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Registration No. 333-129144
/s/Kevin Peterson | |
Kevin Peterson | |
Director |
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By order of the Board of Directors, | |
/s/Kevin Peterson | |
Kevin Peterson | |
Director |
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Q: | What is the purpose of this document? | |
A: | This document serves as Cove’s Information Statement and as the prospectus of Euroseas. As an Information Statement, this document is being provided to Cove stockholders in compliance with Rule 14c-2 as notification of consent of action taken without a meeting by the majority stockholders of Cove on September 26, 2005 approving the Merger. As a prospectus, Euroseas is providing this document to Cove stockholders because Euroseas is offering its shares of common stock in exchange for shares of Cove common stock in the Merger. | |
Q: | Could you tell me more about Euroseas? | |
A: | Euroseas is a privately-held, independent commercial shipping company that operates in the drybulk and container shipping markets through its wholly-owned subsidiaries. Euroseas owns and operates eight vessels through these subsidiaries. Euroseas was formed on May 5, 2005 under the laws of the Republic of the Marshall Islands. Its principal offices are located in Maroussi, Greece. | |
Q: | What was the required vote to approve the Merger Agreement? | |
A: | Pursuant to the Merger Agreement, Cove will merge with and into EuroSub, the separate corporate existence of Cove will cease and EuroSub will be the Surviving Corporation and will change its name to Cove Apparel, Inc. Cove cannot complete the Merger unless the holders of at least a majority of the issued and outstanding shares of Cove common stock approve the Merger Agreement. On September 26, 2005, four stockholders of Cove representing 67.25% of the outstanding shares of Cove common stock took action by written consent approving the Merger. Each share of Cove common stock was entitled to one vote per share. | |
Q: | Has the Board of Directors of Cove voted in favor of the Merger? | |
A: | Yes. Cove’s Board of Directors has unanimously voted for the approval of the Merger Agreement at a special meeting on July 26, 2005. You should read the “Background and Reasons For The Merger — Recommendations of the Boards of Directors and Reasons for the Merger” section of this joint Information Statement/ prospectus for a discussion of the factors that the Cove Board of Directors considered in deciding to vote in favor of the Merger. | |
Q: | What will I receive in the Merger? | |
A: | Pursuant to the Merger Agreement, each outstanding share of Cove common stock will be converted into the right to receive 0.102969 shares of Euroseas common stock, subject to adjustment for any stock split by Euroseas prior to the Merger. | |
Q: | What are the tax consequences of the Merger to me? | |
A. | It is a condition to the completion of the Merger, unless waived by the parties in writing, that Euroseas receive a legal opinion from Kirkpatrick & Lockhart Nicholson Graham LLP to the effect that the Merger should be treated as a “reorganization” for United States federal income tax purposes. Assuming the Merger qualifies as a “reorganization,” the Merger will generally be tax-free to Cove shareholders for United States federal income tax purposes to the extent that they receive Euroseas common stock pursuant to the Merger. More specifically: | |
• Dissenting Cove shareholders who exchange their Cove common stock solely for cash will recognize gain or loss for federal income tax purposes. | ||
• To the extent Cove shareholders exchange their Cove common stock for a combination of the $0.07 per share Euroseas dividend and cash in lieu of fractional shares of Euroseas common stock, they may recognize gain, but not loss, for federal income tax purposes in respect to the Cove common stock exchanged for cash. | ||
The federal income tax consequences of the Merger are complicated and may differ between individual stockholders. We strongly urge each Cove stockholder to consult his or her own tax advisor regarding the |
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federal income tax consequences of the Merger in light of his or her own personal tax situation and also as to any state, local, foreign or other tax consequences arising out of the Merger. | ||
Q: | Should I send in my stock certificates now? | |
A: | No. After we complete the Merger, you will receive written instructions for returning your stock certificates. These instructions will tell you how and where to send in your stock certificates in order to receive the Merger consideration. | |
Q: | What if I object to the Merger? | |
A: | Under applicable Nevada law, Cove stockholders have the right to dissent from the Merger and demand payment of the fair value of their shares. See “The Merger Agreement-Dissenters’ Rights” and “Dissenters’ Rights.” |
Cove Apparel, Inc. 1003 Dormador, Suite 21 San Clemente, California 92672 Attn: Kevin Peterson Telephone: (949) 224-3040 | Euroseas Ltd. Aethrion Center 40 Ag. Konstantinou Street 151 24 Maroussi Greece Attn: Aristides J. Pittas Telephone: 011 30 210 6105110 | |
or | ||
Euroseas Ltd. | ||
Mr. Anastasios Aslidis 2693 Far View Drive Mountainside, New Jersey 07092 Telephone: (908) 301-9091 |
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Cove Apparel, Inc. |
Cove Apparel, Inc. | |
1003 Dormador, Suite 21 | |
San Clemente, California 92672 | |
Tel: (949) 224-3040 |
Euroseas Ltd. |
Euroseas Ltd. | |
Aethrion Center | |
40 Ag. Konstantinou Street | |
151 24 Maroussi | |
Greece | |
Telephone: 011 30 210 6105110 |
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• | Dissenting Cove shareholders who exchange their Cove common stock solely for cash will recognize gain or loss for federal income tax purposes. | |
• | To the extent Cove shareholders exchange their Cove common stock for a combination of the $0.07 per share Euroseas dividend and cash in lieu of fractional shares of Euroseas common stock, they may recognize gain, but not loss, for federal income tax purposes in respect to the Cove common stock exchanged for cash. |
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• | by mutual consent in writing of Cove and Euroseas; | |
• | unilaterally upon written notice by Cove to Euroseas upon the occurrence of a material adverse effect with respect to Euroseas, the likelihood of which was not previously disclosed to Cove in writing by Euroseas prior to the date of the Merger Agreement; | |
• | unilaterally upon written notice by Euroseas to Cove upon the occurrence of a material adverse effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas in writing by Cove prior to the date of the Merger Agreement; | |
• | unilaterally upon written notice by Cove to Euroseas in the event of a material breach of any material representation or warranty of Euroseas contained in the Merger Agreement (unless such breach shall have been cured within ten (10) days after the giving of notice by Cove), or the willful failure of Euroseas to comply with or satisfy any material covenant or condition of Euroseas contained in the Merger Agreement; | |
• | unilaterally upon written notice by Euroseas to Cove in the event of a material breach of any material representation or warranty of Cove or the Cove Principals contained in the Merger Agreement (unless such breach shall have been cured by Cove within ten (10) days after the giving of notice by Euroseas), or Cove’s willful failure to comply with or satisfy any material covenant or condition of |
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Cove contained in the Merger Agreement, or if Cove fails to obtain its stockholders’ approval for the Merger; or | ||
• | unilaterally upon written notice by either Cove or Euroseas to the other if the Merger is not consummated for any reason by the close of business on February 28, 2006; provided however that no party may avail itself of this ground for termination if such failure to consummate the Merger is caused by such party either in breach of the Merger Agreement or by not proceeding in good faith towards the consummation of the Merger. |
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Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
Euroseas Ltd. — Summary Historical Financials(1) | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||
(All amounts in U.S. dollars) | ||||||||||||||||||||
Statement of Income Data | ||||||||||||||||||||
Voyage revenue | 15,291,761 | 25,951,023 | 45,718,006 | 21,321,769 | 23,833,736 | |||||||||||||||
Commissions | (420,959 | ) | (906,017 | ) | (2,215,197 | ) | (1,018,218 | ) | (1,340,228 | ) | ||||||||||
Voyage expenses | (531,936 | ) | (436,935 | ) | (370,345 | ) | (60,829 | ) | (131,903 | ) | ||||||||||
Vessel operating expenses | (7,164,271 | ) | (8,775,730 | ) | (8,906,252 | ) | (4,727,324 | ) | (4,270,787 | ) | ||||||||||
Management fees | (1,469,690 | ) | (1,722,800 | ) | (1,972,252 | ) | (1,007,771 | ) | (965,384 | ) | ||||||||||
Amortization and depreciation(2) | (4,053,049 | ) | (4,757,933 | ) | (3,461,678 | ) | (1,640,565 | ) | (1,824,322 | ) | ||||||||||
Net gain on sale of vessel | — | — | 2,315,477 | 2,315,477 | — | |||||||||||||||
Interest and finance cost | (799,970 | ) | (793,257 | ) | (708,284 | ) | (297,916 | ) | (545,719 | ) | ||||||||||
Derivative gain/(loss) | — | — | 27,029 | 11,000 | (82,029 | ) | ||||||||||||||
Foreign exchange gain/(loss) | 2,849 | (690 | ) | (1,808 | ) | (3,734 | ) | 312 | ||||||||||||
Interest income | 6,238 | 36,384 | 187,069 | 18,535 | 89,698 | |||||||||||||||
Other income/(expenses), net | (790,883 | ) | (757,563 | ) | (495,994 | ) | (272,115 | ) | (537,738 | ) | ||||||||||
Equity in earnings/(losses) | 30,655 | (167,433 | ) | — | — | — | ||||||||||||||
Net income for the period | 891,628 | 8,426,612 | 30,611,765 | 14,910,424 | 14,763,374 | |||||||||||||||
Balance Sheet Data (at period end) | ||||||||||||||||||||
Current Assets | 3,192,345 | 9,409,339 | 16,461,159 | 12,404,490 | 11,276,109 | |||||||||||||||
Vessels, net book value | 45,254,226 | 41,096,067 | 34,171,164 | 35,434,642 | 32,978,300 | |||||||||||||||
Deferred charges, net | 596,262 | 929,757 | 2,205,178 | 1,996,885 | 2,357,775 | |||||||||||||||
Investment in associate | 1,216,289 | 22,856 | — | — | — | |||||||||||||||
Total assets | 50,259,121 | 51,458,019 | 52,837,501 | 49,836,017 | 46,612,184 | |||||||||||||||
Current liabilities, including current portion of long-term debt | 10,878,488 | 8,481,773 | 13,764,846 | 10,332,710 | 18,341,155 | |||||||||||||||
Long-term debt, including current portion | 23,845,000 | 20,595,000 | 13,990,000 | 15,126,220 | 41,400,000 | |||||||||||||||
Common stock | 297,542 | 297,542 | 297,542 | 297,542 | 297,542 | |||||||||||||||
Total shareholders’ equity | 21,285,634 | 27,486,246 | 31,112,655 | 30,634,170 | 1,651,029 |
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Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
Euroseas Ltd. — Summary Historical Financials(1) | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||
(All amounts in U.S. dollars) | ||||||||||||||||||||
Other Financial Data | ||||||||||||||||||||
Net cash provided by operating activities | 5,631,343 | 10,956,132 | 34,208,693 | 13,382,837 | 8,157,781 | |||||||||||||||
Net cash paid to (received from) related party | (177,169 | ) | 482,778 | (3,541,236 | ) | (108,277 | ) | 8,621,660 | ||||||||||||
Net cash from investing activities | (17,036,079 | ) | 214,832 | 6,756,242 | 6,722,524 | (1,230,155 | ) | |||||||||||||
Net cash used in financing activities | 12,247,355 | (4,778,000 | ) | (33,567,500 | ) | (17,231,280 | ) | (16,972,500 | ) | |||||||||||
Earnings per share, basic and diluted | 0.03 | 0.28 | 1.03 | 0.50 | 0.50 | |||||||||||||||
Cash Dividends/Return of capital, declared per common share | 0.02 | 0.04 | 0.91 | 0.40 | 1.49 | |||||||||||||||
Weighted average number of shares outstanding during the period | 29,754,166 | 29,754,166 | 29,754,166 | 29,754,166 | 29,754,166 | |||||||||||||||
Cash paid for common stock dividend declared/return of capital | 687,500 | 1,200,000 | 26,962,500 | 11,762,500 | 44,225,000 | (3) |
(1) | The Company has not included financial data for the years ended 2000 and 2001 since the Company was only recently formed in May 2005 and incurred significant expense in the preparation of its consolidated financial statements for 2002, 2003 and 2004. The Company believes that it would constitute “unreasonable effort or expense” for it to include the first two years of the Selected Consolidated Financial Data reflecting the discussion by the Staff of SEC in “International Reporting and Disclosure Issues in the Division of Corporation Finance,” dated October 1, 2003. The Company’s predecessor (which is the separate ship-owning entities that became wholly-owned by the Company subsequent to its formation) prepared financial statements for the years ended December 31, 2000 and 2001 on a basis different from the financial statements included in this prospectus. The Company believes that the effort and cost involved in converting such financial statements into a basis similar to those financial statements included in this prospectus would be unreasonably burdensome. |
(2) | In 2004, the estimated scrap value of the vessels was increased from $170 to $300 per light ton to better reflect market price developments in the scrap metal market. The effect of this change in estimate was to reduce 2004 depreciation expense by $1,400,010 and increase 2004 net income by the same amount. In addition, in 2004, the estimated useful life of the vessel m/vArielwas extended from 28 years to 30 years since the vessel performed dry-docking in the current year and it is not expected to be sold until year 2007. M/ VWidarwas sold in April 2004. Depreciation expense for m/vWidarfor the year ended December 31, 2004 amounted to $136,384 compared to $409,149 in 2003. |
(3) | This amount reflects a dividend in the amount of $27,525,000 and a return of capital in the amount of $16,700,000. The total payment to shareholders made in 2005 is in excess of previously retained earnings because the Company decided to distribute to its original shareholders in advance of going public most of the profits relating to the Company’s operations up to that time and to recapitalize the Company. This one-time dividend cannot be considered indicative of future dividend payments and the Company refers you to the other sections in this prospectus for a clearer understanding of the Company’s dividend policy. |
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Year Ended | Year Ended | Year Ended | Year Ended | 9 Months Ended | 9 Months Ended | ||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | June 30, | June 30, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2004 | 2005 | ||||||||||||||||||||
