Subsidiaries - Panamax Vessels |
| 1 | Likiep Shipping Company Inc. (Note 13) | Marshall Islands | Sagitta | Marshall Islands | 3,426 | Jun-10 | Jun-10 | - |
| 2 | Orangina Inc. (Note 13) | Marshall Islands | Centaurus | Marshall Islands | 3,426 | Jul-10 | Jul-10 | - |
| 3 | Rongerik Shipping Company Inc. | Marshall Islands | Domingo | Marshall Islands | 3,739 | Mar-01 | Feb-12 | - |
| 4 | Dud Shipping Company Inc. | Marshall Islands | Pamina | Marshall Islands | 5,042 | May-05 | Nov-14 | - |
| 5 | Mago Shipping Company Inc. (Note 13) | Marshall Islands | New Jersey | Marshall Islands | 4,923 | Nov-06 | Apr-15 | - |
| Vessel Owning Subsidiaries - Post-Panamax Vessels |
| 6 | Eluk Shipping Company Inc. | Marshall Islands | Puelo | Marshall Islands | 6,541 | Nov-06 | Aug-13 | - |
| 7 | Oruk Shipping Company Inc. | Marshall Islands | Pucon | Marshall Islands | 6,541 | Aug-06 | Sep-13 | - |
| 8 | Delap Shipping Company Inc. (Notes 5 and 13) | Marshall Islands | March | Marshall Islands | 5,576 | May-04 | Sep-14 | - |
| 9 | Jabor Shipping Company Inc. (Notes 5 and 13) | Marshall Islands | Great | Marshall Islands | 5,576 | Apr-04 | Oct-14 | - |
| 10 | Meck Shipping Company Inc. | Marshall Islands | Rotterdam | Marshall Islands | 6,494 | Jul-08 | Sep-15 | - |
| 11 | Langor Shipping Company Inc. | Marshall Islands | Hamburg | Marshall Islands | 6,494 | Mar-09 | Nov-15 | - |
| Vessel Owning Subsidiaries - Sold Vessels |
| 12 | Kapa Shipping Company Inc. (Note 5) | Marshall Islands | Angeles | Marshall Islands | 4,923 | Dec-06 | Apr-15 | Nov-16 |
| 13 | Utirik Shipping Company Inc. (Note 5) | Marshall Islands | Doukato | Marshall Islands | 3,739 | Feb-02 | Feb-12 | Jun-17 |
| Other Subsidiaries |
| 14 | Unitized Ocean Transport Limited | Marshall Islands | Management company | - | - | - | - |
| 15 | Container Carriers (USA) LLC | Delaware - USA | Company's US representative | - | - | - | - |
| a/a | Company | Place of Incorporation | Vessel | Flag | Capacity | Date built | Date acquired | Date sold |
| Vessel Owning Subsidiaries - Aframax Tanker Vessels |
| 1 | Taburao Shipping Company Inc. (Notes 3, 5) | Marshall Islands | Blue Moon | Marshall Islands | 104,623 DWT | Sep-11 | Aug-19 | - |
| 2 | Tarawa Shipping Company Inc. (Notes 3, 5) | Marshall Islands | Briolette | Marshall Islands | 104,588 DWT | Apr-11 | Nov-19 | - |
| 3 | Rongelap Shipping Company Inc. (Notes 3, 4 and 14 (c)) | Marshall Islands | P. Fos (ex Virgo Sun) | Marshall Islands | 115,577 DWT | Mar-07 | Jan-20 | - |
| Vessel Owning Subsidiaries - Panamax Container Vessels |
| 4 | Rongerik Shipping Company Inc. | Marshall Islands | Domingo | Marshall Islands | 3,739 TEU | Mar-01 | Feb-12 | - |
| Vessel Owning Subsidiaries - Post-Panamax Container Vessels |
| 5 | Meck Shipping Company Inc. (Note 14 (d)) | Marshall Islands | Rotterdam | Marshall Islands | 6,494 TEU | Jul-08 | Sep-15 | Apr-20 |
| Vessel Owning Subsidiaries - Sold Container Vessels |
| 6 | Utirik Shipping Company Inc. | Marshall Islands | Doukato | Marshall Islands | 3,739 TEU | Feb-02 | Feb-12 | Jun-17 |
| 7 | Delap Shipping Company Inc. | Marshall Islands | March | Marshall Islands | 5,576 TEU | May-04 | Sep-14 | Mar-18 |
| 8 | Jabor Shipping Company Inc. | Marshall Islands | Great | Marshall Islands | 5,576 TEU | Apr-04 | Oct-14 | Mar-18 |
| 9 | Likiep Shipping Company Inc. | Marshall Islands | Sagitta | Marshall Islands | 3,426 TEU | Jun-10 | Jun-10 | Apr-18 |
| 10 | Orangina Inc. | Marshall Islands | Centaurus | Marshall Islands | 3,426 TEU | Jul-10 | Jul-10 | May-18 |
| 11 | Eluk Shipping Company Inc. | Marshall Islands | Puelo | Marshall Islands | 6,541 TEU | Nov-06 | Aug-13 | Jun-18 |
| 12 | Langor Shipping Company Inc. | Marshall Islands | Hamburg | Marshall Islands | 6,494 TEU | Mar-09 | Nov-15 | Jul-18 |
| 13 | Dud Shipping Company Inc. (Note 5) | Marshall Islands | Pamina | Marshall Islands | 5,042 TEU | May-05 | Nov-14 | Oct-19 |
| 14 | Oruk Shipping Company Inc. (Note 5) | Marshall Islands | Pucon | Marshall Islands | 6,541 TEU | Aug-06 | Sep-13 | Nov-19 |
| Other Subsidiaries |
| 15 | Container Carriers (USA) LLC | Delaware - USA | Company's US representative | - | - | - | - |
| 16 | Unitized Ocean Transport Limited | Marshall Islands | Management company | - | - | - | - |
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Until
Container Carriers (USA) LLC ("Container Carriers"), was established in July 2017 and November 2017, the Company was also the sole owner of all outstanding shares of Nauru Shipping Company Inc., owner of the vessel "Hanjin Malta", and of Lemongina Inc., owner of the vessel "Garnet", respectively. Following the disposal of the vessels in 2015 and 2016, both ship-owning companies were dissolved in 2017 and accordingly, they are no longer consolidated2014 in the financial statementsState of Delaware, USA, to act as the Company.Company's authorized representative in the United States.
Unitized Ocean Transport Limited (the "Manager"“Manager” or "UOT"“UOT”), was established for the purpose of providing the Company and its vessels with management and administrative services, effective March 1, 2013. The fees payable to UOT pursuant to the respective management and administrative agreements are eliminated in consolidation as intercompany transactions.
Container Carriers (USA) LLC ("Container Carriers"
Upon delivery of the tanker vessels “Blue Moon” and “Briolette” in 2019 (Note 5), the Company appointed Maersk Tankers A/S (“Maersk Tankers”),was established an unaffiliated entity, to provide management services to these vessels for a certain period of time. For 2019, management fees to Maersk Tankers amounted to $142 and are included in July 2014Management fees, and commissions to Maersk Tankers amounted to $42 and are included in Voyage expenses in the Stateaccompanying consolidated statements of Delaware, USA, operations. As at December 31, 2019, there was an amount of $512 due from Maersk Tankers, which is included in Prepaid expenses and other assets in the accompanying consolidated balance sheet. Furthermore, in late December 2019, the Company appointed Diana Wilhelmsen Management Limited (“DWM”), an affiliated until February 2020 entity, to act asprovide management services to the Company’s container vessels “Rotterdam” and “Domingo” (Note 3).
Until March 2018, Wilhelmsen Ship Management LTD, an unaffiliated third party, provided management services to the laid-up vessels of the Company's authorized representativefleet for a fixed monthly fee for each vessel. The fees payable to Wilhelmsen Ship Management LTD amounted to $62 and $697 for the years ended December 31, 2018 and 2017, respectively, and are included in Vessel operating expenses in the United States.accompanying consolidated statements of operations.
During 2017, 20162019, 2018 and 2015,2017, charterers that accounted for more than 10% of the Company'sCompany’s voyage and hire revenues, were as follows:
| Charterer | | | 2017 | | | 2016 | | | 2015 | |
| A | | | - | | | | 34 | % | | | 25 | % |
| B | | | 18 | % | | | - | | | | 24 | % |
| C | | | - | | | | 22 | % | | | 11 | % |
| D | | | - | | | | - | | | | 10 | % |
| E | | | - | | | | - | | | | 13 | % |
| F | | | 24 | % | | | - | | | | - | |
| G | | | 35 | % | | | 11 | % | | | - | |
| | | | | | | | | | | | | | | |
| Charterer | | 2019 | | 2018 | | 2017 |
| A - Containers' segment | | 31% | | 29% | | - |
| B - Containers' segment | | - | | - | | 18% |
| C - Containers' segment | | 10% | | 32% | | 24% |
| D - Containers' segment | | 16% | | 19% | | 35% |
| E - Containers' segment | | 11% | | - | | - |
| F - Tankers' segment | | 13% | | - | | - |
| | | | | | | |
2. | F-8
PERFORMANCE SHIPPING INC. Notes to Consolidated Financial Statements December 31, 2019 (Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
2. Recent Accounting Pronouncements and Significant Accounting Policies
Recent Accounting Pronouncements Not Yet Adopted Financial Instruments - Credit Losses (Topic 326): In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard, including the codification improvements issued in November 2018, requires entities to measure all expected credit losses of financial assets held at a reporting date based on historical experience, current conditions, and reasonable and supportable forecasts in order to record credit losses in a more timely manner. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In November 2018, FASB issued ASU 2018-19, Codification Improvements to topic 326, Financial Instruments-Credit Losses. The amendments in this update clarify that operating lease receivables are not within the scope of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842. For public entities, the amendments of this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has assessed all the expected credit losses of its financial assets and the adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments Credit Losses, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments, the amendments of which clarify the modification of accounting for available for sale debt securities excluding applicable accrued interest, which must be individually assessed for credit losses when fair value is less than the amortized cost basis. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326)—Targeted Transition Relief, which is the final version of Proposed Accounting Standards Update 2019-100—Targeted Transition Relief for Topic 326, Financial Instruments—Credit Losses, which has been deleted. This Update provides entities with an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for certain financial assets upon the adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. The effective date and transition requirements for the amendments in these Updates are the same as the effective dates and transition requirements in Update 2016-13, as amended by these Updates. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements. Fair Value Measurement (Topic 820): In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement, which improves the effectiveness of fair value measurement disclosures. In particular, the amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments in the Update apply to all entities that are required under existing GAAP, to make disclosures about recurring and non-recurring fair value measurements. ASU No. 2018-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements. PERFORMANCE SHIPPING INC. Notes to Consolidated Financial Statements December 31, 2019 (Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Consolidation (Topic 810): In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810)—Targeted Improvements to Related Party Guidance for Variable Interest Entities”. The Board is issuing this Update in response to stakeholders’ observations that Topic 810, Consolidation, could be improved in the following areas: i) applying the variable interest entity (VIE) guidance to private companies under common control, ii) considering indirect interests held through related parties under common control for determining whether fees paid to decision-makers and service providers are variable interests. The amendments in this Update improve the accounting for those areas, thereby improving general purpose financial reporting. ASU No. 2018-17 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. All entities are required to apply the amendments in this Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements. Significant Accounting Policies and Recent Accounting Pronouncements |
(a)Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Diana ContainershipsPerformance Shipping Inc. and its wholly-owned subsidiaries referred to in Note 1 above. All significant intercompany balances and transactions have been eliminated upon consolidation. Under Accounting Standards Codification ("ASC"(“ASC”) 810 "Consolidation"“Consolidation”, the Company consolidates entities in which it has a controlling financial interest, by first considering if an entity meets the definition of a variable interest entity ("VIE") for which the Company is deemed to be the primary beneficiary under the VIE model, or if the Company controls an entity through a majority of voting interest based on the voting interest model. The Company evaluates financial instruments, service contracts, and other arrangements to determine if any variable interests relating to an entity exist. The Company'sCompany’s evaluation did not result in an identification of variable interest entities as of December 31, 20172019 and 2016.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2017
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(b)Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(c)Other Comprehensive Income / (loss)(Loss): The Company follows the provisions of Accounting Standard Codification (ASC) 220, "Comprehensive Income"“Comprehensive Income”, which requires separate presentation of certain transactions, which are recorded directly as components of stockholders'stockholders’ equity. The Company presents Other Comprehensive Income / (Loss) in a separate statement according to ASU 2011-05.