Statement of Income Data | |||||||||||||||||||||||||
Revenues | $ | 6,000 | $ | 8,446 | $ | 6,500 | $ | — | — | — | |||||||||||||||
Selling, General and Administration | 42,699 | 51,568 | 83,228 | 232,538 | 45,827 | 116,306 | |||||||||||||||||||
Loss Before Income Taxes | 36,699 | (43,102 | ) | (76,728 | ) | (232,538 | ) | (45,827 | ) | (116,306 | ) | ||||||||||||||
Provision for Income Taxes | 800 | 800 | 800 | 800 | |||||||||||||||||||||
Net Loss | $ | 36,699 | $ | (43,102 | ) | $ | (77,528 | ) | $ | (233,338 | ) | $ | (46,627 | ) | $ | (117,106 | ) |
Year Ended | Year Ended | Year Ended | Year Ended | 9 Months Ended | 9 Months Ended | ||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | June 30, | June 30, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2004 | 2005 | ||||||||||||||||||||
(All amounts in U.S. dollars, except share amounts) | |||||||||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||||||||
Cash | $ | 1,571 | $ | 90,140 | $ | 15,186 | $ | 4,096 | $ | 34,207 | $ | 21,759 | |||||||||||||
Deposits | 5,000 | — | — | — | — | — | |||||||||||||||||||
Prepaid merchandise | — | 5,000 | — | — | — | — | |||||||||||||||||||
Accounts receivable, net | — | — | 6,500 | — | — | — | |||||||||||||||||||
Inventory and prepaid expenses | — | — | — | — | 7,900 | — | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||||||||
Account payable and accrued expenses | 8,037 | 15,858 | 21,497 | 74,480 | 13,252 | 95,911 | |||||||||||||||||||
Due to related party | — | 5,500 | — | — | — | — | |||||||||||||||||||
Due to stockholder | — | 7,000 | — | — | — | — | |||||||||||||||||||
Accrued payroll and related expenses | — | — | 2,236 | — | — | — | |||||||||||||||||||
Loan from stockholders | — | — | — | — | — | 45,000 | |||||||||||||||||||
Total Current Liabilities | 8,037 | 28,358 | 23,732 | 74,480 | 13,252 | 140,911 | |||||||||||||||||||
Stockholder’s Equity/Deficit: | |||||||||||||||||||||||||
Preferred Stock, $0.001 par value, authorized shares | 5,000,000 | 5,000,000 | 5,000,000 | 5,000,000 | 5,000,000 | 5,000,000 | |||||||||||||||||||
Issued and outstanding shares | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Common Stock, $0.001 par value, authorized shares | 50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 | |||||||||||||||||||
Issued and outstanding shares | 2,600,000 | 10,480,500 | 10,480,500 | 10,480,500 | 10,480,500 | 10,480,500 | |||||||||||||||||||
Additional paid-in capital | 32,633 | 136,102 | 144,802 | 309,802 | 144,802 | 144,802 | |||||||||||||||||||
Deficit accumulated during the development stage | (36,699 | ) | (79,801 | ) | (157,329 | ) | (390,667 | ) | (126,428 | ) | (274,435 | ) | |||||||||||||
Total stockholders’ equity/deficit | (1,466 | ) | 66,782 | (2,046 | ) | (70,384 | ) | 28,855 | (119,152 | ) | |||||||||||||||
Total liabilities and stockholders’ equity/deficit | $ | 6,571 | $ | 95,140 | $ | 21,686 | $ | 4,096 | $ | 42,107 | $ | 21,759 |
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• | The shares issued by Euroseas as part of the Private Placement and the payment of the related expenses of the transaction; | |
• | The acquisition of Cove by EuroSub as described above; and | |
• | The repayment of the loan from the stockholder and all liabilities of Cove as required by the Merger Agreement. |
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Euroseas Ltd. | Cove Apparel, Inc. | Adjustments | Pro Forma | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents | 5,452,608 | 18,430,979 | (1) | 23,883,587 | ||||||||||||
(350,000 | )(1) | (350,000 | ) | |||||||||||||
21,759 | (11,759 | )(2) | 10,000 | |||||||||||||
Total cash and cash equivalents | 5,452,608 | 21,759 | 18,069,220 | 23,543,587 | ||||||||||||
Accounts receivable trade, net | 9,652 | 9,652 | ||||||||||||||
Prepaid expenses | 129,706 | 129,706 | ||||||||||||||
Claims and other receivables | 69,641 | 69,641 | ||||||||||||||
Due from related party | 3,995,602 | 3,995,602 | ||||||||||||||
Inventories | 319,765 | 319,765 | ||||||||||||||
Restricted cash | 1,299,135 | 1,299,135 | ||||||||||||||
Total current assets | 11,276,109 | 21,759 | 18,069,220 | 29,367,088 | ||||||||||||
Fixed Assets | ||||||||||||||||
Vessels, net book value | 32,978,300 | 32,978,300 | ||||||||||||||
Total fixed assets | 32,978,300 | — | 32,978,300 | |||||||||||||
Long-Term Assets | ||||||||||||||||
Deferred charges, net | 2,357,775 | 2,357,775 | ||||||||||||||
Total long-term assets | 2,357,775 | — | 2,357,775 | |||||||||||||
Total assets | 46,612,184 | 21,759 | 18,069,220 | 64,703,163 | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Long-term debt, current portion | 14,780,000 | 14,780,000 | ||||||||||||||
Trade accounts payable | 946,760 | 95,911 | (95,911 | )(2) | 946,760 | |||||||||||
Accrued expenses | 437,570 | 437,570 | ||||||||||||||
Deferred income | 2,176,825 | 2,176,825 | ||||||||||||||
Loan from stockholder | — | 45,000 | (45,000 | )(2) | — | |||||||||||
Total current liabilities | 18,341,155 | 140,911 | (140,911 | ) | 18,341,155 | |||||||||||
Long-Term Liabilities | ||||||||||||||||
Long-term debt, net of current portion | 26,620,000 | — | 26,620,000 | |||||||||||||
Total long-term liabilities | 26,620,000 | — | — | 26,620,000 | ||||||||||||
Total liabilities | 44,961,155 | 140,911 | (140,911 | ) | 44,961,155 | |||||||||||
Commitments and contingencies | — | — | — | |||||||||||||
Common stock | 297,542 | 81,061 | (1)(3) | 378,603 | ||||||||||||
10,481 | (10,481 | )(4) | — | |||||||||||||
Total common stock | 297,542 | 10,481 | 70,580 | 378,603 | ||||||||||||
Preferred shares | — | — | — | |||||||||||||
Additional paid in capital | 373,381 | 144,802 | 18,360,399 | (1) | 18,878,582 | |||||||||||
129,152 | (2) | 129,152 | ||||||||||||||
(350,000 | )(2) | (350,000 | ) | |||||||||||||
(274,435 | )(3) | (274,435 | ) | |||||||||||||
Total additional paid-in capital | 373,381 | 144,802 | 17,865,116 | 18,383,299 | ||||||||||||
Retained earnings/(Accumulated deficit)(restated) | 980,106 | (274,435 | ) | 274,435 | (3) | 980,106 | ||||||||||
Total shareholders’ equity | 1,651,029 | (119,152 | ) | 18,210,131 | 19,742,008 | |||||||||||
Total liabilities and shareholders’ equity | 46,612,184 | 21,759 | 18,069,220 | 64,703,163 | ||||||||||||
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(1) | To account for the sale in the Private Placement of 7,026,993 shares and 1,756,743 warrants dated August 25, 2005 at $3 per share with a par value of $0.01 per share or $70,270, less the cost of the offering estimated to be $2.65 million. The value of the warrants is included in “Additional paid in capital” and is estimated to be $614,860. |
(2) | The Merger Agreement states that Cove Apparel, Inc. will have a cash balance of $10,000 and equity of the same amount at the effective date of the Merger. The pro forma entries reflect the increase in paid in capital and repayment of the accounts payable and loan to the shareholder of Cove Apparel, Inc. of $140,911 less the cash balance noted above totalling $11,759. The repayment of trade accounts and loan from stockholders amounting to $129,152 was reflected in additional paid-in capital. The costs related to the Merger are estimated to be $0.35 million and are accounted as a reduction in equity. |
(3) | To account for the acquisition of Cove Apparel, Inc. through the issuance of 1,079,167 shares to the shareholders of Cove at $3 per share amounting to $3,237,501 with a par value of $0.01 per share or $10,791. Since the acquisition of Cove was made to satisfy the requirement in the Private Placement, the difference between the purchase price of $3,237,501 and the fair value of Cove’s acquired net assets of $10,000 after taking into account the transactions in (2) above, is accounted for as a reduction in equity amounting to $3,227,501. |
(4) | To account for the consolidation entries eliminating the common stock of Cove amounting to $10,481, the paid in capital of Cove amounting to $144,802 and accumulated deficit of Cove of $274,435. |
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Euroseas Ltd. | Cove Apparel, Inc. | Pro Forma | ||||||||||
Revenues | (4) | |||||||||||
Voyage revenue | 23,833,736 | 23,833,736 | ||||||||||
Commissions | (1,340,228 | ) | (1,340,228 | ) | ||||||||
Net revenue | 22,493,508 | 22,493,508 | ||||||||||
Operating Expenses | ||||||||||||
Voyage expenses | 131,903 | 131,903 | ||||||||||
Vessel operating expenses | 4,270,787 | 4,270,787 | ||||||||||
Management fees | 965,384 | 965,384 | ||||||||||
Selling, general and administrative expenses | — | 103,590 | 103,590 | |||||||||
Amortization and depreciation | 1,824,322 | 1,824,322 | ||||||||||
Total operating expenses | 7,192,396 | 103,590 | 7,295,986 | |||||||||
Operating income/(loss) | 15,301,112 | (103,590 | ) | 15,197,522 | ||||||||
Other Income/(Expenses) | ||||||||||||
Interest and finance cost | (545,719 | ) | (545,719 | ) | ||||||||
Derivative Loss | (82,029 | ) | (82,029 | ) | ||||||||
Foreign exchange (loss)/gain | 312 | 312 | ||||||||||
Interest income | 89,698 | 89,698 | ||||||||||
Other income/(expenses), net | (537,738 | ) | (537,738 | ) | ||||||||
Net income/(loss) for the period | 14,763,374 | (103,590 | ) | 14,659,784 | ||||||||
Earnings per share(5) | $ | 0.39 | — | $ | 0.39 |
(4) | The six-month period ended June 30, 2005 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period. |
(5) | Based upon 37,860,326 shares of Euroseas common stock. |
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Euroseas Ltd. | Cove Apparel, Inc. | Pro Forma | ||||||||||
Revenues | (4) | |||||||||||
Voyage revenue and other | 45,718,006 | 6,500 | 45,724,506 | |||||||||
Commissions | (2,215,197 | ) | (2,215,197 | ) | ||||||||
Net revenue | 43,502,809 | 6,500 | 43,509,309 | |||||||||
Operating Expenses | ||||||||||||
Voyage expenses | 370,345 | 370,345 | ||||||||||
Vessel operating expenses | 8,906,252 | 8,906,252 | ||||||||||
Management fees | 1,972,252 | 1,972,252 | ||||||||||
Selling, general and administrative expenses | — | 85,801 | 85,801 | |||||||||
Amortization and depreciation | 3,461,678 | 3,461,678 | ||||||||||
Net gain on sale of vessel | (2,315,477 | ) | (2,315,477 | ) | ||||||||
Total operating expenses | 12,395,050 | 85,801 | 12,480,851 | |||||||||
Operating income | 31,107,759 | (79,301 | ) | 31,028,458 | ||||||||
Other Income/(Expenses) | ||||||||||||
Interest and finance cost | (708,284 | ) | (708,284 | ) | ||||||||
Derivative gain | 27,029 | — | 27,029 | |||||||||
Foreign exchange (loss)/gain | (1,808 | ) | — | (1,808 | ) | |||||||
Interest income | 187,069 | — | 187,069 | |||||||||
Other income/(expenses), net | (495,994 | ) | — | (495,994 | ) | |||||||
Net Income/(loss) for the period | 30,611,765 | (79,301 | ) | 30,532,464 | ||||||||
Earnings per share(5) | $ | 0.81 | — | $ | 0.81 |
(4) | The year ended December 31, 2004 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period. |
(5) | Based on 37,860,326 shares of Euroseas common stock. |
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Proforma per Share Information in U.S. Dollars | June 30, 2005 | |||
(Unaudited) | ||||
Total Proforma net book value | 19,742,008 | |||
Total Proforma number of shares | 37,860,326 | |||
Proforma book value per share | 0.52 |
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
Historical per Share Information | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||
(Audited) | (Audited) | (Audited) | (Unaudited) | (Unaudited) | ||||||||||||||||
(U.S. dollars per share) | ||||||||||||||||||||
Euroseas Earnings per share, basic and diluted | 0.03 | 0.28 | 1.03 | 0.50 | 0.50 | |||||||||||||||
Cove Earnings per share, basic and diluted | — | — | — | — | — |
Common Stock | ||||||||
High | Low | |||||||
2003: | ||||||||
First Quarter | $ | 0.00 | $ | 0.00 | ||||
Second Quarter | $ | 0.00 | $ | 0.00 | ||||
Third Quarter | $ | 0.00 | $ | 0.00 | ||||
Fourth Quarter | $ | 0.00 | $ | 0.00 | ||||
2004: | ||||||||
First Quarter | $ | 0.00 | $ | 0.00 | ||||
Second Quarter | $ | 0.00 | $ | 0.00 | ||||
Third Quarter | $ | 0.00 | $ | 0.00 | ||||
Fourth Quarter | $ | 0.00 | $ | 0.00 | ||||
2005: | ||||||||
First Quarter | $ | 0.00 | $ | 0.00 | ||||
Second Quarter | $ | 0.00 | $ | 0.00 | ||||
August 30, 2005(1) | $ | 0.00 | $ | 0.00 | ||||
February 2, 2006(2) | $ | 0.70 | $ | 0.70 |
(1) | The last full trading day prior to the announcement of the execution of the Merger Agreement. |
(2) | The last full trading day prior to the filing of this joint Information Statement/ prospectus. |
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(a) The Merger with Cove in which 1,079,167 newly issued shares are to be issued to the shareholders of Cove, when the Merger is consummated (or, to Friends if the Merger is not consummated). Of this amount, 818,604 shares are to be issued to certain affiliates of Cove and are being registered for resale under this prospectus. However, for purposes of the calculations hereunder, we have used the full 1,079,167 amount since all of these shares are expected to be issued in connection with the Merger. | |
(b) Cash dividend of $2.65 million declared on November 2, 2005 to (i) our shareholders of record on December 16, 2005 and paid on or about December 19, 2005, and (ii) either Cove’s shareholders that will exchange their shares to Euroseas shares, if the Merger with Cove is consummated, or, Friends which will be issued the shares that would have been issued to Coven’s shareholders if the Merger is not consummated. None of the Company’s warrants were exercised. | |
(c) New loan to finance acquisition of m/v Artemis of $15,500,000 which was drawn down on December 30, 2005; and repayments for loans outstanding as at September 30, 2005 amounting to $4,170,000. |
As of September 30, 2005 | |||||||||
As Adjusted for | |||||||||
Subsequent Event | |||||||||
Actual | and This Offering | ||||||||
(In U.S. dollars) | |||||||||
Debt: | |||||||||
Current portion of long term debt | 12,854,998 | 14,430,000 | |||||||
Total long term debt, net of current portion | 24,375,002 | 34,130,000 | |||||||
Total debt | 37,230,000 | 48,560,000 | |||||||
Shareholders’ equity | |||||||||
Common stock, $.01 par value; 100,000,000 shares authorized on an actual and as adjusted basis; 36,781,159 shares issued and outstanding on an actual basis; 37,860,326 shares issued and outstanding on an as adjusted basis | 367,812 | 378,603 | |||||||
Additional paid-in capital | 18,383,781 | 18,382,990 | |||||||
Retained earnings (deficit) | 6,673,708 | 6,673,708 | |||||||
Dividend declared November 2, 2005 | — | (2,650,223 | ) | ||||||
Total shareholders equity (deficit) | 25,425,301 | 22,785,078 | |||||||
Total capitalization | 62,655,301 | 71,345,078 |
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Initial offering price per share in the Private Placement | $ | 3.00 | ||
Net tangible book value per share as of June 30, 2005 | $ | 0.06 | ||
Increase in net tangible book value attributable to the new investors | $ | 0.46 | ||
Proforma net tangible book value per share after giving effect to this offering | $ | 0.52 | ||
Dilution per share to the new investors | $ | 2.48 |
Pro Forma Shares | ||||||||||||||||||||
Outstanding | Total Consideration | |||||||||||||||||||
Average Price | ||||||||||||||||||||
Number | Percent | Amount | Percent | per Share | ||||||||||||||||
Existing shareholders | 29,754,166 | 78.6% | $ | 1,651,029 | 7.3% | $ | 0.06 | |||||||||||||
Cove shareholders | 1,079,167 | 2.8% | $ | 10,000 | 0.0% | $ | 0.01 | |||||||||||||
New investors | 7,026,993 | 18.6% | $ | 21,080,979 | 92.7% | $ | 3.00 | |||||||||||||
Total | 37,860,326 | 100.0% | $ | 22,742,008 | 100.0% | $ | 0.60 |
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There may not be an active market for Euroseas’ shares, which may cause its shares to trade at lower prices and make it difficult to sell your shares. |
The price of Euroseas’ shares after the Merger may be volatile and less than you originally paid for your corresponding shares of Cove common stock. |
• | actual or anticipated fluctuations in quarterly and annual results; | |
• | mergers and strategic alliances in the shipping industry; | |
• | market conditions in the industry; | |
• | changes in government regulation; | |
• | fluctuations in Euroseas’ quarterly revenues and earnings and those of its publicly held competitors; | |
• | shortfalls in Euroseas’ operating results from levels forecasted by securities analysts; | |
• | announcements concerning Euroseas or its competitors; and | |
• | the general state of the securities markets. |
Cove shareholders will experience significant dilution and a reduction in percentage ownership and voting power with respect to Cove shares as a result of the Merger. |
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Future sales of Euroseas’ shares could depress its stock price. |
Current Euroseas’ shareholders will control approximately 97.2% of Euroseas after the Merger and will effectively control the outcome of matters on which Euroseas shareholders are entitled to vote, including the election of directors and other significant corporate actions. |
Euroseas’ Articles of Incorporation and Bylaws contain anti-takeover provisions that may discourage, delay or prevent (1) the merger or acquisition of Euroseas and/or (2) the removal of incumbent directors and officers. |
Profitable operation of Euroseas’ business will be dependent upon the efforts of Euroseas’, not Cove’s, management. |
Cove and Euroseas expect to incur significant costs associated with the Merger, whether or not the Merger is completed and the incurrence of these costs will reduce the amount of cash available to be used for other corporate purposes. |
Cove’s and Euroseas’ pro forma accounting for the transaction may change and materially reduce Euroseas’ actual post-transaction net worth from the pro forma amount. |
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If the Merger does not qualify as a nontaxable reorganization under the U.S. Internal Revenue Code, the transaction may be a taxable event to Cove’s stockholders. |
The cyclical nature of the shipping industry may lead to volatile changes in freight rates which may reduce Euroseas’ revenues and net income. |
The value of Euroseas’ vessels may fluctuate, adversely affecting its earnings, liquidity and causing it to breach its secured credit agreements. |
• | general economic and market conditions affecting the shipping industry; | |
• | supply of drybulk and containership vessels; | |
• | demand for drybulk containership vessels; | |
• | types and sizes of vessels; | |
• | other modes of transportation; |
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• | cost of newbuildings; | |
• | new regulatory requirements from governments or self-regulated organizations; and | |
• | prevailing level of charter rates. |
Although charter rates in the international shipping industry reached historic highs recently, future profitability will be dependent on the level of charter rates and commodity prices. |
• | supply and demand for drybulk and containership commodities, and separately for containerized cargo; | |
• | global and regional economic conditions; | |
• | the distance drybulk and containership commodities are to be moved by sea; and | |
• | changes in seaborne and other transportation patterns. |
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• | the number of newbuilding deliveries; | |
• | the scrapping rate of older vessels; | |
• | changes in environmental and other regulations that may limit the useful life of vessels; | |
• | the number of vessels that are laid up; and | |
• | changes in global drybulk and containership commodity production and manufacturing distribution patterns of finished goods. |
An economic slowdown in the Asia Pacific region could materially reduce the amount and/or profitability of Euroseas’ business. |
Euroseas may become dependent on spot charters in the volatile shipping markets, which can result in decreased revenues and/or profitability. |
Euroseas is subject to regulation and liability under environmental laws that could require significant expenditures and affect its cash flows and net income. |
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Capital expenditures and other costs necessary to operate and maintain Euroseas’ vessels may increase due to changes in governmental regulations, safety or other equipment standards. |
Increased inspection procedures and tighter import and export controls could increase costs and disrupt Euroseas’ business. |
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Rising fuel prices may adversely affect Euroseas’ profits. |
If Euroseas’ vessels fail to maintain their class certification and/or fail any annual survey, intermediate survey, drydocking or special survey, that vessel would be unable to carry cargo, thereby reducing Euroseas’ revenues and profitability and violating certain loan covenants of its third-party indebtedness. |
Maritime claimants could arrest Euroseas’ vessels, which could interrupt its cash flow. |
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Governments could requisition Euroseas’ vessels during a period of war or emergency, resulting in loss of earnings. |
World events outside Euroseas’ control may negatively affect its ability to operate, thereby reducing its revenues and net income or its ability to obtain additional financing, thereby restricting the implementation of its business strategy. |
Euroseas will depend entirely on Eurobulk to manage and charter its fleet. |
Because Eurobulk is a privately held company, there is little or no publicly available information about it and Euroseas may get very little advance warning of operational or financial problems experienced by Eurobulk that may adversely affect Euroseas. |
Euroseas and its principal officers have affiliations with Eurobulk that could create conflicts of interest detrimental to Euroseas. |
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Euroseas is a holding company, and it depends on the ability of its subsidiaries to distribute funds to it in order to satisfy its financial obligations or to make dividend payments. |
Euroseas may not be able to pay dividends. |
Companies affiliated with Eurobulk or Eurosesas’ officers and directors may acquire vessels that compete with Euroseas’ fleet. |
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If Euroseas is unable to fund its capital expenditures, it may not be able to continue to operate some of its vessels, which would have a material adverse effect on its business and its ability to pay dividends. |
If Euroseas fails to manage its planned growth properly, it may not be able to successfully expand its market share. |
• | locating and acquiring suitable vessels; | |
• | identifying and consummating acquisitions or joint ventures; | |
• | integrating any acquired business successfully with its existing operations; | |
• | enhancing its customer base; | |
• | managing its expansion; and | |
• | obtaining required financing. |
A decline in the market value of Euroseas’ vessels could lead to a default under Euroseas’ loan agreements and the loss of Euroseas’ vessels. |
Euroseas’ existing loan agreements contain restrictive covenants that may limit its liquidity and corporate activities. |
• | incur additional indebtedness; | |
• | create liens on its assets; | |
• | sell capital stock of its subsidiaries; | |
• | make investments; | |
• | engage in mergers or acquisitions; |
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• | pay dividends; | |
• | make capital expenditures; | |
• | change the management of its vessels or terminate or materially amend the management agreement relating to each vessel; and | |
• | sell its vessels. |
Servicing future debt would limit funds available for other purposes. |
Euroseas’ ability to obtain additional debt financing may be dependent on the performance of its then existing charters and the creditworthiness of its charterers. |
As Euroseas expands its business, it may need to upgrade its operations and financial systems, and add more staff and crew. If it cannot upgrade these systems or recruit suitable employees, its performance may be adversely affected. |
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Because Euroseas obtains some of its insurance through protection and indemnity associations, it may also be subject to calls in amounts based not only on its own claim records, but also the claim records of other members of the protection and indemnity associations. |
Labor interruptions could disrupt Euroseas’ business. |
In the highly competitive international drybulk and containership shipping industry, Euroseas may not be able to compete for charters with new entrants or established companies with greater resources. |
Euroseas may be unable to attract and retain key management personnel and other employees in the shipping industry, which may negatively affect the effectiveness of its management and its results of operations. |
Risks involved with operating ocean going vessels could affect Euroseas’ business and reputation, which may reduce its revenues. |
• | crew strikes and/or boycotts; | |
• | marine disaster; | |
• | piracy; | |
• | environmental accidents; | |
• | cargo and property losses or damage; and | |
• | business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions. |
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Euroseas’ vessels may suffer damage and it may face unexpected drydocking costs, which could affect its cash flow and financial condition. |
Purchasing and operating previously owned, or secondhand, vessels may result in increased operating costs and vessels off-hire, which could adversely affect Euroseas’ earnings. |
Euroseas may not have adequate insurance to compensate it adequately for damage to, or loss of, its vessels. |
Euroseas’ operations outside the United States of America expose it to risks of mining, terrorism and piracy that may interfere with the operation of its vessels. |
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Because the Republic of the Marshall Islands, where Euroseas is incorporated, does not have a well-developed body of corporate law, former Cove stockholders may have fewer rights and protections than under typical laws of the United States, such as Delaware, and shareholders may have more difficulty in protecting their interest in Euroseas with regard to actions taken by Euroseas’ Board of Directors. |
Obligations associated with being a public company will require significant company resources and management attention |
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Euroseas’ historical financial and operating data may not be representative of its future results because it is a newly formed company with no operating history as a stand-alone entity or as a publicly traded company. |
Euroseas depends upon a few significant charterers for a large part of its revenues. The loss of one or more of these charterers could adversely affect its financial performance. |
Exposure to currency exchange rate fluctuations will result in fluctuations in Euroseas’ cash flows and operating results. |
U.S. tax authorities could treat Euroseas as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders. |
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Euroseas may have to pay tax on United States source income, which would reduce its earnings. |
If the Merger does not qualify as a nontaxable reorganization, Euroseas will be required to pay U.S. federal income tax. |
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• | Euroseas’s future operating or financial results; | |
• | future, pending or recent acquisitions, business strategy, areas of possible expansion, and expected capital spending or operating expenses; and | |
• | drybulk and containership market trends, including charter rates and factors affecting vessel supply and demand. |
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• | The shares issued by Euroseas as part of the Private Placement and the payment of the related expenses of the transaction; | |
• | The acquisition of Cove by EuroSub as described above; and | |
• | The repayment of the loan from the stockholder and all liabilities of Cove as required by the Merger Agreement |
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Euroseas Ltd. | Cove Apparel, Inc. | Adjustments | Pro Forma | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents | 5,452,608 | 18,430,979 | (1) | 23,883,587 | ||||||||||||
(350,000 | )(1) | (350,000 | ) | |||||||||||||
21,759 | (11,759 | )(2) | 10,000 | |||||||||||||
Total cash and cash equivalents | 5,452,608 | 21,759 | 18,069,220 | 23,543,587 | ||||||||||||
Accounts receivable trade, net | 9,652 | 9,652 | ||||||||||||||
Prepaid expenses | 129,706 | 129,706 | ||||||||||||||
Claims and other receivables | 69,641 | 69,641 | ||||||||||||||
Due from related party | 3,995,602 | 3,995,602 | ||||||||||||||
Inventories | 319,765 | 319,765 | ||||||||||||||
Restricted cash | 1,299,135 | 1,299,135 | ||||||||||||||
Total current assets | 11,276,109 | 21,759 | 18,069,220 | 29,367,088 | ||||||||||||
Fixed Assets | ||||||||||||||||
Vessels, net book value | 32,978,300 | 32,978,300 | ||||||||||||||
Total fixed assets | 32,978,300 | — | 32,978,300 | |||||||||||||
Long-Term Assets | ||||||||||||||||
Deferred charges, net | 2,357,775 | 2,357,775 | ||||||||||||||
Total long-term assets | 2,357,775 | — | 2,357,775 | |||||||||||||
Total assets | 46,612,184 | 21,759 | 18,069,220 | 64,703,163 | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Long-term debt, current portion | 14,780,000 | 14,780,000 | ||||||||||||||
Trade accounts payable | 946,760 | 95,911 | (95,911 | )(2) | 946,760 | |||||||||||