(d)Foreign Currency Translation: The functional currency of the Company is the U.S. Dollar because the Company operates its vessels in international shipping markets, and therefore, primarily transacts business in U.S. Dollars. The Company'sCompany’s accounting records are maintained in U.S. Dollars. Transactions involving other currencies during the years presented are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities which are denominated in other currencies are translated into U.S. Dollars at the period-end exchange rates. Resulting gains or losses are reflected separately in the accompanying consolidated statements of operations.
(e)Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits, certificates of deposit and their equivalents with an original maturity of three months or less to be cash equivalents.
(f)Restricted Cash:Restricted cash, when applicable, includes minimum cash deposits required to be maintained under the Company'sCompany’s borrowing arrangements. The comparative amounts in the accompanying 2017 consolidated statements of cash flows have been reclassified due to the changes in the current presentation of restricted cash following the adoption as of January 1, 2018, of the ASU No. 2016-18 -Statement of Cash Flows - Restricted Cash.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(g)Accounts Receivable, Trade: The account includes receivables from charterers for hire and freight, demurrage billings andnet of any provision for any deducted bunkers costs relating to the next period.doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts. No provision for doubtful accounts has been made as of December 31, 20172019 and 2016.2018.
(h)Inventories: Inventories consist of lubricants and victualling which are stated at the lower of cost or net realizable value. Cost is determined by the first in, first outfirst-in, first-out method. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventories may also consist of bunkers when the vessel operates under freight charter or when on the balance sheet date a vessel has been redelivered by her previous time charterers and has not yet been delivered to new charterers, or remains idle. Bunkers are also stated at the lower of cost or net realizable value and cost is determined by the first in, first out method.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2017
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(i)Prepaid/Deferred Charter Revenue: The Company records identified assets or liabilities associated with the acquisition of a vessel at their relative fair value, determined by reference to market data. The Company values any asset or liability arising from the market value of the time charters assumed when a vessel is acquired. The amount to be recorded as an asset or liability at the date of vessel delivery is based on the difference between the current fair market value of the charter and the net present value of future contractual cash flows. In determining the relative fair value, when the present value of the contractual cash flows of the time charter assumed is different than its current fair value, the difference, capped to the excess between the acquisition cost and the vessel's fair value on a charter free basis, is recorded as prepaid charter revenue or as deferred revenue, respectively. Such assets and liabilities, respectively, are amortized as a reduction of, or an increase in, revenue over the period of the time charter assumed.
(j)Vessel Cost: Vessels are stated at cost which consists of the contract price and costs incurred upon acquisition or delivery of a vessel from a shipyard. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessels; otherwise, these amounts are charged to expense as incurred.
(k)(j) Vessel Depreciation:The Company depreciates containershipits vessels on a straight-line basis over their estimated useful lives, after considering the estimated salvage value. Each vessel'svessel’s salvage value is the product of her light-weight tonnage and estimated scrap rate, which is estimated at $0.35 per light-weight ton for allthe tanker and the container vessels in the fleet. Management estimates the useful life of the Company'sCompany’s tanker and container vessels to be 25 and 30 years, respectively, from the date of initial delivery from the shipyard. Second-hand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. When regulations place limitations on the ability of a vessel to trade on a worldwide basis, the vessel'svessel’s useful life is adjusted at the date such regulations are adopted.
(l)(k) Impairment of Long-Lived Assets: The Company follows ASC 360-10-40 "Impairment“Impairment or Disposal of Long-Lived Assets"Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company reviews vessels for impairment whenever events or changes in circumstances (such as market conditions, obsolesce or damage to the asset, potential sales and other business plans) indicate that the carrying amount of a vessel may not be recoverable. When the estimate of future undiscounted net operating cash flows, excluding interest charges, expected to be generated by the use of the vessel over her remaining useful life and her eventual disposition is less than her carrying amount, the Company evaluates the vessel for impairment loss. MeasurementThe measurement of the impairment loss is based on the fair value of the vessel. The fair value of the vessel is determined based on management estimates and assumptions and by making use of available market data and third partythird-party valuations. The Company evaluates the carrying amounts and periods over which vessels are depreciated to determine if events have occurred which would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, management reviews certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. The current conditions in the containershipsshipping market with decreased charter rates and decreased vessel market values are conditions that the Company considers indicators of a potential impairment. In developing estimates of future undiscounted cash flows, the Company makes assumptions and estimates about the vessels' future performance, with the significant assumptions being related to charter rates, fleet utilization, vessels' operating expenses, vessels' residual value, and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. The Company also takes into account factors such as the vessels'vessels’ age and employment prospects under the then current market conditions and determines the future undiscounted cash flows considering its various alternatives, including sale possibilities existing for each vessel as of the testing dates.
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The Company determines undiscounted projected net operating cash flows for each vessel and compares it to the vessel'svessel’s carrying value. The projected net operating cash flows are determined by considering the historical and estimated vessels'vessels’ performance and utilization, the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalentrate for the unfixed days (based, to the extent applicable, on the most recent 10 year average historical 6-12 months' time charter rates available for each type of vessel, considering also current market rates) over the remaining estimated life of each vessel, net of commissions, expected outflows for scheduled vessels'vessels’ maintenance and vessel operating expenses assuming an average annual inflation rate of 3.5%.rate. Effective fleet utilization is assumed to 98% in the Company'sCompany’s exercise, if vessel not laid-up, taking into account the period(s) each vessel is expected to undergo her scheduled maintenance (dry docking and special surveys), as well as an estimate of 1% off hireoff-hire days each year, assumptions in line with the Company'sCompany’s historical performance.performance and its expectations for future fleet utilization under its fleet employment strategy. The review of the vessel'svessel’s carrying amounts in connection with the estimated recoverable amounts for 2017, 20162019, 2018 and 20152017 indicated impairment charges for certain of the Company'sCompany’s vessels, which are separately reflected in the accompanying consolidated statements of operations (Note 5).
(m)(l) Assets held for sale: It is the Company's policy to dispose of vessels and other fixed assets when suitable opportunities occur and not necessarily keep them until the end of their useful life. The Company classifies assets or assets in disposal groups as being held for sale in accordance with ASC 360-10-45-9 "Long-Lived Assets Classified as Held for Sale", when the following criteria are met: (i) management possessing the necessary authority has committed to a plan to sell the asset (disposal group); (ii) the asset (disposal group) is immediately available for sale on an "as is" basis; (iii) an active program to find the buyer and other actions required to execute the plan to sell the asset (disposal group) have been initiated; (iv) the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year; and (v) the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value and 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. In case a long-lived asset is to be disposed of other than by sale (for example, by abandonment, in an exchange measured based on the recorded amount of the nonmonetary asset relinquished, or in a distribution to owners in a spinoff) the Company continues to classify it as held and used until its disposal date. Long-lived assets or disposal groups classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These assets are not depreciated once they meet the criteria to be held for sale. The review of the related criteria for the year ended December 31, 2017 resulted2019 and 2018 did not result in held for sale classification for any of the Company’s vessels, however, on September 30, 2019, on June 30, 2018, and March 31, 2018, the Company has classified certain of the Company'sits vessels (Notes 5 and 13)as held for sale (Note 5).
(n)(m) Accounting for Voyage and Time-Charter Revenues and Related Expenses: RevenuesSince the Company’s vessels are generatedemployed under time and voyage charter contracts, the Company disaggregates its revenue from time charter agreements. Time charter agreementscontracts with the same charterer are accounted for as separate agreements according to the terms and conditions of each agreement. Time-charter revenues are recorded over the term of the charter as service is provided. Revenues from time charter agreements providing for varying annual rates over their term are accounted for on a straight line basis. Deferred revenue, if any, includes cash received prior to the balance sheet date for which all criteria for recognition as revenue would not be met, including any deferred revenue resulting from charter agreements providing for varying annual rates, which are accounted for on a straight line basis.
Voyage expenses, primarily consisting of port, canal and bunker expenses that are unique to a particular charter, are paid forcustomers by the charterer under timetype of charter arrangements, except for commissions, which are paid for by the Company. All voyage(time charters and vessel operating expenses are expensed as incurred, except for commissions. Commissions are deferred over the related charter period to the extent revenue has been deferred since commissions are due as revenues are earned.spot charters).
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The Company has determined that all of its time charter agreements contain a lease and are therefore accounted for as operating leases in accordance with ASC 842. Time charter revenues are accounted for over the term of the charter as the service is provided. Vessels are chartered when a contract exists and the vessel is delivered (commencement date) to the charterer, for a fixed period of time, at rates that are generally determined in the main body of charter parties and the relevant voyage expenses burden the charterer (i.e. port dues, canal tolls, pilotages and fuel consumption). Upon delivery of the vessel, the charterer has the right to control the use of the vessel (under agreed prudent operating practices) as they have the enforceable right to: (i) decide the delivery and redelivery time of the vessel; (ii) arrange the ports from which the vessel shall pass; (iii) give directions to the master of the vessel regarding vessel's operations (i.e. speed, route, bunkers purchases, etc.); (iv) sub-charter the vessel and (v) consume any income deriving from the vessel's charter. Any off-hires are recognized as incurred. The charterer may charter the vessel with or without owner's crew and other operating services. In the case of time charter agreements, the agreed hire rates include compensation for part of the agreed crew and other operating services provided by the owner (non-lease components). The Company, as a lessor, elected to apply the practical expedient which allowed it to account for the lease and the non-lease components of time charter agreements as one, as the criteria of the paragraphs ASC 842-10-15-42A through 42B are met. Time-charter revenue is usually received in advance, and as such, unearned revenue represents cash received prior to the balance sheet date for which related service has not been provided.
Spot, or voyage charter is a charter where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified freight rate per ton, regardless of time to complete. The Company has determined that under voyage charters, the charterer has no right to control any part of the use of the vessel. Thus, the Company’s voyage charters do not contain lease and are accounted for in accordance with ASC 606. More precisely, the Company satisfies its single performance obligation to transfer cargo under the contract over the voyage period. Thus, revenues from voyage charters on the spot market are recognized ratably from the date of loading (Notice of Readiness to the charterer, that the vessel is available for loading) to discharge date of cargo (loading-to-discharge). Voyage charter payments are due upon discharge of the cargo. Demurrage revenue, which is included in voyage revenues, represents charterers’ reimbursement for any potential delays exceeding the allowed lay time as per charter party agreement, represents form of variable consideration and is recognized as the performance obligation is satisfied. The Company has taken the practical expedient not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
As discussed above, under a time charter specified voyage costs, such as bunkers and port charges are paid by the charterer, while commissions are paid by the Company. Under spot charter arrangements, voyage expenses that are unique to a particular charter are paid for by the Company. Commissions are expensed as incurred. Voyage expenses that qualify as contract fulfillment costs (mainly consisting of bunkers expenses and port dues) and are incurred by the Company from the latter of the end of the previous vessel employment, provided that the vessel is fixed, or from the date of inception of a voyage charter contract until the arrival at the loading port, are capitalized to Deferred Voyage Expenses and amortized ratably over the total transit time of the voyage (loading-to-discharge). Vessel voyage expenses that do not qualify as contract fulfillment costs, operating expenses, and charter hire expenses are expensed when incurred.
In 2018, all Company’s vessels (which were exclusively container vessels) were operating under time-charter contracts, and accordingly trade accounts receivable and deferred revenue balances of December 31, 2018 and revenues and voyage expenses of 2018 were derived solely from time-charter contracts. Since August 2019, following the acquisition of tanker vessels, the Company recognizes revenue and related voyage expenses for two types of charters, time charters and spot charters as described above. As of December 31, 2019, Accounts receivable trade from spot charters amounted to $3,985 and Accounts receivable trade from time-charter amounted to $700. For 2019, Revenues from spot charters amounted to $6,224 and Revenues from time-charters amounted to $20,622, while Voyage expenses from spot charters amounted to $2,461 and Voyage expenses from time-charters amounted to $986.
(o)Earnings / (n) Earnings/(Loss) per Common Share: Basic earnings / earnings/(loss) per common share are computed by dividing net income / (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings / earnings/(loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(p)(o) Segmental Reporting: The Company has determined that it operates under onetwo reportable segment,segments, one relating to its operations of the tanker vessels and one to the operations of the container vessels. TheFor both segments, the Company reports financial information and evaluates the operations of the segmenttwo segments by charter revenues and not by the length of ship employment for its customers, i.e. spot 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,Management, including the chief operating decision maker,decision-maker, reviews operating results solely by revenue per day and operating results of the fleet.two fleets. 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 geographic information is impracticable. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements.