Accrued expenses | 437,570 | 437,570 | ||||||||||||||
Deferred income | 2,176,825 | 2,176,825 | ||||||||||||||
Loan from stockholder | — | 45,000 | (45,000 | )(2) | — | |||||||||||
Total current liabilities | 18,341,155 | 140,911 | (140,911 | ) | 18,341,155 | |||||||||||
Long-Term Liabilities | ||||||||||||||||
Long-term debt, net of current portion | 26,620,000 | — | 26,620,000 | |||||||||||||
Total long-term liabilities | 26,620,000 | — | — | 26,620,000 | ||||||||||||
Total liabilities | 44,961,155 | 140,911 | (140,911 | ) | 44,961,155 | |||||||||||
Commitments and contingencies | — | — | — | |||||||||||||
Common stock | 297,542 | 81,061 | (1)(3) | 378,603 | ||||||||||||
10,481 | (10,481 | )(4) | — | |||||||||||||
Total common stock | 297,542 | 10,481 | 70,580 | 378,603 | ||||||||||||
Preferred shares | — | — | — | |||||||||||||
Additional paid in capital | 373,381 | 144,802 | 18,360,399 | (1) | 18,878,582 | |||||||||||
129,152 | (2) | 129,152 | ||||||||||||||
(350,000 | )(2) | (350,000 | ) | |||||||||||||
(274,435 | )(3) | (274,435 | ) | |||||||||||||
Total additional paid-in capital | 373,381 | 144,802 | 17,865,116 | 18,383,299 | ||||||||||||
Retained earnings/(Accumulated deficit) (restated) | 980,106 | (274,435 | ) | 274,435 | (3) | 980,106 | ||||||||||
Total shareholders’ equity | 1,651,029 | (119,152 | ) | 18,210,131 | 19,742,008 | |||||||||||
Total liabilities and shareholders’ equity | 46,612,184 | 21,759 | 18,069,220 | 64,703,163 | ||||||||||||
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(1) | To account for the sale in the Private Placement of 7,026,993 shares and 1,756,743 warrants dated August 25, 2005 at $3 per share with a par value of $0.01 per share or $70.270, less the cost of the offering estimated to be $2.65 million. The value of the warrants is included in “Additional paid in capital” and is estimated to be $614,860. |
(2) | The Merger Agreement states that Cove Apparel, Inc. will have a cash balance of $10,000 and equity of the same amount at the effective date of the Merger. The pro forma entries reflect the increase in paid in capital and repayment of the accounts payable and loan to the shareholder of Cove Apparel, Inc. of $140,911 less the cash balance noted above totalling $11,759. The repayment of trade accounts and loan from stockholders amounting to $129,152 was reflected in additional paid-in capital. The costs related to the Merger are estimated to be $0.35 million and are accounted as a reduction in equity. |
(3) | To account for the acquisition of Cove Apparel, Inc. through the issuance of 1,079,167 shares to the shareholders of Cove at $3 per share amounting to $3,237,501 with a par value of $0.01 per share or $10,791. Since the acquisition of Cove was made to satisfy the requirement in the Private Placement the difference between the purchase price of $3,237,501 and the fair value of Cove’s acquired net assets of $10,000 after taking into account the transactions in (2) above, is accounted for as a reduction in equity amounting to $3,227,501. |
(4) | To account for the consolidation entries eliminating the common stock of Cove amounting to $10,481, the paid in capital of Cove amounting to $144,802 and accumulated deficit of Cove of $274,435. |
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Euroseas Ltd. | Cove Apparel, Inc. | Pro Forma | ||||||||||
Revenues | (4) | |||||||||||
Voyage revenue | 23,833,736 | 23,833,736 | ||||||||||
Commissions | (1,340,228 | ) | (1,340,228 | ) | ||||||||
Net revenue | 22,493,508 | 22,493,508 | ||||||||||
Operating Expenses | ||||||||||||
Voyage expenses | 131,903 | 131,903 | ||||||||||
Vessel operating expenses | 4,270,787 | 4,270,787 | ||||||||||
Management fees | 965,384 | 965,384 | ||||||||||
Selling, general and administrative expenses | — | 103,590 | 103,509 | |||||||||
Amortization and depreciation | 1,824,322 | 1,824,322 | ||||||||||
Total operating expenses | 7,192,396 | 103,590 | 7,295,986 | |||||||||
Operating income/(loss) | 15,301,112 | (103,590 | ) | 15,197,522 | ||||||||
Other Income/(Expenses) | ||||||||||||
Interest and finance cost | (545,719 | ) | (545,719 | ) | ||||||||
Derivative Loss | (82,029 | ) | (82,029 | ) | ||||||||
Foreign exchange (loss)/gain | 312 | 312 | ||||||||||
Interest income | 89,698 | 89,698 | ||||||||||
Other income/(expenses), net | (537,738 | ) | (537,738 | ) | ||||||||
Net income/(loss) for the period | 14,763,374 | (103,590 | ) | 14,659,784 | ||||||||
Earnings per share(5) | $ | 0.39 | — | $ | 0.39 |
(4) | The six-month period ended June 30, 2005 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period. |
(5) | Based on 37,860,326 shares of Euroseas common stock. |
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Euroseas Ltd. | Cove Apparel, Inc. | Pro Forma | ||||||||||
Revenues | (4) | |||||||||||
Voyage revenue and other | 45,718,006 | 6,500 | 45,724,506 | |||||||||
Commissions | (2,215,197 | ) | (2,215,197 | ) | ||||||||
Net revenue | 43,502,809 | 6,500 | 43,509,309 | |||||||||
Operating Expenses | ||||||||||||
Voyage expenses | 370,345 | 370,345 | ||||||||||
Vessel operating expenses | 8,906,252 | 8,906,252 | ||||||||||
Management fees | 1,972,252 | 1,972,252 | ||||||||||
Selling, general and administrative expenses | — | 85,801 | 85,801 | |||||||||
Amortization and depreciation | 3,461,678 | 3,461,678 | ||||||||||
Net gain on sale of vessel | (2,315,477 | ) | (2,315,477 | ) | ||||||||
Total operating expenses | 12,395,050 | 85,801 | 12,480,851 | |||||||||
Operating income | 31,107,759 | (79,301 | ) | 31,028,458 | ||||||||
Other Income/(Expenses) | ||||||||||||
Interest and finance cost | (708,284 | ) | (708,284 | ) | ||||||||
Derivative gain | 27,029 | — | 27,029 | |||||||||
Foreign exchange (loss)/gain | (1,808 | ) | — | (1,808 | ) | |||||||
Interest income | 187,069 | — | 187,069 | |||||||||
Other income/(expenses), net | (495,994 | ) | — | (495,994 | ) | |||||||
Net Income/(loss) for the period | 30,611,765 | (79,301 | ) | 30,532,464 | ||||||||
Earnings per share | $ | 0.81 | — | $ | 0.81 |
(4) | The year ended December 31, 2004 figures are derived from the published quarterly financial statements of Cove Apparel, Inc. and do not represent the statutory reporting period. |
(5) | Based on 37,860,326 shares of Euroseas common stock. |
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Cove |
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(a) Although Cove has continued to pursue its historic business and intends to continue to use its business assets in a business following the Merger, Cove only has nominal revenues, and upon analysis of the potential opportunity, the Board of Directors of Cove decided to merge with EuroSub because the Board was of the view that the Cove stockholders would have a better opportunity as shareholders of Euroseas than as stockholders of Cove; | |
(b) there has been strong raw materials demand in recent years by developing countries, particularly China and India, that has resulted in robust growth for drybulk shipping as well as increased freight rates, attributable in part to industrywide capacity constraints. As a result, the drybulk shipping sector has been attracting growing investor interest, with a number of drybulk and other seaborne shipping companies recently completing or planning public financings in the United States of America and other financial markets; | |
(c) Euroseas has an experienced, highly regarded management team, which Cove’s Board believes is well suited to pursue a strategy of acquiring and operating drybulk vessels; and | |
(d) the fact that the merger should constitute a tax-free reorganization under the Internal Revenue Code of 1986, as amended. |
(a) the fact that Euroseas is a recently formed foreign corporation and that Cove’s stockholders will have minority ownership in Euroseas following consummation of the merger; | |
(b) a macroeconomic slowdown, particularly in China or India, which would reduce the demand for shipping capacity, thereby resulting in reduced shipping rates; | |
(c) the risks and costs to Cove if the Merger is not completed; and | |
(d) the restrictions on the conduct of Cove’s business prior to completion of the Merger, which may delay or prevent Cove from exploiting business opportunities that may arise pending completion of the Merger. |
Euroseas |
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(a) Euroseas was required to execute the Merger Agreement as a condition to closing the Private Placement and raising approximately $21 million; | |
(b) the Merger would afford Euroseas access to a company with a public listing whose shares could trade and help develop a market for Euroseas’ common stock and which would increase the number of shareholders that could participate in the Merger and become Euroseas’ shareholders; | |
(c) publicly traded securities would afford Euroseas’ management, after the consummation of the transaction, the opportunity to utilize Euroseas’ authorized but unissued securities to attempt to acquire other compatible businesses; and | |
(d) this transaction substantially reduces the uncertainty attendant to Euroseas’ own public offering of securities as compared to an underwritten initial public offering, and the possibility that any such offering might not be successfully consummated in view of the size of Euroseas and the then prevailing market conditions. |
(a) factors beyond Euroseas’ control, such as industry economic conditions, general economic conditions, terrorism or war, could have an adverse effect upon the market price of Euroseas’ common stock after the Merger; | |
(b) the additional significant expense and responsibility of being a U.S. public company, including Sarbanes-Oxley Act compliance, corporate governance issues, SEC reporting requirements, and stock exchange listing requirements; | |
(c) the necessity of ongoing direct communication with the investment community, which is time consuming and may detract from executive time that would otherwise be devoted to business operations; and | |
(d) the risk that the Cove stockholders may not approve the Merger and Euroseas would have incurred significant legal, accounting and other expenses in connection with the proposed transaction. |
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Certain Material U.S. Federal Income Tax Consequences |
• | non-U.S. holders (as defined below); | |
• | dealers in securities; | |
• | banks and other financial institutions; | |
• | insurance companies; | |
• | tax-exempt organizations, plans or accounts; | |
• | persons holding their Cove shares as part of a “hedge,” “straddle” or other risk reduction transaction; | |
• | persons holding their Cove shares through partnerships, trusts or other entities; | |
• | persons that own, directly or by attribution, 10% or more of our voting stock; | |
• | U.S. persons whose functional currency is not the U.S. dollar; and | |
• | controlled foreign corporations or passive foreign investment companies, as those terms are defined in the Code. |
• | a citizen or resident of the United States; | |
• | a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia); |
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• | an estate the income of which is subject to United States federal income tax regardless of its source; or | |
• | a trust, if a court within the United States can exercise primary supervision over its administration, and one or more United States persons have the authority to control all of the substantial decisions of that trust (or the trust was in existence on August 20, 1996, was treated as a United States trust on August 19, 1996 and validly elected to continue to be treated as a United States trust). |
U.S. Federal Income Tax Consequences of the Merger |
Distributions |
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Sale or Exchange of Euroseas Shares |
Passive Foreign Investment Company Status |
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Backup Withholding Tax and Information Reporting Requirements |
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Conduct of Business Prior to Effective Time of the Merger |
(a) It shall conduct its business in the ordinary and usual course of business and consistent with past practice; | |
(b) It shall not (i) split, combine or reclassify its outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise (other than (A) a reverse stock split by Euroseas, or (B) any declaration and payment of dividends, so long as the appropriate amount of such dividends are held in trust and paid to Cove stockholders if the Merger is consummated or paid to Friends if the Merger is not consummated), (ii) spin-off any assets or businesses, (iii) engage in any transaction for the purpose of effecting a recapitalization, or (iv) engage in any transaction or series of related transactions which has a similar effect to any of the foregoing; | |
(c) It shall not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of, or any options, warrants or rights of any kind to acquire any shares of its capital stock of any class or any debt or equity securities convertible into or exchangeable for such capital stock or amend or modify the terms and conditions of any of the foregoing (except, in the case of Euroseas, it may issue shares and warrants as contemplated in connection with the Private Placement); | |
(d) It shall not (i) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock, other than as required by the governing terms of such securities, (ii) take or fail to take any action which action or failure to take action would cause it or its stockholders (except to the extent that any stockholders receive cash in lieu of fractional shares) to recognize gain or loss for tax purposes as a result of the consummation of the Merger, (iii) in the case of Cove, make any acquisition of any material assets or businesses, (iv) in the case of Cove, sell any material assets or businesses, (v) in the case of Cove, enter into any contract, agreement, commitment or arrangement to do any of the foregoing; or |
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(vi) in the case of Kevin Peterson, he or she shall not resign as a director or officer of Cove until the effective time of the Merger; | |
(e) It shall use reasonable efforts to preserve intact its business organization and goodwill, keep available the services of its present officers and key employees, and preserve the goodwill and business relationships with suppliers, distributors, customers, and others having business relationships with it, and not engage in any action, directly or indirectly, with the intent to impact adversely the transactions contemplated by the Merger Agreement; | |
(f) It shall confer on a regular basis with one or more representatives of the other to report on material operational matters and the general status of ongoing operations; and | |