(q)(p) Accounting for Dry-Docking Costs: The Company follows the deferral method of accounting for dry-docking costs whereby actual costs incurred are deferred and amortized on a straight-line basis over the period through the date the next dry-docking will be scheduled to become due. Unamortized dry-docking costs of vessels that are sold are written off and included in the calculation of the resulting gain or loss in the year of the vessel'svessel’s sale. Unamortized dry-docking costs of vessels classified as held for sale are written off as impairment charges when these vessels’ carrying values are impaired as a result of their classification. The unamortized dry-docking cost is reflected in Deferred Charges, net, in the accompanying consolidated balance sheets. Amortization of dry-docking costs for 2017, 20162019, 2018 and 20152017 amounted to $744, $657$389, $518 and $385,$744, respectively, and is reflected in Depreciation and amortization of deferred charges, in the accompanying consolidated statement of operations. In addition, in 2019, $117 and $598 of deferred dry-dock costs have been written off in Loss / (Gain) on vessels’ sale and in Impairment losses, respectively, due to the respective vessels’ sale or due to their classification as held for sale during the year. Similarly, in 2018 and 2017, $832 and $0, respectively, of deferred dry-dock costs have been written-off in Loss / (Gain) on vessels’ sale in the accompanying consolidated statements of operations.
(r)(q) Financing Costs and Liabilities: Fees paid to lenders for obtaining new loans or refinancing existing ones are deferred and recorded as a contra to debt, in accordance with ASU 2015-13: Interest-Imputation of Interest.debt. Other fees paid for obtaining loan facilities not used at the balance sheet date are capitalized as deferred financing costs. Fees are amortized to interest and finance costs over the life of the related debt using the effective interest method and, for the fees relating to loan facilities not used at the balance sheet date, according to the loan availability terms. Discount premiums (Notes 4 and 6)(Note 3) are accounted for similar to other financing fees. Unamortized fees relating to loans repaid or refinanced as debt extinguishment are expensed as interest and finance costs in the period the repayment or extinguishment is made. Loan commitment fees are charged to expense in the period incurred. A loan liability is derecognisedderecognized when the Company pays the creditor and is relieved of its obligation for the liability. The difference between the settlement price and the net carrying amount of the debt being extinguished (which includes any deferred debt issuance costs) is recognized as a gain or loss in the statement of operations.
(s)(r) Repairs and Maintenance: All repair and maintenance expenses including underwater inspection expenses are expensed in the period incurred. Such costs are included in vesselVessel operating expenses in the accompanying consolidated statements of operations.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2017
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(t)Share Based(s) Share-Based Payment: The Company issues restricted share awards which are measured at their grant date fair value and are not subsequently re-measured. That cost is recognized under the straight-line method over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). When the service inception date precedes the grant date, the Company accrues the compensation cost for periods before the grant date based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost is adjusted to reflect the cumulative effect of measuring compensation cost based on the fair value at the grant date. Forfeitures of awards are accounted for when and if they occur. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(u)(t) Fair Value Measurements: The Company follows the provisions of ASC 820 "Fair Value Measurements and Disclosures", which defines fair value and provides guidance for using fair value to measure assets and liabilities. The guidance creates a fair value hierarchy of measurement and describes fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. In accordance with the requirements of accounting guidance relating to Fair Value Measurements, the Company classifies and discloses its assets and liabilities carried at the fair value in one of the following categories:
| ·1. | Level 1: Quoted market prices in active markets for identical assets or liabilities; |
| ·2. | Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data; |
| ·3. | Level 3: Unobservable inputs that are not corroborated by market data. |
(v)(u) Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and trade accounts receivable. The Company places its temporary cash investments, consisting mostly of deposits, with various qualified financial institutions and performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company'sCompany’s investment strategy. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers'customers’ financial condition and generally does not require collateral for its accounts receivable and does not have any agreements to mitigate credit risk.
(w)(v) Going Concern: The Company's policy is in accordance with ASU No. 2014-15, "Presentation of Financial Statements - Going Concern", issued in August 2014 by the FASB. ASU 2014-15 provides U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and on related required footnote disclosures. For each reporting period, management is required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued (Note 3).issued.
(w) Evaluation of purchase transactions: When the Company enters into an acquisition transaction, it determines whether the acquisition transaction was the purchase of an asset or a business based on the facts and circumstances of the transaction. In accordance with ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, if substantially all of the fair value of the gross assets acquired in an acquisition transaction are concentrated in a single identifiable asset or group of similar identifiable assets, then the set is not a business. To be considered a business, a set must include an input and a substantive process that together significantly contributes to the ability to create an output. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. For asset acquisitions, the cost of the acquisition is allocated to individual assets and liabilities on a relative fair value basis. Acquisition costs associated with business combinations are expensed as incurred. Acquisition costs associated with asset acquisitions are capitalized.
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Recent Accounting Pronouncements Not Yet Adopted
(a)In May 2014, FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers", clarifying the method used to determine the timing and requirements for revenue recognition on the statements of income. Under the new standard, an entity must identify the performance obligations in a contract, the transaction price and allocate the price to specific performance obligations to recognize the revenue when the obligation is completed. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flow arising from contracts. In August 2015, FASB issued ASU No. 2015-14 "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 for all entities by one year. The standard will be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. In May and April 2016, the FASB issued two Updates with respect to Topic 606: ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" and ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients." The Company has evaluated the impact of the standard after reviewing historical contracts and has determined that all of the Company's agreements are considered leases. Certain non-lease components which are required to be assessed according to this standard, may only affect presentation and disclosures and not the way revenue is recognized.
(b)In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. The Company is analyzing the impact of the adoption of this guidance on the Company's consolidated financial statements, including assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting.
(c)In June 2016, the FASB issued ASU No. 2016-13– Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For public entities, the amendments of this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted. The Company is in the process of assessing the impact of the amendment of this Update on the Company's consolidated financial position and performance.
(d)In August 2016, the FASB issued ASU No. 2016-15- Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments which addresses the following eight specific cash flow issues with the objective of reducing the existing diversity in practice: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period, however early adoption is permitted. The Company will adopt the standard in the first quarter of 2018 and preliminarily expects that the adoption of the new standard will have no material impact on its consolidated financial statements and notes disclosures.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2017
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(e)In November 2016, the FASB issued ASU No. 2016-18—Statement of Cash Flows (Topic 230) - Restricted Cash which addresses the requirement that a statement of cash flows explain 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 included3. Transactions with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period, however early adoption is permitted. The Company will adopt the standard in the first quarter of 2018 and preliminarily expects that the adoption of the new standard will have no material impact on its consolidated financial statements and notes disclosures.
(f)In May 2017, the FASB issued ASU 2017-09, "Compensation — Stock Compensation (Topic 718), Scope of Modification Accounting" ("ASU 2017-09"), which clarifies and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. ASU 2017-09 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, however early adoption is permitted. The Company does not expect that the adoption of ASU 2017-09 will have a material effect in the Company's financial statements.
(g)In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception, (ASU 2017-11). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and related disclosures.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2017
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
As of December 31, 2016, and thereafter, due to the significant decline in the market value of its vessels, following the prolonged weak charter market conditions, the Company was not in compliance with certain financial covenants, as well as with the minimum required security cover ("hull cover ratio") under its then existing loan agreement with the Royal Bank of Scotland plc (or "RBS"). Due to these technical breaches of the covenants as of December 31, 2016, the Company had classified the long-term portion of its bank debt in current liabilities (Note 6), thus resulting in a reported working capital deficit of $106,988. Given the prolonged market downturn in the containerships segment and the continued depressed outlook on charter rates and vessels' market values, the Company had estimated that cash on hand and cash provided by operating activities could be insufficient to cover its liquidity needs that would become due within one year after the date that the financial statements were issued. The above conditions raised substantial doubts about the Company's ability to continue as a going concern.
On March 22, 2017, the Company announced an up to $150,000 securities offering through the sale of 3,000 newly-designated Series B-1 convertible preferred shares, preferred warrants to purchase 6,500 Series B-1 convertible preferred shares and preferred warrants to purchase 140,500 newly-designated Series B-2 convertible preferred shares. In 2017, the Company received $32,500 of gross proceeds from the sale of preferred shares and exercise of preferred warrants. Furthermore, on June 30, 2017, the Company repaid to RBS an amount of $85,000 as full and final settlement of its loan obligation and the loan agreement was terminated (Note 6). The repayment of the loan was partially funded with $10,000 from the Company's own cash, with $40,000 from a refinance of the Company's existing loan with Diana Shipping Inc. (or "DSI") (Note 4) and with $35,000 from a new loan agreement with Addiewell LTD (or "Addiewell"), an unrelated party (Note 6).
The loans with Addiewell and DSI mature on December 31, 2018, and are classified as current in the accompanying consolidated balance sheets. Consequently, the Company reported at December 31, 2017 a working capital deficit of $73,215. Based on the current performance of the containerships market and the available cash on hand, the Company expects that cash on hand and cash from operating activities will not be sufficient to cover its liquidity needs that become due within one year after the date that the financial statements are issued. The above conditions raise substantial doubt about the Company's ability to continue as a going concern.
Since December 31, 2017, the Company further received $7,500 of gross proceeds from the sale of preferred shares and exercise of preferred warrants (Note 13) and 110,000 warrants remain currently outstanding. In addition, in October 2017, the Company, through its subsidiaries, contracted to sell the vessels "March" and "Great" for a gross purchase price of $11,000 for each vessel (Notes 5 and 13), with expected delivery to the new owners by the end of March 2018. The two vessels have been classified as held for sale in the accompanying consolidated balance sheets. Furthermore, in February 2018, the Company, through one of its subsidiaries, contracted to sell the vessel "New Jersey" to an unrelated party for demolition, which was delivered to the new owners on March 12, 2018 and the Company received the sale price of $9,379, net of commissions to the buyers. The proceeds were used by the Company to partially repay the existing indebtedness (Note 13). Finally, in February 2018, the Company, through its subsidiaries, also contracted to sell the vessels "Sagitta" and "Centaurus" to unrelated parties for a gross sale price of $12,300 for each vessel, with expected delivery to the new owners by the end of April 2018 (Note 13).The Company is also exploring several alternatives aiming to manage its working capital requirements, including potential sales of additional vessels, seeking for more favorable chartering opportunities or a combination thereof.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2017
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Management believes that the Company's plans to manage its working capital requirements will be successful, and as a result the consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Accordingly, they do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.
4. | Transactions with Related Parties |
(a) Altair Travel Agency S.A ("Altair"(“Altair”): The Company uses the services of an affiliated travel agent, Altair, which is controlled by the Company'sCompany’s CEO and Chairman of the Board. Travel expenses for 2019, 2018 and 2017, 2016,were $428, $554 and 2015, were $672, $864 and $1,120 respectively, and are included in OperatingVessel operating expenses, in General and administrative expenses, and in Gain / (Loss)Loss/(Gain) on vessel'svessels’ sale in the accompanying consolidated statementstatements of operations. As at December 31, 20172019 and 2016,2018, an amount of $21$8 and $3,$4, respectively, was payable to Altair and is included in Due to related parties current in the accompanying consolidated balance sheets.
(b) Steamship Shipbroking Enterprises Inc. ("(“Steamship Shipbroking"Shipbroking”): Steamship Shipbroking, (formerly "Diana Enterprises Inc."), a company controlled by the Company'sCompany’s CEO and Chairman of the Board, providesprovided, until March 1, 2020 brokerage services to DCI,the Company, pursuant to a Brokerage Services Agreement for a fixed fee. Subsequent to the balance sheet date, the agreement with Steamship Shipbroking was early terminated at no cost (Note 14 (g)).
For 2017, 20162019, 2018 and 2015,2017, total brokerage fees and bonuses to Steamship Shipbroking amounted to $2,100, $2,005$2,145 and $1,451$2,100 respectively, and are included in General and administrative expenses in the accompanying consolidated statements of operations. As at December 31, 20172019 and 20162018, there was no amount due from or due to Steamship Shipbroking, and an amount of $420 and $140,$465, respectively, has been accrued for in connection with bonuses approved to Steamship Shipbroking (Note 13) and is included in Accrued liabilities in the accompanying consolidated balance sheets.
(c) Diana Shipping Inc. ("DSI"(“DSI”): The amounts of related party loans shown in the accompanying consolidated balance sheets are analyzed as follows:
| | | 2017 | | | Current | | | Non-current | | | 2016 | | | Current | | | Non-current | |
| | | | | | | | | | | | | | | | | | | |
| Diana Shipping Inc - Term Loan | | $ | 82,617 | | | $ | 82,617 | | | $ | - | | | $ | 45,417 | | | $ | - | | | $ | 45,417 | |
| plus other fees payable to the lenders | | | 2,292 | | | | 2,292 | | | | - | | | | 200 | | | | - | | | | 200 | |
| less unamortized deferred financing costs | | | (77 | ) | | | (77 | ) | | | - | | | | - | | | | - | | | | - | |
| Related party financing, net of unamortized deferred financing costs | | $ | 84,832 | | | $ | 84,832 | | | $ | - | | | $ | 45,617 | | | $ | - | | | $ | 45,617 | |
OnIn May 20, 2013, the Company through its subsidiary Eluk Shipping Company Inc., entered into an unsecured loan agreement of up to $50,000 with Diana Shipping Inc.,DSI, which was subsequently amended in 2015, 2016 and 2017. In May 2017, as discussed in Note 8, the Company issued 100 shares of its then newly-designated Series C Preferred Stock to be used to fund vessel acquisitions andDSI, in exchange for general corporate purposes.a reduction of $3,000 in the principal amount of the Company's then outstanding loan. Later, in June 2017, the Company refinanced the then existing loan for an amount of $87,617, including a $5,000 interest-bearing discount premium, which was payable at maturity in 2018. The loan, which was guaranteedsecured over all of the Company’s vessels owned as of the date of refinancing, was gradually repaid in full up to July 2018, together with the discount premium, and thus the loan agreement was terminated. The weighted average interest rate of the DSI loan during 2018 and 2017 was 6.12% and 5.42%, respectively. For 2018 and 2017, interest expense incurred under the loan agreements with DSI amounted to $2,054 and $3,656 respectively, while the discount premium amortization amounted to $2,708 and $2,292, respectively. Interest expense and discount premium amortization are included in Interest and finance costs in the accompanying consolidated statements of operations. Subsequent to the balance sheet date, the Company re-purchased and cancelled all Series C Preferred Stock (Note 14 (j)).
(d)$21,000 Investment by the Company’s CEO and Chairman: In June and November 2019, under two separate transactions, the Company acquired the entities Taburao Shipping Company Inc., Tarawa Shipping Company Inc., and Rongelap Shipping Company Inc., which were affiliated with the Company’s CEO and Chairman, Mr. Symeon Palios, for an aggregate purchase price of $21,000. Prior to their acquisition by the Company, each of the three newly-acquired entities had signed contracts to purchase an Aframax tanker vessel each, the “Blue Moon”, the “Briolette” and until the amendments discussed below, it bore interest“P. Fos” (ex “Virgo Sun”) from unaffiliated third-party sellers for a purchase price of $30,000, $30,000 and $26,000 respectively, and had paid advance deposits of $8,000, $2,000 and $11,000, respectively. The Company, in exchange for the aforementioned entities’ acquisition, agreed to pay a price equal to the aggregate deposits previously paid to the vessels’ sellers. The $10,000 aggregate purchase price for the previously signed contracts of the “Blue Moon” and the “Briolette” was paid in Company’s common shares at a rateper share price of LIBOR plus a margin of 5.0% per annum and a fee of 1.25% per annum ("back-end fee") on any amounts repaid upon any repayment or voluntary prepayment dates. In August 2013, the full amount was drawn down under the loan agreement$1.05, which was repayablethe undiscounted closing price of the Company’s common stock on August 20, 2017.the NASDAQ stock exchange on June 7, 2019. The $11,000 purchase price for the previously signed contract of the “P. Fos” (ex “Virgo Sun”) was also paid in Company’s common shares at a per share price of $0.9027, which was the undiscounted closing price of the Company’s common stock on the NASDAQ stock exchange on November 18, 2019. Both transactions, which were unanimously approved by the disinterested members of the board of directors of the Company, resulted in the issuance of an aggregate number of 21,709,474 common shares during 2019.
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
On September 9, 2015,
The “Blue Moon” and the “Briolette” were delivered to the Company charter-free in relation with The Royal Bank of Scotland plc ("RBS") refinance discussed in Note 6,August and November 2019, respectively, and the loan agreement with DSI was amended. The maturityCompany paid the remaining balance of the loan agreement was extended until March 15, 2022, provided for annual repayments of $5,000, plus a balloon instalment atpurchase price through bank financing and cash on hand (Notes 5 and 6). The vessel “P. Fos ” (ex “Virgo Sun”) has been delivered to the final maturity date,Company in January 2020 and bore interest at LIBOR plus margin of 3.0% per annum. The Company also agreed to pay at the datebalance of the amendmentpurchase price payable under the accumulated back-end fee, amounting to $1,302,contract of $15,000 was funded through bank financing and that no additional back-end fee would be charged thereafter. Furthermore,cash on hand (Notes 4, 6, 7 and 14 (c)).
(e) Diana Wilhelmsen Management Limited (“DWM”): In late December 2019, the Company agreedappointed DWM to pay atprovide management services to the final maturity datecontainer vessels “Rotterdam” and “Domingo”. DWM was deemed a flat fee of $200. Furthermore, on September 12, 2016 and in relation withrelated party to the RBS amended loan agreement discussed in Note 6, the loan agreement with DSI was amended again. The loan was undertaken by Kapa Shipping Company Inc. and its repayment was immediately suspended and would not recommence until the later of: (i) September 15, 2018 and (ii) until the deferred trancheresignation of certain of the RBS supplemental agreement was fully repaidCompany’s BOD members and officers (Note 14 (f)), on June 15, 2021 or prepaid. Finally, the margin was revised to 3.35% per annumbasis that, until December 31, 2018, thereafter reverting to 3.0% per annum until maturity.
On May 30, 2017, the Company issued 100 shares of its newly-designated Series C Preferred Stock, par value $0.01 per share, to DSI, in exchange for a reduction of $3,000 in the principal amountFebruary 2020, members of the Company's outstanding loan, thus leaving an outstanding principal balanceCompany’s management and board of $42,417 (Note 8).
On June 30, 2017, the Company refinanced its then existing unsecured loan facility with DSI. The principal amountdirectors also acted as board of the new secured loan is $82,617 and includes the $42,417 outstanding principal balance as of June 30, 2017, increased by the flat fee of $200 which was payabledirectors members at maturity, and an additional $40,000, which was drawnDWM. For 2019, management fees to partially repay the Company's existing loan with RBS (Note 6). The new DSI loan matures on December 31, 2018, however the lenders have the option to request for full repayment after twelve months from the initial drawing. The loan also provides for an additional $5,000 interest-bearing "discount premium", which is payable at maturity, but will be permanently waived and cancelled, in case the lenders exercise their option for full repayment within twelve months from drawing, subject to the terms of the intercreditor agreement with Addiewell Ltd (Note 6). The discount premium is recognized in Interest and Finance costs throughout the life of the loan and in Related party financing, net of unamortized deferred financing costs. Moreover, the specific loan is subordinated to the Addiewell loan (Note 6), is secured by second priority mortgages over all the Company's containerships, bears interest at the rate of 6% per annum for the first twelve months scaled to 9% per annum for the next three months and further scaled to 12% per annum for the remaining three months until maturity, includes financial and other covenants which stipulate the repayment with proceeds from the sale of assets of the Company, proceeds from the issuance of new equity and proceeds from the exercise of existing warrants to purchase the Company's Series B Convertible Preferred Shares (Note 8) and prohibits the payment of dividends.
The weighted average interest rate of the DSI loan during 2017 and 2016 was 5.42% and 3.58%, respectively.For 2017, 2016 and 2015, total interest expense and other fees incurred under the loan agreements with DSIDWM amounted to $5,948, $1,692$5 and $2,745, respectively, and isare included in Interest and finance costs“Management fees” in the accompanying consolidated statements of operations. As at December 31, 2016,2019, there was no amount due from or due to DWM.
| 4. | Advances for Vessel Acquisitions and Other Vessels’ Costs |
As discussed in Note 3, in November 2019, the flat feeCompany acquired for a purchase price of $200 is included$11,000 the entity Rongelap Shipping Company Inc., whose sole asset was a contract to acquire the tanker vessel “P. Fos” (ex “Virgo Sun”) for a total price of $26,000. The delivery of the vessel took place subsequent to the balance sheet date, in Related partyJanuary 2020, and the Company paid the remaining $15,000 of the vessels’ MOA price through cash on hand and debt financing, non-current,as the Company drew down an amount of $14,000 from Nordea, pursuant to the respective amended and restated loan agreement terms (Notes 6, 7 and 14).
As at December 31, 2018, there were no advances for vessels’ acquisitions and other vessels’ costs. As at December 31, 2019, the amount presented in the accompanying consolidated balance sheets. Accrued interestsheets represents solely the advance deposits and other costs capitalized in connection with the prospective acquisition of the tanker vessel “P. Fos” (ex “Virgo Sun”), in accordance with the Company’s accounting policy, and is analyzed as follows:
| | | December 31, 2019 | | | December 31, 2018 | |
| Advances for vessel acquisitions | | $ | 11,000 | | | $ | - | |
| Capitalized costs | | | 17 | | | | - | |
| Total | | $ | 11,017 | | | $ | - | |
5. Vessels, net
Vessel acquisitions
In 2019, the Company acquired the tanker vessels “Blue Moon” and “Briolette”, for an aggregate purchase price of December 31, 2017$60,000. The Company had acquired in June 2019 from its’ CEO and 2016Chairman the entities Taburao Shipping Company Inc. and Tarawa Shipping Company Inc., whose sole assets were the contracts to acquire the specific vessels (Note 3). The vessels were delivered to the Company in August and November 2019, respectively, and aggregate pre-delivery costs capitalized amounted to $44 and $102, respectively, and is included in Due to related parties, current in the accompanying consolidated balance sheets.$161.
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
5. | Vessels and Vessels held for sale |
Vessels' disposalsVessels’ impairment
In May2019, 2018 and 2017, the Company, through Utirik Shipping Company Inc., enteredtaking into a memorandum of agreement to sell the vessel "Doukato" to an unrelated party, for a sale price of $6,027, net of commissions. In March 2016, the Company, through Nauru Shipping Company Inc., sold the vessel "Hanjin Malta", to an unrelated party for demolition, for a sale price of $4,842, net of commissions. Later in November of the same year, the Company, through Kapa Shipping Company Inc., sold the vessel "Angeles" to an unrelated party for demolition, for a sale price of $6,448, net of commissions. The aggregate gain from the sale of vessels, including direct to sale expenses, in 2017 amounted to $945, while the aggregate loss from the sale of vessels, including direct to sale expenses, in 2016 and 2015, amounted to $2,899 and $8,300, respectively, and are separately reflected in (Gain) / Loss on vessels' sale in the accompanying consolidated statements of operations.
Vessels held for sale
In October 2017, the Company entered into an agreement to sell up to seven of its vessels to an unrelated party. Since the sale of the vessels was subject to the purchaser obtaining certain minimum financing, under various amendments to the initial agreement, the transaction concluded that only two of the Company's vessels would be sold, the "March" and the "Great", for a gross purchase price of $11,000 for each vessel. The deliveries of the vessels to the new owners are expected to take place by the end of March 2018 (Note 13). The Company intends to use the net proceeds from the sales to repay indebtedness under its existing credit agreements. As a result of this transaction, both vessels were classified on December 31, 2017 in current assets as held for sale, according toaccount the provisions of ASC 360, as all criteria required for this classification were met. No impairment charge was recognized for the specific two vessels in the accompanying consolidated statement of operations, since their carrying amount as at the balance sheet date was lower than their fair value, less cost to sell.
Vessels' Impairment
In 2017, 2016 and 2015 the Company, after taking into account factors such as the vessels'vessels’ age and employment prospects under the then current market conditions, determined the future undiscounted cash flows for each of its vessels, considering its various alternatives, including sale possibilities. This assessment concluded thatDuring 2019, 2018 and 2017, the carrying value of three, two and two vessels, respectively, was impaired as a result of their classification as “held for sale” or as a result of the Company’s impairment exercise. More specifically, during 2019 an impairment loss of $17,434 was recognized in 2017, seven vessels in 2016,connection with the classification of vessel “Pucon” as held for sale on the September 30, 2019 balance sheets, and one vessel in 2015 was not recoverable and accordingly, the Company has recognized an aggregate impairment loss of $8,363, $118,861,$14,195 was recognized for the vessels ”Pamina” and $6,607,“Rotterdam” that were classified on the June 30, 2019, and December 31, 2019 balance sheets, respectively, which is separately reflected inas held and used, as the accompanying statements of operations.Company’s impairment exercise concluded that their carrying value was not recoverable. The vessels were measured at fair value on a non-recurring basis as a result of the vesselsCompany’s impairment test exercise or their “held for sale” classification and their fair value was determined through Level 2 inputs of the fair value hierarchy as determined by management, making also use of available market data for the market value of vessels with similar characteristics. The vessels were measured at fair value on a non-recurring basis as a result of the management's impairment test exercise. The aggregate fair value of the impaired vessels as of the testing dates was $47,393 in 2019, $29,074 in 2018 and $20,050 in 2017.