(g) It shall file with the SEC all forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) required to be filed by it pursuant to the Exchange Act. |
No Solicitation of Transactions |
Access to Information |
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Euroseas Registration Statement |
SEC Filings by Cove |
Cove Stockholders’ Approval |
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Stock Exchange Listing/ Exchange Act Listing |
Agreement to Cooperate |
Public Statements |
Corrections to the Proxy Statement and the Euroseas Registration Statement |
Conditions to Each Party’s Obligations to Effect the Merger. |
(a) Cove shall have obtained approval of the Cove stockholders; | |
�� | (b) The Euroseas Registration Statement shall have become effective and shall not be the subject of any stop order or proceedings seeking a stop order; |
(c) Euroseas shall have applied for the Stock Exchange Listing and the Exchange Act Listing; | |
(d) No preliminary or permanent injunction or other order or decree by any governmental authority which prevents or materially burdens the consummation of the Merger shall have been issued and remain in effect (each party agreeing to use its reasonable efforts to have any such injunction, order or decree lifted); | |
(e) No action shall have been taken, and no statute, rule or regulation shall have been enacted, by any governmental authority, which would prevent or materially burden the consummation of the Merger; and |
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(f) All consents, orders and approvals legally required for the consummation of the Merger and the transactions contemplated hereby shall have been obtained and be in effect at the effective time of the Merger without any material limitations or conditions. |
Conditions to Obligations of Euroseas to Effect the Merger. |
(a) Cove and the Cove Principals shall have performed in all material respects their agreements contained in the Merger Agreement required to be performed on or prior to the closing date and the representations and warranties of Cove and the Cove Principals contained in the Merger Agreement shall be true and correct in all material respects (except for those representations and warranties which are themselves limited by a reference to materiality, which shall be true and correct in all respects other than as modified) on and as of (i) the date made and (ii) the closing date (in each case except in the case of representations and warranties expressly made solely with reference to a particular date which shall be true and correct in all material respects as of such date); and Euroseas shall have received a certificate of the President of Cove to that effect; | |
(b) Euroseas shall have received an opinion of Kirkpatrick & Lockhart Nicholson Graham, LLP, counsel to Cove, dated the closing date, in form and substance reasonably satisfactory to Euroseas; | |
(c) Since the date of the Merger Agreement there shall not have been any material adverse effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas by Cove and which would have a material adverse effect on Euroseas, and Cove shall have engaged in no business activity since the date of its incorporation other than conducting a public offering of its securities, the apparel business and, thereafter, seeking to effect a merger or similar business combination with an operating business; | |
(d) Euroseas shall have received a certificate from the corporate Secretary of Cove, together with a certified copy of the resolutions duly authorized by Cove’s Board of Directors authorizing the Merger and, if applicable, the transactions contemplated by the Merger Agreement; | |
(e) Euroseas shall have received a certificate of good standing for Cove from the Secretary of State of the State of Nevada dated as of a date that is within five (5) days of the closing date; | |
(f) Cove shall have furnished to Euroseas such additional certificates and other customary closing documents as Euroseas may have reasonably requested; | |
(g) At the effective time of the Merger, Cove shall have approximately $10,000 in cash or cash equivalents after giving effect to the payment or accrual on or prior to the effective time of the Merger of all fees, costs, expenses and liabilities incurred by Cove, including, but not limited to, the fees, costs and expenses of (i) Cove’s manufacturers, suppliers, vendors and third-party providers, (ii) Cove’s attorneys, accountants, investment bankers and consultants in connection with the transactions contemplated by the Merger Agreement and (iii) the repayment of any outstanding loans; | |
(h) A pledge agreement shall have been executed pursuant to which the Cove Principals shall have pledged or caused Euroseas shares to be pledged to Euroseas by the Cove Principals or pledgors reasonably acceptable to Euroseas and deposited with an independent collateral agent to secure the indemnification obligations of the Cove Principals under the Merger Agreement; | |
(i) Euroseas shall have raised at least $21 million in the Private Placement on terms reasonably satisfactory to Euroseas; | |
(j) At closing, Cove’s capitalization shall be unchanged and all loans made to Cove and all other outstanding debt and all other liabilities shall have been paid in full; | |
(k) Euroseas shall have received written resignations and releases from each of Cove’s directors and officers and which resignations and releases, by their respective terms, shall become effective immedi- |
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ately prior to the effective time of the Merger; provided however that Jodi Hunter shall remain an at will employee of Cove and the Surviving Corporation; | |
(l) Cove shall have conducted the operation of its business in material compliance with all applicable laws and all approvals required of Cove under applicable law to enable Cove to perform its obligations under the Merger Agreement shall have been obtained; | |
(m) Cove shall have moved its principal headquarters from California to the Cayman Islands and shall have filed all documentation and paid all fees necessary to locate its principal headquarters in the Cayman Islands and to terminate its authorization to do business in California; and | |
(n) All corporate proceedings of Cove in connection with the Merger and the other transactions contemplated by the Merger Agreement and all agreements, instruments, certificates, and other documents delivered to Euroseas by or on behalf of Cove pursuant to the Merger Agreement shall be reasonably satisfactory to Euroseas and its counsel. |
Conditions to Obligations of Cove to Effect the Merger. |
(a) Euroseas shall have performed in all material respects its agreements contained in the Merger Agreement required to be performed on or prior to the closing date and the representations and warranties of Euroseas contained in the Merger Agreement shall be true and correct in all material respects (except for those representations and warranties which are themselves limited by a reference to materiality, which shall be true and correct in all respects, other than as modified) on and as of (i) the date made and (ii) the closing date (in each case except in the case of representations and warranties expressly made solely with reference to a particular date which shall be true and correct in all material respects as of such date); and Cove shall have received a certificate of the President of Euroseas to that effect; | |
(b) Cove shall have received an opinion of Seward & Kissel LLP, counsel to Euroseas, dated the closing date, in form and substance reasonably satisfactory to Cove; | |
(c) At closing, Euroseas’ capitalization shall be unchanged, except as may be adjusted for the issuance of the shares and warrants, if any, in the Private Placement; | |
(d) Cove shall have received a certificate of the corporate Secretary of Euroseas, together with a certified copy of the resolutions duly authorized by the Board of Directors and Euroseas authorizing the Merger and the transactions contemplated by the Merger Agreement; | |
(e) Cove shall have received a certificate of good standing for Euroseas from the Registrar of Corporations of the Republic of the Marshall Islands dated as of a date that is within five (5) days of the closing date; | |
(f) Euroseas shall have furnished to Cove such additional certificates and other customary closing documents as Cove may have reasonably requested; | |
(g) Since the date of the Merger Agreement there shall not have been any material adverse effect with respect to Euroseas and its subsidiaries, the likelihood of which was not previously disclosed to Cove by Euroseas; and | |
(h) All corporate proceedings of Euroseas in connection with the Merger and the other transactions contemplated by the Merger Agreement and all agreements, instruments, certificates and other documents delivered to Cove by or on behalf of Euroseas pursuant to the Merger Agreement shall be in substantially the form called for hereunder or otherwise reasonably satisfactory to Cove and its counsel. |
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(a) by mutual consent in writing of Cove and Euroseas; | |
(b) unilaterally upon written notice by Cove to Euroseas upon the occurrence of a material adverse effect with respect to Euroseas, the likelihood of which was not previously disclosed to Cove in writing by Euroseas prior to the date of the Merger Agreement; | |
(c) unilaterally upon written notice by Euroseas to Cove upon the occurrence of a material adverse effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas in writing by Cove prior to the date of the Merger Agreement; | |
(d) unilaterally upon written notice by Cove to Euroseas in the event a material breach of any material representation or warranty of Euroseas contained in the Merger Agreement (unless such breach shall have been cured within ten (10) days after the giving of such notice by Cove), or the willful failure of Euroseas to comply with or satisfy any material covenant or condition of Euroseas contained in the Merger Agreement; | |
(e) unilaterally upon written notice by Euroseas to Cove in the event of a material breach of any material representation or warranty of Cove or the Cove Principals contained in the Merger Agreement (unless such breach shall have been cured by Cove or the Cove Principals within ten (10) days after the giving of such notice by Euroseas), or Cove’s or the Cove Principals’ willful failure to comply with or satisfy any material covenant or condition of Cove or the Cove Principals contained in the Merger Agreement, or if Cove fails to obtain the approval of Cove’s stockholders; or | |
(f) unilaterally upon written notice by either Cove or Euroseas to the other if the Merger is not consummated for any reason by the close of business on February 28, 2006, provided however that no party may avail itself of this ground for termination if such failure to consummate the Merger is caused by such party either in breach of the Merger Agreement or by not proceeding in good faith towards the consummation of the Merger. |
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General |
Cove’s Business |
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Cove’s Competition |
Cove’s Employees |
Cove’s Facilities |
Cove’s Legal Proceedings |
Cove’s Management |
Name | Age | Position | ||||||
Kevin Peterson | 33 | President, Secretary, Director |
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Compensation |
Executive Compensation |
Director Compensation |
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Cove Principal Stockholders |
Pre-Merger Cove | Pre-Merger | Post-Merger | ||||||||||||||
Name and Address of | Amount of Shares | Cove Percent of | Euroseas Percent | |||||||||||||
Title of Class | Beneficial Owner(1) | Beneficially Owned | Class | of Class(2) | ||||||||||||
Common Stock | Kevin Peterson | None | 0 | % | None | |||||||||||
President, Director, Secretary | ||||||||||||||||
1003 Dormador, Suite 21 | ||||||||||||||||
San Clemente, CA 92672 | ||||||||||||||||
Common Stock | Seward Ave Partners, LLC(3) | 1,405,395 | 13.41 | % | * | |||||||||||
c/o Winnie Huang | ||||||||||||||||
175 South Lake Avenue, Suite 307 | ||||||||||||||||
Pasadena, California 91101 | ||||||||||||||||
Common Stock | Jonathan Spanier | 1,385,396 | 13.22 | % | * | |||||||||||
269 S. Beverly Dr., Suite 1102 | ||||||||||||||||
Beverly Hills, CA 90212 | ||||||||||||||||
Common Stock | Olive Grove, LLC(4) | 1,609,209 | 15.35 | % | * | |||||||||||
P.O. Box 5303 | ||||||||||||||||
Beverly Hills, CA 90209 | ||||||||||||||||
Common Stock | Blue Star Investors Limited(5) | 2,650,000 | 25.29 | % | * | |||||||||||
c/o James Loughran | ||||||||||||||||
38 Hertford Street | ||||||||||||||||
London W1JSG, England | ||||||||||||||||
Common Stock | Jodi Hunter | 900,000 | 8.58 | % | * | |||||||||||
1003 Dormador, Suite 21 | ||||||||||||||||
San Clemente, CA 92672 | ||||||||||||||||
Common Stock | All directors and officers and 5% | 7,950,000 | 75.85 | % | 2.09 | % | ||||||||||
owners as a group |
* | Indicates less than 1.0%. |
(1) | Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities. Except as set forth below or subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by him/her. |
(2) | The post-Merger percentages are based on a total of 37,860,326 Euroseas shares outstanding after the Merger. |
(3) | Seward Ave Partners, LLC is a Delaware limited liability company. Beneficial ownership of these securities is as follows: 92% Jesse Grossman; 4% Anthony Salandra; and 4% Winnie Huang who share investment power and voting control in the same proportions as beneficial ownership. |
(4) | Olive Grove, LLC is a limited liability company organized under the laws of the State of California. Olive Grove, LLC is beneficially owned by the following members in the following approximate percentages: 85% by Peter G. Geddes and 15% by David Graber. Peter G. Geddes has investment power and voting control over these securities. |
(5) | James A. Loughran and Barry Taleghany each acting singly has investment power and voting control over these securities, and has beneficial ownership of these securities. |
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Certain Related Transactions of Cove |
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For the Year Ended September 30, 2005 as Compared to the Year Ended September 30, 2004. |
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For the Three Months Ended June 30, 2005 Compared to the Same Period Ended June 30, 2004. |
For the Nine Month Period Ending June 30, 2005 Compared to the Same Period Ended June 30, 2004. |
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For the Year Ended September 30, 2004 as Compared to the Year Ended September 30, 2003. |
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For the Period From Our Inception on December 13, 2001 to September 30, 2004 |