In aggregate, in 2019, 2018 and 2017, $59,900the impairment loss recognized by the Company amounted to $31,629, out of which $598 are unamortized dry-dock costs (Note 2 (k),(p)), $20,654 and $8,363, respectively, and is separately reflected in 2016the accompanying consolidated statements of operations.
Vessel disposals
In August and $5,020September 2019, the Company, through two of its subsidiaries, entered into two memoranda of agreement to sell the container vessels “Pamina” and “Pucon” to unrelated parties for an aggregate gross price of $29,340. The “Pamina” and the “Pucon” were delivered to their new owners in 2015.October and November 2019, respectively, and the Company received aggregate proceeds of $28,868, net of expenses, in accordance with the terms of the contracts. From October 2017 to May 2018, the Company, through seven of its subsidiaries, entered into memoranda of agreement to sell the container vessels “March”, “Great”, “New Jersey”, “Sagitta”, “Centaurus”, “Puelo” and “Hamburg” to unrelated parties. All seven vessels were delivered to their new owners during 2018, and the Company received aggregate proceeds of $92,905, net of expenses.
For 2019 and 2018, the aggregate loss from the sale of vessels, including direct to sale expenses, amounted to $127 and $16,700, respectively, while for 2017 the respective gain, net of direct to sale expenses, amounted to $945. The amounts are separately reflected in Loss/(Gain) on vessels’ sale in the accompanying consolidated statements of operations.
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The amounts of Vessels, net in the accompanying consolidated balance sheets are analyzed as follows:
| | | Vessels' Cost | | | Accumulated Depreciation | | | Net Book Value | | | Vessels' Cost | | | Accumulated Depreciation | | | Net Book Value | |
| | | | | | | | | | | |
| Balance, December 31, 2015 | | $ | 421,903 | | | $ | (37,354 | ) | | $ | 384,549 | | |
| - Capitalized costs | | | 194 | | | | - | | | | 194 | | |
| Balance, December 31, 2017 | | | $ | 247,327 | | | $ | (46,019 | ) | | $ | 201,308 | |
| - Vessels' disposals | | | (16,245 | ) | | | 2,728 | | | | (13,517 | ) | | (121,249 | ) | | 30,853 | | | (90,396 | ) |
| - Depreciation | | | - | | | | (12,013 | ) | | | (12,013 | ) | | - | | | (4,388 | ) | | (4,388 | ) |
| - Impairment charges | | | (118,861 | ) | | | - | | | | (118,861 | ) | | | (20,654 | ) | | | - | | | | (20,654 | ) |
| Balance, December 31, 2016 | | $ | 286,991 | | | $ | (46,639 | ) | | $ | 240,352 | | |
| Balance, December 31, 2018 | | | $ | 105,424 | | | $ | (19,554 | ) | | $ | 85,870 | |
| - Acquisitions and other vessels' costs | | | 60,161 | | | - | | | 60,161 | |
| - Vessels' disposals | | | (9,951 | ) | | | 5,001 | | | | (4,950 | ) | | (40,553 | ) | | 11,677 | | | (28,876 | ) |
| - Transfer to vessels held for sale | | | (21,350 | ) | | | 2,972 | | | | (18,378 | ) | |
| - Depreciation | | | - | | | | (7,353 | ) | | | (7,353 | ) | | - | | | (3,253 | ) | | (3,253 | ) |
| - Impairment charges | | | (8,363 | ) | | | - | | | | (8,363 | ) | | | (31,031 | ) | | | - | | | | (31,031 | ) |
| Balance, December 31, 2017 | | $ | 247,327 | | | $ | (46,019 | ) | | $ | 201,308 | | |
| Balance, December 31, 2019 | | | $ | 94,001 | | | $ | (11,130 | ) | | $ | 82,871 | |
As at December 31, 2017, all2019, the Company'sCompany’s container vessels including those classified as held for sale, were unencumbered, whereas the tanker vessels “Blue Moon” and “Briolette”, having an aggregate net book value of $59,421, have been provided as collateral to secure the new loan facilitiesfacility with Addiewell and DSI, discussed in Notes 4 and 6.Nordea (Note 6).
6. | Bank and Other
6. Long-Term Debt |
The amountsamount of bank and otherlong-term debt shown in the accompanying consolidated balance sheets areis analyzed as follows:
| | | 2017 | | | Current | | | Non-current | | | 2016 | | | Current | | | Non-current | |
| | | | | | | | | | | | | | | | | | | |
| The Royal Bank of Scotland plc - Term Loan | | $ | - | | | $ | - | | | $ | - | | | $ | 128,861 | | | $ | 128,861 | | | $ | - | |
| Addiewell LTD - Term Loan | | | 8,500 | | | | 8,500 | | | | - | | | | - | | | | - | | | | - | |
| plus other fees payable to the lenders | | | 3,718 | | | | 3,718 | | | | - | | | | 200 | | | | 200 | | | | - | |
| less unamortized deferred financing costs | | | (99 | ) | | | (99 | ) | | | - | | | | (1,932 | ) | | | (1,932 | ) | | | - | |
| Bank and other debt, net of unamortized deferred financing costs | | $ | 12,119 | | | $ | 12,119 | | | $ | - | | | $ | 127,129 | | | $ | 127,129 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | | Current | | | Non-current | | | December 31, 2018 | | | Current | | | Non-current | |
| | | | | | | | | | | | | | | | | | | |
| Nordea term loan | | $ | 32,481 | | | $ | 4,340 | | | $ | 28,141 | | | $ | - | | | $ | - | | | $ | - | |
| less unamortized deferred financing costs | | | (198 | ) | | | (58 | ) | | | (140 | ) | | | - | | | | - | | | | - | |
| Total debt, net of deferred financing costs | | $ | 32,283 | | | $ | 4,282 | | | $ | 28,001 | | | $ | - | | | $ | - | | | $ | - | |
(a)The RoyalNordea Bank of Scotland plc ("RBS"Abp, Filial i Norge (“Nordea”) – Term Loan: On September 10, 2015,July 24, 2019, the Company, through nine of its subsidiaries,Taburao Shipping Company Inc. and Tarawa Shipping Company Inc. (the “Initial Borrowers”), entered into a loan agreement with RBSNordea for a senior secured term loan facility of up to $148,000,$33,000. The purpose of the loan facility was to re-financepartially finance the acquisition cost of seventhe tanker vessels “Blue Moon” and “Briolette”, discussed in Note 5. An arrangement fee of $330 was paid on signing the Company's vessels, including the full prepayment of the previous facilityloan agreement, and to supportcommitment commissions of 0.9625% per annum were calculated on the acquisitionundrawn amounts from the date of signing the two newly acquired vessels,loan agreement until the "Hamburg"drawdown dates. In July and November 2019, the "Rotterdam". Until December 31, 2015, the CompanyInitial Borrowers drew down the fullmaximum amount of the loan and paid arrangement and structuring fees amounting to $1,875.
The loan, until its amendment discussed below, bore interest at the rate of 2.75% per annum over LIBOR and was“Blue Moon” tranche is repayable in 20 quarterly instalmentsinstallments of $518.6 and a balloon paymentof $6,128 payable together with the last installment, while the “Briolette” tranche is repayable in September 2021. The Company paid commitment commissions19 quarterly installments of 1.375% per annum$566.2 and a balloon of $5,742.2 payable together with the last installment. Both tranches mature on the undrawn amounts, from July 30, 2015, the date2024 and bear interest at LIBOR plus a margin of acceptance of the lenders' offer letter, until the drawdown dates.
The loan was secured by first preferred mortgages on nine vessels of the Company's fleet, first priority deeds of assignments of insurances, earnings, charter rights and requisition compensation and a corporate guarantee. The loan agreement also contained customary financial covenants, minimum security value of the mortgaged vessels, required minimum liquidity of $500 per vessel in the fleet and restricted cash of $9,000 to be deposited by the borrowers with the lenders for the duration of the loan. There were also restrictions as to changes in the loan agreement with DSI and in certain shareholdings and management of the vessels. Finally, the Company was not permitted to pay any dividends that would result in a breach of the financial covenants.
On September 12, 2016, the Company entered into an amendment of its loan agreement with RBS, according to which the Company prepaid an amount of $7,607 and agreed to change the repayment schedule and recommence repaying the principal on September 15, 2017. Moreover, the loan amendment provided for changes to the borrowers and to the mortgaged vessels and required an amendment to the loan agreement with DSI (Note 4). It also prohibited the incurrence of additional indebtedness and the acquisition of additional vessels until September 15, 2018, and the payment of dividends until the later of: (a) prepayment or repayment in full on June 15, 2021 of the deferred tranche of $8,851, which was created out of the reallocation of amounts due under the existing tranches, and (b) September 15, 2018. Furthermore, the minimum security covenant ("hull cover ratio") was reduced from 140% to 125% until September 30, 2018, certain financial covenants were amended while the application of others was deferred to 2019, and the interest rate margin increased from 2.75% per annum to 3.10% per annum until December 31, 2018. Finally, the Company paid an amendment fee of $150 at the signing of the agreement and an additional fee of $200 was payable on December 31, 2018.
As of December 31, 2016 and thereafter, due to a significant decline in the market value of its vessels, the Company was not in compliance with two financial covenants, as well as with the required covenant for the minimum required security cover ("hull cover ratio"). Due to these technical breaches in its loan covenants, the Company has classified its bank debt as of December 31, 2016 in current liabilities. Accordingly, the loan balance and the loan-related fees have been reclassified to Bank and other debt, net of unamortized deferred financing costs and the restricted cash under the facility has been reclassified to Restricted cash, current in the accompanying consolidated balance sheet of December 31, 2016.
On June 30, 2017, the Company signed a Settlement Agreement with RBS, whereby it repaid an amount of $85,000 as full and final settlement of the loan obligation. The then outstanding principal balance was $128,861 and the settlement resulted in a net gain of $42,185 for the Company, which is reflected in Gain from bank debt write off in the accompanying consolidated statements of operations and includes the gain from the write off of the principal balance and other fees due to the lenders, net of the unamortized deferred financing costs write off and other costs incurred in connection with the transaction. The repayment of the loan was partially funded by $10,000 from the Company's own cash, $40,000 from the DSI loan refinance as discussed in Note 4 and $35,000 from the new Addiewell loan, discussed under (b) below.
The weighted average interest rate of the RBS loan during 2017 and 2016 was 4.17% and 3.52%, respectively. For 2017, 2016 and 2015, total interest expense incurred in connection with the RBS loan, amounted to $2,688, $4,902 and $3,541, respectively, and is included in Interest and finance costs in the accompanying consolidated statements of operations. Commitment fees for 2017, 2016 and 2015, amounted to $0, $0 and $329, respectively, and are also included in Interest and finance costs in the accompanying consolidated statements of operations. Accrued interest as of December 31, 2017 and 2016 amounted to $0 and $247, respectively, and is included in Accrued liabilities in the accompanying consolidated balance sheets.annum.
DIANA CONTAINERSHIPSPERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(b)Addiewell Ltd ("Addiewell") – Loan Facility:
On June 30, 2017,December 23, 2019, the Company, partially fundedthrough the refinancing of the RBS loan“Initial Borrowers” and Rongelap Shipping Company Inc. (collectively “the Borrowers”), discussed under (a) above, with proceeds under entered into a new secured loan facility with Addiewell Ltd., an unaffiliated third party, in the amount of $35,000. The loan matures on December 31, 2018, however the lenders have the option to request for full repayment after twelve months from the initial drawing. The loan also provides for an additional $10,000 interest-bearing "discount premium", which is also payable at maturity, but will be permanently waivedfirst amendment and cancelled in case the lenders exercise their option for full repayment within twelve months from drawing. The discount premium is recognized in Interest and Finance costs throughout the life of the loan and in Bank and other debt, net of unamortized deferred financing costs. Moreover, the loan, which ranks senior to therestatement loan agreement with DSI (Note 4)Nordea for a senior secured term loan facility of up to $47,000. The purpose of the amended agreement is to provide additional finance of up to $14,000 for the acquisition of the tanker vessel “P. Fos” (ex “Virgo Sun”), discussed in Note 4, and in all other respects includes identical terms to the initial agreement. Subsequent to the balance sheet date, the Company drew down the maximum amount of $14,000 to support the acquisition of the vessel “P. Fos” (ex “Virgo Sun”). Also subsequent to the balance sheet date, the Company entered into the second amendment and restatement loan agreement with Nordea to fund the acquisition of the vessel “P. Kikuma” (ex “FSL Shanghai”)(Note 14 (c), (i)).