1. | We must continue to expand our distribution network in the Caribbean Islands to market, distribute and sell surf-inspired clothing and other accessories that we distribute. | |
2. | We must continue to develop relationships with third party surf wear and accessories manufacturers to expand the product lines that we distribute. | |
3. | We must continue developing our own collection of men’s apparel under a new brand name, which we will sell and distribute throughout the United States, Japan and our established distribution network in the Caribbean. | |
4. | We must begin researching potential acquisitions or other suitable business partners which will assist us in realizing our business objectives. We hope to acquire several, smaller and more established surf apparel companies with already established product lines. |
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General |
Corporate Structure |
Country of | Vessel Name | Flag | ||||||||
Owner | Incorporation | |||||||||
1 | ) | Diana Trading Ltd. | Republic of the | IRINI | Marshall Islands | |||||
Marshall Islands | ||||||||||
2 | ) | Alterwall Business Inc. | Republic of Panama | YM QINGDAO I | Panamanian | |||||
3 | ) | Allendale Investments S.A. | Republic of Panama | KUO HSIUNG | Panamanian | |||||
4 | ) | Alcinoe Shipping Limited | Republic of Cyprus | PANTELIS P. | Cypriot | |||||
5 | ) | Searoute Maritime Limited | Republic of Cyprus | ARIEL | Cypriot | |||||
6 | ) | Oceanpride Shipping Limited | Republic of Cyprus | JOHN P. | Cypriot | |||||
7 | ) | Oceanopera Shipping Limited | Republic of Cyprus | NIKOLAOS P. | Cypriot | |||||
8 | ) | Salina Shipholding Corp. | Republic of the | ARTEMIS | Marshall Islands | |||||
Marshall Islands |
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Euroseas’ Fleet |
Country | ||||||||||||||||||||
Vessel | Dwt | Built | Year Built | Type | TEU Capacity | |||||||||||||||
IRINI | 69,734 | Japan | 1988 | Dry Bulk | N/A | |||||||||||||||
YM QINGDAO I | 18,253 | Japan | 1990 | Containership | 1,269 | |||||||||||||||
KUO HSIUNG | 18,154 | Japan | 1993 | Containership | 1,269 | |||||||||||||||
PANTELIS P | 26,354 | Scotland | 1981 | Dry Bulk | N/A | |||||||||||||||
ARIEL | 33,712 | Japan | 1977 | Dry Bulk | N/A | |||||||||||||||
JOHN P | 26,354 | Scotland | 1981 | Dry Bulk | N/A | |||||||||||||||
NIKOLAOS P | 34,750 | Spain | 1984 | Dry Bulk | N/A | |||||||||||||||
ARTEMIS | 29,693 | Croatia | 1989 | Containership | 2,098 |
Competitive Strengths |
• | Experienced Management Team. Euroseas’ management team has significant experience in operating drybulk carriers and expertise in all aspects of commercial, technical, operational and financial areas of its business. The main shareholding family of Euroseas has over 100 years experience in shipping and enjoys a well established reputation. The Pittas family roots in shipping go back four generations to the 19th century. Nikolaos Pittas started the family business more than 125 years ago and has been followed by his sons and his grandsons, one of whom is Mr. John Pittas, a controlling shareholder of Friends, the largest shareholder of Euroseas. Aristides J. Pittas, his son, is the CEO, President, Chairman of the Board and a Director of Euroseas. Aristides P. Pittas, his nephew, is the Vice-Chairman of the Board and a Director of Euroseas. This experience enables management, among other things, to identify suitable shipping opportunities and time its investments in an efficient manner. | |
• | Strong Customer Relationships. Euroseas, through Eurobulk, its ship management company, and Eurochart, its chartering broker, each has many long-established customer relationships with major charterers and shipping pools (Klaveness), and Euroseas believes it is well regarded within the international shipping community. | |
• | Profitable Operations to Date. The Pittas family, the principal owners of Eurobulk and of Euroseas’ largest shareholder, has operated vessels over the past 125 years. The vessels have been operated through various partnerships and different entities over these years. In 1995, the Pittas family separated its interests from Oceanbulk Maritime S.A. and formed Eurobulk in order to manage and operate its own vessels. Since the inception of Eurobulk, all vessel acquisitions have been profitable and the group’s results, on a consolidated basis, have been profitable for each of the last five years. This was achieved by carefully selecting secondhand vessels, competitively commissioning and actively supervising cost-efficient shipyards to perform repair, reconditioning and systems upgrading work, together with a proactive preventive maintenance program both ashore and at sea, and employing professional, well-trained masters, officers and crews. Euroseas believes that this combination allows it to minimize off-hire periods, effectively manage insurance costs, and control overall operating expenses. |
Business Strategy |
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Vessel Employment |
International Operations |
• | Vessel m/vYM Qingdao I: Japan (Tokyo, Kobe, Osaka, Yokohama), Taiwan (Kaohsiung, Keelung, Taichung), Hong Kong, China (Tianjin, Dalian), Vietnam (Ho Chi Mingh) |
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• | Vessel m/vKuo Hsiung: Japan (Tokyo, Kobe, Osaka, Yokohama), Taiwan (Kaohsiung, Keelung, Taichung), Hong Kong, Thailand (Bangkok, Laem Chabang) | |
• | Vessel m/vArtemis: Italy (Cagliari, Leghorn, Genoa), France (Fos), Spain (Valencia), Portugal (Lisbon), United States (New York, Norfolk, Savannah, Miami) |
• | Far East: all major Chinese ports, Taiwan, South Korea, Singapore, Indonesia (various ports), Malaysia (Port Kelang), Bangladesh, all major Indian ports, Philippines (Manila), Sri Lanka | |
• | Australia: Newcastle, Port Lincoln | |
• | Middle East: UAE (Dubai, Fujairah), Saudi Arabia, Jordan (Aqaba), Turkey (Eregli, Istanbul, Izmir) | |
• | Europe: all seaport nations, mostly Italy, Spain, France, Greece, UK, Netherlands, Belgium, Germany, Poland, Scandinavian countries, Russia, Ukraine, Romania, etc. | |
• | Africa: South Africa, Sudan, Egypt, Morocco, Nigeria, Guinea, Ghana. However, with respect to Sudan, we have not had any material contact with such country and do not anticipate having any such contact in the future. Our prior contact was an indirect contact that was limited to a one-time discharge of a cargo of bulk sugar. Generally, Sudan is an excluded destination from our charter party contracts, but in this one instance, the charterer requested that we give them an exemption. We do not maintain any connections with Sudan whatsoever and do not anticipate any future contacts with Sudan so long as Sudan is subject to U.S. sanctions. | |
• | North and South America: USA (all major ports), Canada (all major ports), Mexico (all major ports), Caribbean, Venezuela, Colombia, Brazil (all major ports), Argentina, Chile, Peru |
Customers |
Euroseas’ Ship Management |
Euroseas’ Employees |
Euroseas’ Property |
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Euroseas’ Competitors |
• | Diana Shipping (NYSE: DSX) — larger vessels (13). | |
• | Dryships (Nasdaq: DRYS) — larger vessels (27). | |
• | Excel Maritime (NYSE: EXM) — mix of vessels (17) primarily larger size. | |
• | Eagle Bulk Shipping (Nasdaq: EGLE) — handymaxes (14) |
Euroseas’ Seasonality |
Environmental and Other Regulations |
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Environmental Regulation — International Maritime Organization (“IMO”) |
Environmental Regulations — The United States of America Oil Pollution Act of 1990 |
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Vessel Security Regulations |
• | on-board installation of automatic information systems (“AIS”), to enhancevessel-to-vessel andvessel-to-shore communications; | |
• | on-board installation of ship security alert systems; | |
• | the development of vessel security plans; and | |
• | compliance with flag state security certification requirements. |
Inspection by Classification Societies |
Risk of Loss and Liability Insurance |
General |
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Hull and Machinery Insurance |
Protection and Indemnity Insurance |
Euroseas’ Legal Proceedings |
Euroseas’ Exchange Controls |
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Description of Management of Euroseas |
Name | Age | Position | ||||
Aristides J. Pittas | 46 | Chairman, President and CEO; Director | ||||
Dr. Anastasios Aslidis | 45 | CFO and Treasurer; Director | ||||
Aristides P. Pittas | 53 | Vice Chairman; Director | ||||
Stephania Karmiri | 37 | Secretary | ||||
George Skarvelis | 44 | Director | ||||
George Taniskidis | 44 | Director | ||||
Gerald Turner | 57 | Director | ||||
Panagiotis Kyriakopoulos | 45 | Director |
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Euroseas’ Family Relationships |
Audit Committee |
Code of Ethics |
Euroseas’ Director Compensation |
Euroseas’ Executive Compensation and Employment Agreements |
Euroseas’ Options |
Euroseas’ Option Plans |
Corporate Governance |
• | Euroseas will have a board of directors with a majority of independent directors which holds at least one annual meeting at which only independent directors are present, consistent with Nasdaq corporate governance requirements. Euroseas is not required under Marshall Islands law to maintain a board of directors with a majority of independent directors, and it cannot guarantee that it will always in the future maintain a board of directors with a majority of independent directors. |
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• | In lieu of a compensation committee comprised of independent directors, Euroseas’ board of directors will be responsible for establishing the executive officers’ compensation and benefits. Under Marshall Islands law, compensation of the executive officers is not required to be determined by an independent committee. | |
• | In lieu of a nomination committee comprised of independent directors, Euroseas’ board of directors will be responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders may also identify and recommend potential candidates to become candidates to become board members in writing. No formal written charter has been prepared or adopted because this process is outlined in Euroseas’ bylaws. | |
• | In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Marshall Islands law requirements,a related party transaction will be permitted if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, or, if the votes of the disinterested directors are insufficient to constitute an act of the board as defined in Section 55 of the Marshall Islands Business Corporations Act, by unanimous vote of the disinterested directors; or (ii) the material facts as to his relationship or interest are disclosed and the shareholders are entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a simple majority vote of the shareholders; or (iii) the contract or transaction is fair as to Euroseas as of the time it is authorized, approved or ratified, by the board, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board or of a committee which authorizes the contract or transaction. | |
• | As a foreign private issuer, Euroseas is 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, Euroseas will notify its 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, Euroseas’ bylaws provide that shareholders must give it advance notice to properly introduce any business at a meeting of the shareholders. Euroseas’ bylaws also provide that shareholders may designate in writing a proxy to act on their behalf. | |
• | In lieu of holding regular meetings at which only independent directors are present, Euroseas’ entire board of directors, a majority of whom are independent, will hold regular meetings as is consistent with the laws of the Republic of the Marshall Islands. |
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Euroseas Principal Shareholders |
Pre-Merger and | ||||||||||||||
Private Placement | Pre-Merger and | |||||||||||||
Euroseas Amount | Private | Post-Merger and | ||||||||||||
of Shares | Placement | Private Placement | ||||||||||||
Name and Address of | Beneficially | Euroseas Percent | Euroseas Percent | |||||||||||
Title of Class | Beneficial Owner(1) | Owned | of Class | of Class | ||||||||||
Common Stock | Friends Investment Company Inc.(2) | 29,754,166 | 100 | % | 78.59 | % | ||||||||
Common Stock | Aristides J. Pittas(3) | 714,100 | 2.4 | % | 1.89 | % | ||||||||
Common Stock | George Skarvelis(4) | 1,576,971 | 5.3 | % | 4.16 | % | ||||||||
Common Stock | George Taniskidis(5) | 29,754 | * | * | ||||||||||
Common Stock | Gerald Turner(6) | 422,509 | 1.42 | % | 1.11 | % | ||||||||
Common Stock | Panagiotis Kyriakopoulos(7) | 178,525 | * | * | ||||||||||
Common Stock | Aristides P. Pittas(8) | 2,439,842 | 8.2 | % | 6.44 | % | ||||||||
Common Stock | Anastasios Aslidis | 0 | 0 | % | 0 | % | ||||||||
Common Stock | Stephania Karmiri(9) | 5,951 | * | * | ||||||||||
Common Stock | All directors and officers and 5% owners as a group | 29,754,166 | 100 | % | 78.59 | % |
* | Indicates less than 1.0%. |
(1) | Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities. Except as subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by him/her. |
(2) | John Pittas has investment power and voting control over these securities. |
(3) | Includes 714,100 shares of common stock held of record by Friends, by virtue of Mr. Pittas’ ownership interest in Friends. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. |
(4) | Includes 1,576,971 shares of common stock held of record by Friends, by virtue of Mr. Skarvelis’ ownership interest in Friends. Mr. Skarvelis disclaims beneficial ownership except to the extent of his pecuniary interest. |
(5) | Includes 29,754 shares of common stock held of record by Friends, by virtue of Mr. Taniskidis’ ownership in Friends. Mr. Taniskidis disclaims beneficial ownership except to the extent of his pecuniary interest. |
(6) | Includes 422,509 shares of common stock held of record by Friends, by virtue of Mr. Turner’s ownership interest in Friends. Mr. Turner disclaims beneficial ownership except to the extent of his pecuniary interest. |
(7) | Includes 178,525 shares of common stock held of record by Friends, by virtue of Mr. Kyriakopoulos’ ownership in Friends. Mr. Kyriakopoulos disclaims beneficial ownership except to the extent of his pecuniary interest. |
(8) | Includes 2,439,842 shares of common stock held of record by Friends, by virtue of Mr. Pittas’ ownership interest in Friends. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. |
(9) | Includes 5,951 shares of common stock held of record by Friends, by virtue of Mrs. Karmiri’s ownership in Friends. Mrs. Karmiri disclaims beneficial ownership except to the extent of his pecuniary interest. |
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Certain Related Transactions of Euroseas |
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Merger With Cove |
Declaration And Payment of Dividend |
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Authorization Of 1:2 Reverse Stock Split |
Acquisition of Vessel |
Lack of Historical Operating Data for Vessels Before their Acquisition |
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• | 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; | |
• | replace all hired equipment on board, such as gas cylinders and communication equipment; | |
• | negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; | |
• | 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. |
Factors Affecting Our Results of Operations |
• | Calendar days. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period. | |
• | Available days. We define available days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled repairs, drydockings or special or intermediate surveys. The shipping industry uses available days to measure the number of days in a period during which vessels were available to generate revenues. | |
• | Voyage days. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled and unscheduled repairs, drydockings or special or intermediate surveys or days waiting to find employment. The shipping industry uses voyage days to measure the number of days in a period during which vessels actually generate revenues. | |
• | Fleet utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our available days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off hire for reasons such as unscheduled repairs or days waiting to find employment. | |
• | Spot Charter Rates. Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. The fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. | |
• | Time Charter Equivalent. A standard maritime industry performance measure used to evaluate performance is the daily time charter equivalent, or daily TCE. Daily TCE revenues are voyage revenues minus voyage expenses divided by the number of voyage days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter. We believe that the daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employ- |
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ment of drybulk carriers on time charter or on the spot market (containership are chartered on a time charter basis) and presents a more accurate representation of the revenues generated by our vessels. |
Basis of Presentation and General Information |
• | Voyage revenues. Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charter hire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the transportation market and other factors affecting spot market charter rates in both the drybulk carrier and containership markets. | |
• | Commissions. We pay commissions on all chartering arrangements of 1-1.25% to Eurochart, one of our affiliates, plus additional commission of usually up to 5% to other brokers involved in the transaction. These additional commissions, as well as changes to charter rates will cause our commission expenses to fluctuate from period to period. Eurochart also receives a fee equal to 1% calculated as stated in the relevant memorandum of agreement for any vessel bought or sold by them on our behalf. | |
• | Voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage which would otherwise be paid by the charterer under a time charter contract, as well as commissions. Under time charters, the charterer pays voyage expenses whereas under spot market voyage charters, we pay such expenses. The amounts of such voyage expenses are driven by the mix of charters undertaken during the period. | |
• | Vessel Operating Expenses. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically changed in line with the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, (including, for instance, developments relating to market prices for insurance or inflationary increases) may also cause these expenses to increase. | |
• | Management fees. These are the fees that we pay to Eurobulk, our ship manager and an affiliate, under our management agreement with Eurobulk for the technical and commercial management that Eurobulk performs on our behalf. The fee is 590 Euros per vessel per day and is payable monthly in advance. | |
• | Depreciation. We depreciate our vessels on a straight-line basis with reference to the cost of the vessel, age and scrap value as estimated at the date of acquisition. Depreciation is calculated over the remaining useful life of the vessel, which is estimated to range from 25 to 30 years from the date of original construction. Remaining useful lives of property are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of estimated lives are recognized over current and future periods. During 2004, management changed its estimate of the scrap value of its vessels. | |
• | Amortization of deferred drydocking costs. Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are trading. We capitalize the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Costs capitalized as part of the drydocking include actual costs incurred at the drydock yard; cost of hiring riding crews to effect repairs on a vessel and parts used in making such repairs that are reasonably made in anticipation of reducing the duration or cost of the drydocking; cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee a drydocking. We believe that these |
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criteria are consistent with industry practice and that our policy of capitalization reflects the economics and market values of the vessels. Commencing January 1, 2006, we have revised our policy to exclude the cost of hiring riding crews and the cost of parts used by riding crews from amounts capitalized as drydocking cost. We have not restated any historical financial statements because we determined that the impact of such a revision is not material to our operating income and net income for any periods presented. | ||
• | Interest expense. We traditionally finance vessel acquisitions partly with debt on which we incur interest expense. The interest rate we pay is generally linked to the3-month LIBOR rate, although from time to time we utilize fixed rate loans or could use interest rate swaps to eliminate or interest rate exposure. Interest due is expensed in the period is accrued. Loan cost are amortized over the period of the loan; the un-amortized portion is written-off if the loan is prepaid early. | |
• | General and administrative expenses. We will incur expenses consisting mainly of executive compensation, professional fees, directors liability insurance and reimbursement of our directors’ and officers’ travel-related expenses. General and administrative expenses will increase following the completion of our Private Placement and anticipated Merger due to the duties typically associated with public companies. We acquire executive services, our CEO, CFO and Secretary, through Eurobulk. In 2005, executive compensation for services to us as a public company is estimated to be $500,000 on an annualized basis, starting July 2005, incremental to the management fee. |
Vessel Type | Bulkers | Containerships | Total | |||||||||
Average number of vessels | 5 | 2 | 7 | |||||||||
Number of vessels at end of period | 5 | 2 | 7 | |||||||||
Dwt (in thousands)/ teu at end of period | 190.9 | 2,538 | ||||||||||
Average age at end of period (years) | 22.6 | 14.0 | 20.1 |
Vessel Type | 2005 H1 | 2004 H1 | 2004 | 2003 | 2002 | |||||||||||||||
Utilization in period | 99.8 | % | 99.4 | % | 99.5 | % | 99.3 | % | 99.7 | % | ||||||||||
TCE per ship per day | $ | 19,099 | $ | 15,956 | $ | 17,839 | $ | 8,965 | $ | 6,049 | ||||||||||
Operating expenses per ship per day including management fees $ | $ | 4,133 | $ | 4,129 | $ | 4,064 | $ | 3,595 | $ | 3,467 | ||||||||||
Voyage revenues ($ thousand) | $ | 23,834 | $ | 21,322 | $ | 45,718 | $ | 25,951 | $ | 15,292 | ||||||||||
Net income ($ thousand) | $ | 14,763 | $ | 14,910 | $ | 30,612 | $ | 8,427 | $ | 892 | ||||||||||
Voyage days | 1,239.4 | 1,333 | 2,542 | 2,846 | 2,440 | |||||||||||||||
Available Days | 1,242 | 1,338 | 2,554 | 2,867 | 2,448 | |||||||||||||||
Calendar days | 1,267 | 1,389 | 2,677 | 2,920 | 2,490 |
Six month period ended June 30, 2005 compared to six month period ending June 30, 2004. |
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Cash Flows |
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Net cash from operating activities. |
Net cash from investing activities. |
Net cash used in financing activities. |
Debt Financing |
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Dividend Policy |
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Liquidity and Capital Resources |
Off-Balance Sheet Arrangements |
For the year ended December 31, 2004 compared to the year ended December 31, 2003 |
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Cash Flows |
Net cash from operating activities. |
Net cash from investing activities. |
Net cash used in financing activities. |
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Liquidity and Capital Resources |
Off-Balance Sheet Arrangements |
For the year ended December 31, 2003 compared to the year ended December 31, 2002 |
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Cash Flows |
Net cash from operating activities. |
Net cash from investing activities. |
Net cash used in financing activities. |
Liquidity and Capital Resources |
Off-Balance Sheet Arrangements |
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Contractual Obligations and Commitments |
Euroseas’ contractual obligations are set forth in the following table as of June 30, 2005, as related to the future annual loan repayments: |
Less Than | One to | Three to | More Than | |||||||||||||||||
In U.S. Dollars | Total | One Year | Three Years | Five Years | Five Years | |||||||||||||||
Bank debt | $ | 41,400,000 | $ | 14,780,000 | $ | 19,160,000 | $ | 4,660,000 | $ | 2,800,000 | ||||||||||
Interest Payment(1) | $ | 4,295,771 | $ | 1,790,505 | $ | 2,217,505 | $ | 194,250 | $ | 93,188 | ||||||||||
Management Fees(2) | $ | 11,176,241 | $ | 2,022,192 | $ | 4,419,631 | $ | 4,734,418 | — |
(1) | Assuming the amortization of the loan described above and an estimated average effective interest rate of 5.3%, 5.4% and 5.1% for the three periods respectively. |
(2) | Refers to our obligation for management fees of 590 Euros per day per vessel (approximately $718) for the seven vessels owned by Euroseas at June 30, 2005 and the eighth vessel we acquired on November 25, 2005, under our five-year management contract. For years two to five we have assumed no change in the number of vessels, on inflation rate of 3.5% per year and no changes in the U.S. Dollar to Euro exchange rate (assumed approximately at 1.218 USD/Euro). |
Depreciation |
Revenue and expense recognition |
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Deferred drydock costs |
Impairment of long-lived assets |
Recent accounting pronouncements |
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Interest Rate Fluctuation RiskThe international drybulk industry is a capital intensive industry, requiring significant amounts of investment. Much of this investment is provided in the form of long term debt. Our debt usually contains interest rates that fluctuate with LIBOR. We do not use financial instruments such as interest rate swaps to manage the impact of interest rate changes on earnings and cash flows and increasing interest rates could adversely impact future earnings. | |
As at June 30, 2005, we had $41.4 million of floating rate debt outstanding with margins over LIBOR ranging from 1.25% to 1.60%. Our interest expense is affected by changes in the general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase of 100 basis points would have decreased our net income and cash flows in the three-month period to June 30, 2005 by approximately $120,000 assuming that the current debt level was the same throughout the quarter. | |
In March, 2004, we entered into an interest rate swap agreement on a notional amount of $3,000,000. Under this swap agreement, we receive interest based on the 3-month LIBOR rate and we pay based on 1.10% fixed rate if the 1 year LIBOR remains below 4.02%: otherwise we pay the 1-year LIBOR rate. This agreement expires in March, 2007, and can be terminated at any time. | |
Foreign Exchange Rate RiskThe international drybulk and containership shipping industry’s functional currency is the U.S. Dollar. We generate all of our revenues in U.S. dollars, but incur approximately 28% of our expenses in currencies other than U.S. dollars. At June 30, 2005, approximately 27% of our outstanding accounts payable were denominated in currencies other than the U.S. dollar, mainly in Euros. The Company does not make use of currency exchange contracts to reduce the risk of adverse foreign currency movements but we believe that our exposure from market rate fluctuations is unlikely to be material. Net foreign exchange gains for the six-month period to June 30, 2005 were $312. | |
Inflation Risk The general rate of inflation has been relatively low in recent years and as such its associated impact on costs has been minimal. The Company does not believe that inflation has had, or is likely to have in the foreseeable future, a significant impact on expenses. Should inflation increase, it will increase our expenses and subsequently have a negative impact on our earnings. | |
The following table sets forth the sensitivity of loans in U.S. dollars to a 100 basis points increase in LIBOR during the next five years: |
Year Ended June 30, | Amount | |||
2006 | 340,100 | |||
2007 | 221,300 | |||
2008 | 125,500 | |||
2009 | 60,300 | |||
2010 and thereafter | 51,000 | |||
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Certain Provisions of Euroseas’ Articles of Incorporation and Bylaws |
• | allow the Board of Directors to issue, without further action by the shareholders, up to 20,000,000 shares of undesignated preferred stock; | |
• | require that special meetings of its shareholders be called only by the Board of Directors or the Chairman of the Board; and | |
• | establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of shareholders. |
• | prior to such time, the Board of Directors of Euroseas approved either the Business Combination or the transaction which resulted in the shareholder becoming an Interested Shareholder; or | |
• | upon consummation of the transaction which resulted in the shareholder becoming an Interested Shareholder, the Interested Shareholder owned at least 85% of the voting stock of Euroseas outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or | |