The loan is guaranteed by Performance Shipping Inc., is secured by first priority mortgages over all the Company's containerships, bears interest atfinanced tanker vessels, first priority assignments of earnings, insurances and of any charters exceeding durations of two years, pledge over the rate of 6% per annum for the first twelve months scaled to 9% per annum for the next three monthsborrowers’ shares and further scaled to 12% per annum for the remaining three months until maturity. Finally, the newover their earnings accounts, and vessels’ managers’ undertakings. The loan facility includes financial and other covenants which stipulate the repaymentagreement requires a minimum hull value of the financed vessels, imposes restrictions as to dividend distribution following the occurrence of an event of default and changes in shareholding, includes customary financial covenants and requires minimum cash liquidity of $7,000 at all times during the facility with proceeds fromperiod plus $1,000 per additional tanker vessel acquired. As at December 31, 2019, the sale of assets ofcompensating cash balance required under the loan agreement amounted to $7,000 and is included in Cash and cash equivalents in the accompanying consolidated balance sheets. As at December 31, 2019, the Company proceeds from the issuance of new equity and proceeds from the exercise of existing warrants to purchase the Company's Series B Convertible Preferred Shares (Note 8), and prohibits the payment of dividends. During 2017, the Company prepaid $26,500was in compliance with all of its outstanding loan balance, according to the respective terms of the loan agreement.covenants.
The weighted average interest rate of the Addiewell loan during
For 2019, 2018 and 2017, was 6%. For 2017, total interest expense and discount premium amortization incurredon long-term debt in connection with the above-described loan agreement with Nordea and the terminated loan agreements with Addiewell loan,Ltd (“Addiewell) and the Royal Bank of Scotland (“RBS”) amounted to $4,803,$416, $247 and is$3,773, respectively, discount premium amortization amounted to $0, $6,282 and $3,718, respectively, while commitment fees amounted to $55, $0 and $0, respectively. Interest expense, discount premium amortization, and commitment fees are included in Interest and finance costs in the accompanying consolidated statementsstatement of operations. Accrued interest as of December 31, 20172019 and 2018, amounted to $9$8 and $0, respectively, and is included in Accrued liabilities in the accompanying consolidated balance sheets. The weighted average interest of the Nordea loan for 2019 was 4.68%, while the weighted average interest of the Addiewell loan for 2018 was 6.00%.
7. | Commitments and Contingencies |
As at December 31, 2019, the maturities of the debt facility described above, are as follows:
| Period | | | | Principal Repayment | |
| | | | | | |
| January 1, 2020 | to | December 31, 2020 | $ | 4,340 | |
| January 1, 2021 | to | December 31, 2021 | | 4,340 | |
| January 1, 2022 | to | December 31, 2022 | | 4,340 | |
| January 1, 2023 | to | December 31, 2023 | | 4,340 | |
| January 1, 2024 | to | July 30, 2024 | | 15,121 | |
| | | Total | $ | 32,481 | |
7. Commitments and Contingencies
(a) Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Company'sCompany’s vessels. Currently, management is not aware of any claims or contingent liabilities, which should be disclosed, or for which a provision should be established and has not in the accompanying consolidated financial statements.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.
The Company'sCompany’s vessels are covered for pollution in the amount of $1 billion per vessel per incident, by the protection and indemnity association ("(“P&I Association"Association”) in which the Company'sCompany’s vessels are entered. The Company'sCompany’s vessels are subject to calls payable to their P&I Association and may be subject to supplemental calls which are based on estimates of premium income and anticipated and paid claims. Such estimates are adjusted each year by the Board of Directors of the P&I Association until the closing of the relevant policy year, which generally occurs within three years from the end of the policy year. Supplemental calls, if any, are expensed when they are announced and according to the period they relate to. The Company is not aware of any supplemental calls outstanding in respect of any policy year.
(b)As discussed in Notes 3 and 4, in November 2019, the Company acquired the subsidiary Rongelap Shipping Company Inc., which had entered into a memorandum of agreement, to acquire the Aframax tanker vessel “P. Fos” (ex “Virgo Sun”). As at December 31, 2017, all our2019, the remaining balance to be paid under the contract was $15,000 and was settled in January 2020 upon vessel’s delivery to the new owners using cash on hand and bank financing (Notes 6 and 14 (c)).
(c) As at December 31, 2019, the Company’s container vessels were operating under time charter agreements, exceptwhich are accounted for oneas per ASC 842 requirements, while the Company’s tanker vessels were on spot voyages, which remained idle.are accounted for as per ASC 606 requirements. The minimum contractual annual charter revenues, net of related commissions to third parties, to be generated from the existing as at December 31, 2017,2019, non-cancelable time charter contracts, are estimated at $8,895$1,080 for the container vessels until December 31, 2018.2020.
F-23(d) The Company rents its office spaces in Greece under various lease agreements with unaffiliated parties. The durations of these agreements vary from a few months to 5 years and certain of these contracts also bear the option for the Company to extend the lease terms for further periods. Under ASC 842, the Company, as a lessee, has classified these contracts as operating leases and accordingly, a lease liability of $190 and an equal right-of-use asset based on the present value of future minimum lease payments for the fixed periods of each contract have been recognized on the December 31, 2019 balance sheet. The monthly rent cost under the existing as of December 31, 2019 lease agreements are $10 (based on the exchange rate of Euro/US Dollar $1.124 as of December 31, 2019) and rent expense is included in General and administrative expenses in the accompanying consolidated statements of operations. The Company has assessed the right of use asset recognized for office leases for impairment and concluded that no impairment charge should be recorded as of December 31, 2019, as no impairment indicators existed.
The following table sets forth the Company’s undiscounted office rental obligations as at December 31, 2019:
| Twelve months period ending December 31, | | Amount | |
| 2020 | | $ | 77 | |
| 2021 | | | 77 | |
| 2022 | | | 57 | |
| 2023 | | | 2 | |
| Total | | $ | 213 | |
| Less imputed interest | | | -23 | |
| Present value of lease liabilities | | $ | 190 | |
| | | | | |
| Lease liabilities, current | | | 72 | |
| Lease liabilities, non- current | | | 118 | |
| Present value of lease liabilities | | $ | 190 | |
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
8. Changes in Capital Accounts
(a)Issuance of Series C Preferred Stock: On May 30, 2017, the Company issued 100 shares of its then newly-designated Series C Preferred Stock, par value $0.01 per share, to DSI, in exchange for a reduction of $3,000 in the principal amount of the Company's then outstanding loan, as described above. The Series C Preferred Stock has no dividend or liquidation rights. The Series C Preferred Stock votes with the common shares of the Company, and each share of the Series C Preferred Stock entitles the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series C Preferred Stock together with its affiliates does not exceed 49.0%, on all matters submitted to a vote of the stockholders of the Company. The issuance of shares of Series C Preferred Stock to DSI was approved by an independent committee of the Board of Directors of the Company, which received a fairness opinion from independent third parties that the transaction was fair from a financial point of view to the Company. As at December 31, 2019 and 2018, the 100 Series C Preferred Stock remained outstanding. Subsequent to the balance sheet date, the Company re-purchased from Diana Shipping Inc. the 100 Series C Preferred Shares for a purchase price of $1,500 and consequently cancelled them (Note 14 (j)).
(b) Receipt of NASDAQ Notices: On January 15, 2019, the Company announced that it has received written notification from The NASDAQ Stock Market LLC (“NASDAQ”) dated January 10, 2019, indicating that because the closing bid price of the Company's common stock for 30 consecutive business days was below the minimum $1.00 per share bid price requirement for continued listing on the NASDAQ Global Select Market, the Company was not in compliance with NASDAQ Listing Rule 5450(a)(1). The Company regained compliance on April 4, 2019, and thus cured this deficiency within the prescribed grace period.
On September 11, 2019, the Company announced that it has received written notification from The NASDAQ dated September 6, 2019, indicating that because the closing bid price of the Company's common stock for 30 consecutive business days was below the minimum $1.00 per share bid price requirement for continued listing on the NASDAQ Global Select Market, the Company was not in compliance with NASDAQ Listing Rule 5450(a)(1). The applicable grace period to regain compliance was until March 4, 2020. The Company, to cure this deficiency within the prescribed grace period, has initiated in January 2020 a Share Repurchase Program, as per the terms described under c) below and as discussed in Note 14 (a). Moreover, on March 6, 2020 the Company’s securities were transferred to Nasdaq Capital Market and the Company was granted an additional grace period of 180 days to cure the bid price deficiency (Note 14 (h)).
(c) Share Repurchase Program: On January 9, 2019, the Company had announced that its Board of Directors authorized a share repurchase program to purchase up to an aggregate of $6,000 of the Company’s common shares. The timing and amount of any repurchases would be determined by the Company’s management team and would depend on market conditions, capital allocation alternatives, applicable securities laws, and other factors. The Board of Directors’ authorization of the repurchase program was effective immediately and would expire on December 21, 2019. Common shares repurchased as part of this program would be cancelled by the Company. No shares had been repurchased under the specific program, which expired on December 21, 2019.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
8. | Changes in Capital Accounts |
(a)Reverse Stock Splits: During 2016
Subsequent to the balance sheet date, the Company’s Board of Directors re-authorized a share repurchase program to purchase up to an aggregate of $6,000 of the Company’s common shares and 2017,up to the date that these financial statements are issued, a number of common shares have been repurchased and cancelled by the Company effected six reverse stock splits of its common shares, each which was approved by the Company's shareholders. More specifically, the Company effected: (i) on June 9, 2016, a one-for-eight reverse stock split, which was approved by shareholders at the Company's 2016 Annual Meeting of Shareholders held on February 24, 2016; (ii) on July 5, 2017, a one-for-seven reverse stock split; on July 27, 2017, a one-for-six reverse stock split; on August 24, 2017, a one-for-seven reverse stock split; and on September 25, 2017, a one-for-three reverse stock split, each which was approved by shareholders at the Company's 2017 Annual Meeting of Shareholders held on June 29, 2017; and (iii) on November 2, 2017, a one-for-seven reverse stock split, which was approved by shareholders at the Company's Special Meeting of Shareholders held on October 26, 2017. No fractional shares were issued in connection with the reverse splits. Shareholders who would otherwise hold fractional shares of the Company's common stock received a cash payment in lieu of such fractional share. All share and per share amounts disclosed in the accompanying consolidated financial statements give effect to these six reverse stock splits retroactively and thus affect all periods presented.(Note 14 (a)).
(b)(d) Issuance of Series B Preferred Stock and Warrants to purchase Series B Preferred Stock: On March 21, 2017, the Company completed a registered direct offering of (i) 3,000 newly-designated Series B-1 convertible preferred shares, par value $0.01 per share, and common shares underlying such Series B-1 convertible preferred shares, and (ii) warrants to purchase 6,500 of Series B-1 convertible preferred shares, 6,500 of Series B-1 convertible preferred shares underlying such warrants, and common shares underlying such Series B-1 convertible preferred shares. Concurrently with the registered direct offering, the Company completed an offering of warrants to purchase 140,500 of Series B-2 convertible preferred shares in a private placement, in reliance on Regulation S under the Securities Act. The securities in the registered direct offering and private placement were issued and sold to Kalani Investments Limited (or "Kalani"“Kalani”), an entity not affiliated with the Company, pursuant to a Securities Purchase Agreement. In connection with the private placement, the Company entered into a Registration Rights Agreement with Kalani, pursuant to which the investor was granted certain registration rights with respect to the securities issued and sold in the private placement. The Series B convertible preferred shares arewere convertible at any time at the option of the holder into common shares at an initial conversion price of $7.00 per common share, provided that a certain minimum trading volumebased on specific terms of the Company's common shares on the conversion date is met. At the option of Kalani, the preferred stock may be alternatively converted into common shares at a per share price equal to the higher of (i) 92.25% of the lowest daily volume weighted average price on any trading day during the 5 consecutive trading day period ending on and including the conversion date and (ii) $0.50. Kalani may elect to convert the preferred stock into shares of common stock at the conversion price or alternate conversion price then in effect, at any time. The Series B preferred warrants are exercisable into Series B convertible preferred shares at any time at the option of the holder thereof at an exercise price of $1,000 per Series B convertible preferred share.agreements.
The Company in its assessment for the accounting of the Series B-1 and B-2 convertible preferred shares has taken into consideration ASC 480 "Distinguishing liabilities from equity" and determined that the preferred shares should be classified as equity instead of liability. The Company further analysedanalyzed key features of the preferred shares to determine whether these are more akin to equity or to debt and concluded that the Series B-1 and B-2 convertible preferred shares are equity-like. In its assessment, the Company identified certain embedded features, examined whether these fall under the definition of a derivative according to ASC 815 applicable guidance or whether certain of these features affected the classification. Derivative accounting was deemed inappropriate and thus no bifurcation of these features was performed.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2017
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Upon exercise of the warrants, the holder iswas entitled to receive preferred shares. ASC 480 "Distinguishing liabilities from equity" requires that a warrant which contains an obligation that may require the issuer to redeem the shares in cash, be classified as a liability and accounted for at fair value. The Company determined that the fair value of the warrants at inception and at December 31, 2017 is2018, was immaterial. As at December 31, 2017, 117,5002018, 100,010 warrants remained outstanding. On March 24, 2019, the Series B-2 Preferred Warrants that were exercisable for Series B-2 Preferred Shares expired, in accordance with their terms.
In 2019, 2018 and 2017, the Company received grossnet equity proceeds, after deducting offering expenses payable by the Company, of $3,000 from the sale$6,452, $17,413 and $31,989, respectively. In 2019, an aggregate of the 3,000 Series B-1 convertible preferred shares. Also, 29,5006,470 preferred warrants were exercised during the period for the sale of an equal number of Series B-1 and Series B-2 preferred shares and the Company received for thesein aggregate, 5,220 Series B convertible preferred shares $29,500 of gross proceeds untilwere converted to 7,100,510 common shares, thus leaving 1,500 Series B convertible preferred shares outstanding as at December 31, 2017. The net proceeds received during2019. Part of the period, after deducting offering expenses payable1,500 outstanding preferred shares was converted to common shares subsequent to the balance sheet date and the remaining preferred shares were re-purchased by the Company amountedand consequently cancelled (Note 14 (b)). In 2018, an aggregate of 17,490 preferred warrants were exercised for the sale of an equal number of preferred shares and in aggregate, 17,529 Series B convertible preferred shares were converted to $31,989. As of10,250,265 common shares, thus leaving 250 Series B convertible preferred shares outstanding as at December 31, 2018. In 2017, from thean aggregate of 32,500 Series B convertible preferred shares were issued, during the period, 32,211 preferred sharesout of which 32,211 were converted to 4,049,733 common shares, andthus leaving 289 Series B convertible preferred shares remained outstanding. Subsequent to the balance sheet date, all outstanding preferred shares were converted to common shares (Note 13).
(c)Issuance of Series C Preferred Stock: On May 30, 2017, the Company issued 100 shares of its newly-designated Series C Preferred Stock, par value $0.01 per share, to DSI, in exchange for a reduction of $3,000 in the principal amount of the Company's outstanding loan, thus leaving an outstanding principal balance of $42,417 at that date (Note 4). The Series C Preferred Stock has no dividend or liquidation rights. The Series C Preferred Stock votes with the common shares of the Company, and each share of the Series C Preferred Stock entitles the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series C Preferred Stock together with its affiliates does not exceed 49.0%, on all matters submitted to a vote of the stockholders of the Company. The issuance of shares of Series C Preferred Stock to DSI was approved by an independent committee of the Board of Directors of the Company, which received a fairness opinion from independent third parties that the transaction was fair from a financial point of view to the Company. As of December 31, 2017, the 100 Series C Preferred Stock remained outstanding.
(d)Compensation cost on restricted common stock: In May 2015, the Company's board of directors approved to adopt the 2015 Equity Incentive Plan, for 101 shares, which as at December 31, 2017 remained reserved2017.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for issuance. Inshare and per share data, unless otherwise stated)
(e) Compensation Cost on Restricted Common Stock: On February 9, 2018, the Company's boardCompany’s Board of directorsDirectors approved an amendment to the 2015 Equity Incentive Plan, to increase the aggregate number of shares issuable under the plan to 550,000 shares (Note 13).
shares. On February 9, 2017,2018, the Company's board of directors approved an award ofCompany issued 161,700 restricted common stock with value $380shares as an award to the executive management and the non-executive directors, pursuant to the Company's Equity Incentive Plan.Company’s Board of Directors’ decision of February 9, 2017. The exactfair value of the award was $380 and the number of shares issued was based on the share closing price of February 9, 2018. One third of the shares vested on February 9, 2018, and the remainder two thirds will vest ratably over two years from the issuance date. As at December 31, 2019, 388,300 restricted common shares remained reserved for issuance under the grantees would be Plan.
Moreover, on February 15, 2018, the Company's Board of Directors approved a one-time award of restricted common stock, which was proposed by the Company's compensation committee, with an aggregate value of $5,000, to the Company's executive officers and non-executive directors, in recognition of the successful refinancing of the Company's RBS loan in 2017. In this respect, a number of 5,747,786 restricted shares were issued on February 15, 2019 and their number was defined based on the share closing price of February 9, 2018, at which time the shares would be issued (Note 13).15, 2019. One third of the shares will vestvested on the issuance date and the remainder two thirds will vest ratably over two years from the next two years.issuance date. In 2018, a compensation cost of $1,464 was recognized in connection with the specific award and is included in General and administrative expenses in the accompanying consolidated statements of operations and in Other liabilities, non-current in the accompanying 2018 consolidated balance sheets, while in February 2019, upon the issuance of the shares, the respective amount has been reclassified from Other liabilities, non-current to Additional paid-in capital in the accompanying 2019 consolidated balance sheets.
During 2019, 2018 and 2017, 2016 and 2015,aggregate compensation cost on restricted stock amounted to $1,171, $1,119$1,791, $1,587 and $928,$1,171 respectively, and is included in General and administrative expenses in the accompanying consolidated statements of operations. At December 31, 20172019 and 2016,2018, the total unrecognized compensation cost relating to restricted share awards was $267$1,889 and $1,058,$3,680, respectively.
During 2019 and 2018, the movement of the restricted stock cost was as follows:
| | | Number of Shares | | | Weighted Average Grant Date Price | |
| Outstanding at December 31, 2017 | | | - | | | $ | - | |
| Granted | | | 161,700 | | | | 2.35 | |
| Vested | | | (53,899 | ) | | | 2.35 | |
| Forfeited or expired | | | - | | | | - | |
| Outstanding at December 31, 2018 | | | 107,801 | | | $ | 2.35 | |
| Granted | | | 5,747,786 | | | | 0.87 | |
| Vested | | | (1,969,827 | ) | | | 0.91 | |
| Forfeited or expired | | | - | | | | - | |
| Outstanding at December 31, 2019 | | | 3,885,760 | | | $ | 0.89 | |
As at December 31, 2019, the weighted-average period over which the total compensation cost related to non-vested awards, as presented above, is expected to be recognized, is 0.62 years.
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
9. | Interest and Finance Costs |
9.Interest and Finance Costs
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Interest expense and other fees on unrelated party debt (Note 6) | | $ | 7,491 | | | $ | 4,902 | | | $ | 3,541 | | | $ | 416 | | | $ | 6,529 | | | $ | 7,491 | |
| Interest expense and other fees on related party debt (Note 4) | | | 5,948 | | | | 1,692 | | | | 2,945 | | |
| Interest expense and other fees on related party debt (Note 3) | | | - | | | 4,762 | | | 5,948 | |
| Amortization of deferred financing costs | | | 322 | | | | 427 | | | | 268 | | | 154 | | | 176 | | | 322 | |
| Commitment fees and other (Note 6) | | | 82 | | | | 73 | | | | 412 | | |
| Commitment fees and other | | | | 81 | | | | 53 | | | | 82 | |
| Total | | $ | 13,843 | | | $ | 7,094 | | | $ | 7,166 | | | $ | 651 | | | $ | 11,520 | | | $ | 13,843 | |
10. | Earnings / (Loss) per Share |
10. Earnings / (Loss) per Share
All common shares issued (including the restricted shares issued under the equity incentive plan)plan, or else) are DCI'sthe Company’s common stock and have equal rights to vote and participate in dividends, subject to forfeiture provisions set forth in the applicable award agreement.agreements. Unvested shares granted under the Company's incentive plan, or else, are entitled to receive dividends which are not refundable, even if such shares are forfeited, and therefore are considered participating securities for basic earnings per share calculation purposes. Dividends declaredFor 2019, 2018 and 2017 the Company did not declare nor paid during 2017, 2016 and 2015 were $0, $374 and $739, respectively.any dividends. The calculation of basic earnings/ (loss) per share does not consider the non-vested shares as outstanding until the time-based vesting restrictions have lapsed. For 2017, the computation of diluted earnings per share reflects the potential dilution from conversion of outstanding preferred convertible stock (Note 8 (b)) calculated with the "if converted" method. No incremental shares were calculated with the treasury stock method for the unexercised warrants to issue preferred convertible shares (Note 8 (b)). For 20162019 and 2015,2018, and on the basis that the Company incurred losses, the effect of the incremental shares assumed issued would have been anti-dilutive, and therefore basic and diluted losses per share is the same amount. For 2017, the computation of diluted earnings per share reflects the potential dilution from conversion of outstanding preferred convertible stock calculated with the “if-converted” method. No incremental shares were calculated with the treasury stock method for the unexercised warrants to issue preferred convertible shares.
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| | | Basic EPS | | | Diluted EPS | | | Basic LPS | | | Diluted LPS | | | Basic LPS | | | Diluted LPS | | | Basic LPS | | | Diluted LPS | | | Basic LPS | | | Diluted LPS | | | Basic EPS | | | Diluted EPS | |
| Net income / (loss) | | $ | 3,819 | | | $ | 3,819 | | | $ | (149,014 | ) | | $ | (149,014 | ) | | $ | (17,531 | ) | | $ | (17,531 | ) | | $ | (32,057 | ) | | $ | (32,057 | ) | | $ | (52,895 | ) | | $ | (52,895 | ) | | $ | 3,819 | | | $ | 3,819 | |
| Net income / (loss) available to common stockholders | | | 3,819 | | | | 3,819 | | | | (149,014 | ) | | | (149,014 | ) | | | (17,531 | ) | | | (17,531 | ) | | | (32,057 | ) | | | (32,057 | ) | | | (52,895 | ) | | | (52,895 | ) | | | 3,819 | | | | 3,819 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 427,333 | | | | 427,333 | | | | 1,478 | | | | 1,478 | | | | 1,471 | | | | 1,471 | | | 28,646,763 | | | 28,646,763 | | | 9,450,555 | | | 9,450,555 | | | 427,333 | | | 427,333 | |
| Effect of dilutive shares | | | - | | | | 28 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 28 | |
| Total shares outstanding | | | 427,333 | | | | 427,361 | | | | 1,478 | | | | 1,478 | | | | 1,471 | | | | 1,471 | | | | 28,646,763 | | | | 28,646,763 | | | | 9,450,555 | | | | 9,450,555 | | | | 427,333 | | | | 427,361 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings / (Loss) per common share | | $ | 8.94 | | | $ | 8.94 | | | $ | (100,821.38 | ) | | $ | (100,821.38 | ) | | $ | (11,917.74 | ) | | $ | (11,917.74 | ) | | $ | (1.12 | ) | | $ | (1.12 | ) | | $ | (5.60 | ) | | $ | (5.60 | ) | | $ | 8.94 | | | $ | 8.94 | |
PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
11.Income Taxes
Under the laws of the countries of the companies'companies’ incorporation and / or vessels'vessels’ registration, the companies are not subject to tax on international shipping income; however, they are subject to registration and tonnage taxes, which are included in vesselVessel operating expenses in the accompanying consolidated statements of operations.operations.
The Company is potentially subject to a four percent U.S. federal income tax on 50% of its gross income derived by from its voyages that begin or end in the United States. However, under Section 883 of the Internal Revenue Code of the United States (the "Code"“Code”), a corporation is exempt from U.S. federal income taxation on its U.S.-source shipping income if: (a) it is organized in a foreign country that grants an equivalent exemption from tax to corporations organized in the United States (an "equivalent exemption"“equivalent exemption”); and (b) either (i) more than 50% of the value of its common stock is owned, directly or indirectly, by "qualified“qualified shareholders,"”, which is referred to as the "50%“50% Ownership Test,"” or (ii) its common stock is "primarily“primarily and regularly traded on an established securities market"market” in the United States or in a country that grants an "equivalent exemption" “equivalent exemption”, which is referred to as the "Publicly-Traded“Publicly-Traded Test."”
The Marshall Islands, the jurisdiction where DCIPerformance Shipping Inc. and each of its vessel-owning subsidiaries are incorporated, grant an "equivalent exemption"“equivalent exemption” to U.S. corporations. Therefore, the Company would be exempt from U.S. federal income taxation with respect to its U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.
Based on the trading and ownership of its stock, the Company believes that it satisfied the Publicly-Traded Test for its 20172019 taxable year and intends to take this position on its 20172019 U.S. federal income tax returns. Therefore, the Company does not expect to have any U.S. federal income tax liability for the year ended December 31, 2017.2019.
12. Financial Instruments and Fair Value Disclosures
The carrying values of temporary cash investments, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. The fair valuevalues of long-term bank loans and restricted cash balances, bearing interest atapproximate the recorded values, due to their variable interest rates, approximate their recorded values as at December 31, 2017rates. The Company is exposed to interest rate fluctuations associated with its variable rate borrowings and 2016.its objective is to manage the impact of such fluctuations on earnings and cash flows of its borrowings. Currently, the company does not have any derivative instruments to manage such fluctuations.
| 13. | Subsequent EventsSegment Reporting |
(a) | Issuance and Conversion of Series B Preferred Shares: Subsequent to the balance sheet date and up to March 14, 2018, the 289 Series B-2 convertible preferred shares outstanding on December 31, 2017 were converted to common stock (Notes 3 and 8). Additionally, the Company received $7,500 of gross proceeds from the exercise of 7,500 Series B-2 preferred warrants to purchase an equal number of Series B-2 convertible preferred shares, which were used to partially repay the Company's existing indebtedness (see (b) below). In aggregate, subsequent to the balance sheet date, 7,493 Series B-2 convertible preferred shares were converted to 2,840,144 common shares, thus leaving 296 Series B-2 convertible preferred shares outstanding on March 14, 2018.
|
(b) | Repayment of loans: Subsequent to the balance sheet date and up to March 14, 2018, the Company repaid $8,500 of the outstanding balance on the Addiewell loan and $8,379 of the outstanding balance on the DSI loan, using the proceeds from equity issuance (see (a) above) and sale of vessels (see (d) below), according to the respective terms of the loan agreements (Notes 4 and 6).
|
The Company has two reportable segments from which it derives its revenues, the tanker vessels segment and the container vessels segment.PERFORMANCE SHIPPING INC.
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 20172019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(c) | Sale of the vessels classified as held for sale: Subsequent to the balance sheet date, the Company received $250 from the buyers of each of the vessels "Great" and "March" (Note 5), and an additional $1,950 for each vessel was placed by the buyers in a joint escrow account, as per the respective terms of the memoranda of agreement. The balance of the purchase price will be collected upon delivery of the vessels to the new owners, which is expected to take place by the end of March 2018.
|
(d) | Sale of vessels: On February 9, 2018, the Company, through Mago Shipping Company Inc, entered into a memorandum of agreement to sell the vessel "New Jersey" to an unrelated party for demolition, for a sale price of $9,379, net of commissions to the buyers. The vessel was delivered to the new owners on March 12, 2018, and the proceeds were used to partially repay the Company's existing indebtedness (see (b) above). Furthermore, on February 28, 2018, the Company, through Likiep Shipping Company Inc., and Orangina Inc., entered into two memoranda of agreement to sell the vessels "Sagitta" and "Centaurus", respectively, to unrelated parties, for a gross sale price of $12,300 for each vessel, and $2,460 was placed by the buyers in a joint escrow account for each vessel, as per the respective terms of the memoranda of agreement. The vessels are expected to be delivered to their new owners by the end of April 2018.
|
(e) | Amendment to the 2015 Equity Incentive Plan: On February 9, 2018, the Company's board of directors approved an amendment to the 2015 Equity Incentive Plan, to increase the aggregate number of shares issuable under the plan to 550,000 shares (Note 8).
|
The table below presents information about the Company’s reportable segments for the period ending December 31, 2019. The accounting policies followed in the preparation of the reportable segments are the same as those followed in the preparation of the Company’s consolidated financial statements.(f) | Determination of restricted stock awards approved in 2017: On February 9, 2018, the Company issued 161,700 restricted common shares as an award to the executive management and the non-executive directors, pursuant to the Company's board of directors' decision of February 9, 2017. The fair value of the award is $380 and the number of shares issued was based on the share closing price of February 9, 2018. One third of the shares vested on February 9, 2018 and the remainder two thirds will vest over the next two years.
|
| | | Tanker vessels | | | Container vessels | | | Total | |
| | | | | | | | | | |
| Revenues from external customers | | $ | 6,224 | | | $ | 20,622 | | | $ | 26,846 | |
| Depreciation and amortization of deferred charges | | | (745 | ) | | | (2,939 | ) | | | (3,684 | ) |
| Impairment losses | | | - | | | | (31,629 | ) | | | (31,629 | ) |
| Loss on vessels' sale | | | - | | | | (127 | ) | | | (127 | ) |
| Interest expense | | | (416 | ) | | | - | | | | (416 | ) |
| Interest income | | | 32 | | | | 226 | | | | 258 | |
| Segment profit / (loss) | | | 142 | | | | (32,199 | ) | | | (32,057 | ) |
| Total assets | | | 81,898 | | | | 48,671 | | | | 130,569 | |
(g) | Restricted stock awards and other bonuses approved in 2018: On February 15, 2018, the Company's board of directors approved an award of restricted common stock, which was proposed by the Company's compensation committee, with an aggregate value of $5,000, to the executive management and the non-executive directors. The exact number of shares to be issued to the grantees will be based on the share closing price of February 15, 2019 and the shares will be issued on that date. One third of the shares will vest on the issuance date and the remainder two thirds will vest over the next two years. In addition, the Company's board of directors approved on February 15, 2018 a bonus of value $420 to Steamship Shipbroking Enterprises Inc., which has been accrued for as of December 31, 2017.
|
14. Subsequent Events
(a)Share Repurchase Program: On January 14, 2020, the Company announced that its Board of Directors authorized a share repurchase program to purchase up to an aggregate of $6,000 of the Company’s common shares. The timing and amount of the repurchases are determined by the Company’s management team and depend on market conditions, capital allocation alternatives, applicable securities laws, and other factors. From inception on January 29, 2020, and until April 9, 2020, the Company has repurchased 452,768 common shares of $365 aggregate gross value. Common shares repurchased as part of this program are cancelled by the Company. The Board of Directors’ authorization of the repurchase program will expire on December 21, 2020.
(b)Conversion of Series B-2 Preferred Shares and Re-purchase and Cancellation of the Company’s Remaining Series B-2 Preferred Shares: Subsequent to the balance sheet date and up to April 6, 2020, 1,100 of the 1,500 Series B-2 convertible preferred shares outstanding on December 31, 2019 (Note 8) were converted to 1,952,152 common shares, thus leaving 400 Series B-2 convertible preferred shares outstanding on April 6, 2020. On April 6, 2020, the Company’s BOD members approved the re-purchase of the Company’s outstanding Series B-2 Preferred Shares, previously issued to “Kalani” (Note 8 (d)), for a purchase price of $400. The Company, on April 7, 2020, entered into an agreement with “Kalani” for the re-purchase of all 400 Series B-2 convertible preferred shares outstanding, paid the purchase price of $400 and consequently cancelled the Series B-2 Preferred Shares.
(c)Loan Drawdown under the First Amendment and Restatement Loan Agreement with Nordea and Vessel’s Delivery: On January 22, 2020, the Company drew down an amount of $14,000 from Nordea to partially finance the acquisition of the tanker vessel “P. Fos” (ex “Virgo Sun”), according to the terms of the first amendment and restatement loan agreement, dated December 23, 2019 (Note 6). The vessel was delivered to the Company on January 27, 2020 (Notes 4 and 7).
(d)Sale of a Container Vessel: On January 24, 2020, the Company, through one of its subsidiaries, contracted to sell to unaffiliated parties the container vessel “Rotterdam”, for a gross sale price of $18,500. The vessel was delivered to her new owners on April 1, 2020 and the Company collected the sale proceeds.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(e)Acquisition of a Tanker Vessel: On February 14, 2020, the Company, through one of its subsidiaries, contracted to acquire from unaffiliated parties the tanker vessel “P. Kikuma” (ex “FSL Shanghai”), for a gross sale price of $26,000. The vessel was delivered to the Company on March 30, 2020 and the Company funded its acquisition with cash on hand and bank financing (see (i) below).
(f)Appointment and Resignation of BOD Members and Executive Officers: On February 18, 2020, the Company’s Annual General Meeting of Shareholders approved the re-election of Mr. Antonios Karavias and the election of Mr. Andreas Nikolaos Michalopoulos as Class I Directors of the Company. Also, effective February 18, 2020, Mr. Anastasios Margaronis, Mr. Nikolaos Petmezas and Mr. Ioannis Zafirakis have resigned from the Company’s Board of Directors due to other business commitments. The Company’s Board of Directors has appointed Mr. Christos Glavanis and Mrs. Aliki Paliou to the Board of Directors, effective as of February 28, 2020, to fill the existing vacancies created by the resignations of Messrs Margaronis and Petmezas. Mr. Glavanis was also appointed as Chairman of the Company’s Compensation Committee. Finally, also effective February 28, 2020, Mr. Anastasios Margaronis has resigned from his position as the Company’s President, Mr. Ioannis Zafirakis has resigned as the Company’s Chief Strategy Officer and Secretary, and Mrs. Semiramis Paliou has resigned as the Company’s Chief Operating Officer, in order to devote substantially all of their business time to other endeavors. On the same date, Mr. Michalopoulos has been appointed as Secretary to replace Mr. Zafirakis. Since October 31, 2019, Mr. Andreas Michalopoulos also holds the position of Deputy Chief Executive Officer.
(g)Termination of Steamship Agreement: On March 1, 2020, the Company terminated the Steamship agreement (Note 3), which was originally due to expire on March 31, 2020, at no cost.
(h)Transfer of the Company’s Common Stock to NASDAQ Capital Market and Bid Price Second Grace Period: On March 5, 2020, NASDAQ approved the Company’s application to list its common stock on the Capital Market and the Company’s securities were transferred to Capital Market at the opening of business on March 6, 2020. Moreover, NASDAQ notified the Company that it has not been able to regain compliance to meet the minimum $1.00 bid price per share requirement until March 4, 2020, as previously notified (Note 8), however, it grants the Company an additional 180 calendar days, until August 31, 2020, in order to regain compliance.
(i)Second Amendment and Restatement Loan Agreement with Nordea: On March 20, 2020, the Company signed a second amendment and restatement loan agreement with Nordea, which increases the maximum loan amount of up to $59,000. The purpose of the amended loan facility is to additionally finance the acquisition cost of the vessel “P. Kikuma” (ex “FSL Shanghai”), described above, by $12,000. The second amendment and restatement loan agreement includes identical terms to the first amendment and restatement loan agreement, dated December 23, 2019. On March 26, 2020 the Company drew down the amount of $12,000 in anticipation of the vessel’s “P. Kikuma” (ex “FSL Shanghai”), delivery (see (e) above).
(j)Re-purchase and Cancellation of the Company’s Series C Preferred Shares: On March 23, 2020, the Company’s disinterested BOD members approved the repurchase of the Company’s 100 Series C Preferred Shares, held by Diana Shipping Inc. since 2017 (Note 8), for a purchase price of $1,500. The Company’s disinterested BOD members had previously received a fairness opinion from an independent third party that the transaction was fair from a financial point of view to the Company. On March 25, 2020, the Company agreed with DSI for the repurchase of the Series C Preferred Shares and on March 26, 2020,the Company paid the agreed purchase price and consequently cancelled the Series C Preferred Shares.
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2019
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(k)Change of the Company’s Ticker Symbol in NASDAQ: Effective March 30, 2020, the Company’s ticker symbol has been changed from “DCIX” to “PSHG”.
(l)Covid-19 Outbreak: On March 11, 2020, the World Health Organization declared the 2019 Novel Coronavirus (the “Covid-19”) outbreak a pandemic. In response to the outbreak, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. The Company’s financial and operating performance may be adversely affected by the recent coronavirus outbreak. Any prolonged restrictive measures in order to control the spread of Covid-19, or other adverse public health developments in Asia or in other geographies in which the Company’s vessels operate may significantly impact the demand for the Company’s vessels. The extent to which Covid-19 will impact the Company’s results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, and accordingly, an estimate of the impact cannot be made at this time.
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