• | at or subsequent to such time, the Business Combination is approved by the Board of Directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least 51% of the outstanding voting stock that is not owned by the interested shareholder; or | |
• | the shareholder became an Interested Shareholder prior to the consummation of the initial public offering of Euroseas’ common stock under the Securities Act. |
• | A shareholder becomes an Interested Shareholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the shareholder ceases to be an Interested Shareholder; and (ii) would not, at any time within the three-year period immediately prior to a Business Combination between Euroseas and such shareholder, have been an Interested Shareholder but for the inadvertent acquisition of ownership; or | |
• | The Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an Interested Shareholder during the previous three years or who became an Interested Shareholder with the approval of the Board; and (iii) is approved or not opposed by a majority of the members of the Board then in office (but not less than one) who were Directors prior to any person becoming an Interested Shareholder during the previous three years or were recommended |
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for election or elected to succeed such Directors by a majority of such Directors. The proposed transactions referred to in the preceding sentence are limited to: |
(a) a merger or consolidation of Euroseas (except for a merger in respect of which, pursuant to the BCA, no vote of the shareholders of Euroseas is required); | |
(b) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of Euroseas or of any direct or indirect majority-owned subsidiary of Euroseas (other than to any direct or indirect wholly-owned subsidiary or to Euroseas) having an aggregate market value equal to 50% or more of either that aggregate market value of all of the assets of Euroseas determined on a consolidated basis or the aggregate market value of all the outstanding shares; or | |
(c) a proposed tender or exchange offer for 50% or more of the outstanding voting shares of Euroseas. |
• | Any merger or consolidation of Euroseas or any direct or indirect majority-owned subsidiary of Euroseas with (i) the Interested Shareholder or any of its affiliates, or (ii) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the Interested Shareholder; | |
• | Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a shareholder of Euroseas, to or with the Interested Shareholder, whether as part of a dissolution or otherwise, of assets of Euroseas or of any direct or indirect majority-owned subsidiary of Euroseas which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of Euroseas determined on a consolidated basis or the aggregate market value of all the outstanding shares; | |
• | Any transaction which results in the issuance or transfer by Euroseas or by any direct or indirect majority-owned subsidiary of Euroseas of any shares, or any share of such subsidiary, to the Interested Shareholder, except: (i) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which securities were outstanding prior to the time that the Interested Shareholder became such; (ii) pursuant to a merger with a direct or indirect wholly-owned subsidiary of Euroseas solely for purposes of forming a holding company; (iii) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which security is distributed, pro rata to all holders of a class or series of shares subsequent to the time the Interested Shareholder became such; (iv) pursuant to an exchange offer by Euroseas to purchase shares made on the same terms to all holders of said shares; or (v) any issuance or transfer of shares by Euroseas; provided however, that in no case under items (iii)-(v) of this subparagraph shall there be an increase in the Interested Shareholder’s proportionate share of the any class or series of shares; | |
• | Any transaction involving Euroseas or any direct or indirect majority-owned subsidiary of Euroseas which has the effect, directly or indirectly, of increasing the proportionate share of any class or series of shares, or securities convertible into any class or series of shares, or shares of any such subsidiary, or securities convertible into such shares, which is owned by the Interested Shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares not caused, directly or indirectly, by the Interested Shareholder; or | |
• | Any receipt by the Interested Shareholder of the benefit, directly or indirectly (except proportionately as a shareholder of Euroseas), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted above) provided by or through Euroseas or any direct or indirect majority-owned subsidiary. |
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• | is the owner of 15% or more of the outstanding voting shares of Euroseas; or | |
• | is an affiliate or associate of Euroseas and was the owner of 15% or more of the outstanding voting shares of Euroseas at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an Interested Shareholder; and the affiliates and associates of such person; provided, however, that the term “Interested Shareholder” shall not include any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of action taken solely by Euroseas; provided that such person shall be an Interested Shareholder if thereafter such person acquires additional shares of voting shares of Euroseas, except as a result of further Company action not caused, directly or indirectly, by such person. |
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Marshall Islands | Nevada | ||
Shareholder Meetings | |||
• Held at a time and place as designated in the bylaws | • May be held in the manner provided in the bylaws. The articles of incorporation may designate any place for such meetings and, in the absence of such designation, as directed by the bylaws. | ||
• May be held within or outside the Marshall Islands | • May be held within or outside Nevada | ||
• Notice: | • Notice: | ||
• Whenever shareholders are required to take action at a meeting, written notice shall state the place, date and hour of the meeting and indicate that it is being issued by or at the direction of the person calling the meeting | • Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of electronic communication, if any by which stockholders and proxies may be deemed to be present and vote at such meeting | ||
• A copy of the notice of any meeting shall be given personally or sent by mail not less than 15 nor more than 60 days before the meeting | • Written notice shall be given not less than 10 nor more than 60 days before the date of the meeting | ||
Shareholders’ Voting Rights | |||
• Any action required to be taken by meeting of shareholders may be taken without meeting if consent is in writing and is signed by all the shareholders entitled to vote | • Stockholders may act by majority written consent with respect to any action required or permitted to be taken at a meeting of stockholders | ||
• Any person authorized to vote may authorize another person to act for him by proxy | • Any person authorized to vote may authorize another person or persons to act for him by proxy |
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Marshall Islands | Nevada | ||
• Unless otherwise provided in the articles of incorporation, a majority of shares entitled to vote constitutes a quorum. In no event shall a quorum consist of fewer than one third of the shares entitled to vote at a meeting | |||
• The Articles of Incorporation may provide for cumulative voting | • The voting power present in person or by the proxy at the meeting shall constitute a quorum | ||
• The articles of incorporation may provide for cumulative voting | |||
Directors | |||
• Board must consist of at least one member | • Board must consist of at least one member | ||
• Number of members can be changed by an amendment to the bylaws, by the shareholders, or by action of the board | • A corporation may provide in its articles of incorporation or in its bylaws for a fixed or variable number of directors and for the manner in which the number may be increased or decreased | ||
• If the board is authorized to change the number of directors, it can only do so by an absolute majority (majority of the entire board) | |||
Dissenters’ Rights of Appraisal | |||
• Shareholder’s have a right to dissent from a merger or sale of all or substantially all assets not made in the usual course of business, and receive payment of the fair value of their shares | • Stockholders have right to dissent in a merger, a plan of exchange and in any corporate action if such action requires a vote of stockholders or to the extent that the articles, bylaws or board resolutions provide for dissenter’s rights. | ||
• A holder of any adversely affected shares who does not vote on or consent in writing to an amendment to the articles of incorporation has the right to dissent and to receive payment for such shares if the amendment: | |||
• Alters or abolishes any preferential right of any outstanding shares having preference; or | |||
• Creates, alters, or abolishes any provision or right in respect to the redemption of any outstanding shares; or | |||
• Alters or abolishes any preemptive right of such holder to acquire shares or other securities; or | |||
• Excludes or limits the right of such holder to vote on any matter, except as such right may be limited by the voting rights given to new shares then being authorized of any existing or new class |
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Marshall Islands | Nevada | |
Shareholder’s Derivative Actions | ||
• An action may be brought in the right of a corporation to procure a judgement in its favor, by a holder of shares or of voting trust certificates or of a beneficial interest in such shares or certificates. It shall be made to appear that the plaintiff is such a holder at the time of bringing the action and that he was such a holder at the time of the transaction of which he complains, or that his shares or his interest therein devolved upon him by operation of law | • In any derivative suit instituted by a stockholder of a corporation, it shall be averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the transaction of which he complains or that such stockholder’s stock thereafter devolved upon such stockholder by operation of law | |
• Complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making such effort | ||
• Such action shall not be discontinued, compromised or settled, without the approval of the High Court of the Republic | ||
• Attorney’s fees may be awarded if the action is successful |
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Marshall Islands | Nevada | |
• Corporation may require a plaintiff bringing a derivative suit to give security for reasonable expenses if the plaintiff owns less than 5% of any class of stock and the shares have a value of less than $50,000 |
(a) demand payment; | |
(b) certify whether you or the beneficial owner on whose behalf you are dissenting, as the case may be, acquired beneficial ownership of the shares before the date required to be set forth in the dissenter’s notice for this certification; and | |
(c) deposit your certificates, if any, in accordance with the terms of the notice. |
(a) the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the subject corporation; or | |
(b) the fair value, plus accrued interest, of his after-acquired shares for which the subject corporation elected to withhold payment pursuant to NRS 92A.470. |
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107
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108
Table of Contents
109
Table of Contents
110
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Page | |||||
F-2 | |||||
Financial Statements: | |||||
F-3 | |||||
F-4 | |||||
F-5 | |||||
F-6 | |||||
F-7 |
F-1
Table of Contents
Cove Apparel, Inc.
/s/ Hall & Company | |
HALL & COMPANY | |
Irvine, California |
F-2
Table of Contents
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 4,096 | ||||||
Accounts receivable, net | — | |||||||
Total assets | $ | 4,096 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 74,480 | ||||||
Total current liabilities | 74,480 | |||||||
Contingencies | ||||||||
Stockholders’ Deficit | ||||||||
Preferred stock, $.001 par value; | ||||||||
Authorized shares — 5,000,000 | ||||||||
Issued and outstanding share — 0 | ||||||||
Common stock, $.001 par value; | ||||||||
Authorized shares — 50,000,000 | ||||||||
Issued and outstanding shares — 10,480,500 | 10,481 | |||||||
Additional paid-in capital | 309,802 | |||||||
Deficit accumulated during the development stage | (390,667 | ) | ||||||
Total stockholders’ deficit | (70,384 | ) | ||||||
Total liabilities and stockholders’ deficit | $ | 4,096 | ||||||
F-3
Table of Contents
Dec. 13, 2001 | ||||||||||||
Year Ended | Year Ended | (Inception) — | ||||||||||
September 30, 2005 | September 30, 2004 | Sept 30, 2005 | ||||||||||
Net revenues | $ | — | $ | 6,500 | $ | 20,966 | ||||||
Selling, general and administrative | 232,538 | 83,228 | 410,033 | |||||||||
Loss before provision for income taxes | (232,538 | ) | (76,728 | ) | (392,067 | ) | ||||||
Provision for income taxes | 800 | 800 | 1,600 | |||||||||
Net loss/ comprehensive loss | $ | (233,338 | ) | $ | (77,528 | ) | $ | (390,667 | ) | |||
Net loss per common share — basic and diluted | $ | (0.03 | ) | $ | (— | ) | $ | (0.05 | ) | |||
Weighted average of common shares — basic and diluted | 10,480,500 | 10,480,500 | 9,240,067 | |||||||||
F-4
Table of Contents
Common Stock | Deficit Accum. | |||||||||||||||||||
Paid in | during | |||||||||||||||||||
Shares | Amount | Capital | Development Stage | Total | ||||||||||||||||
Balance at December 13, 2001, date of incorporation | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Issuance of Founders Shares for services at $0.001 per share (January 2002) (as restated for 3:1 stock split) | 3,000,000 | 3,000 | (2,000 | ) | — | 1,000 | ||||||||||||||
Issuance of common stock for cash at $0.001 per share (February 2002) | 4,500,000 | 4,500 | 10,500 | — | 15,000 | |||||||||||||||
Issuance of common stock for services at $0.001 per share (March 2002) | 300,000 | 300 | 700 | — | 1,000 | |||||||||||||||
Additional paid-in capital in exchange for office expenses | — | — | 900 | — | 900 | |||||||||||||||
Additional paid-in capital in exchange for services from officers | — | — | 17,333 | — | 17,333 | |||||||||||||||
Net loss from inception to September 30, 2002 | — | — | — | (36,699 | ) | (36,699 | ) | |||||||||||||
Balance at September 30, 2002 | 7,800,000 | 7,800 | 27,433 | (36,699 | ) | (1,466 | ) | |||||||||||||
Additional paid-in capital in exchange for office expenses | — | — | 1,200 | — | 1,200 | |||||||||||||||
Additional paid-in capital in exchange for services from officers | — | — | 20,800 | — | 20,800 | |||||||||||||||
Issuance of common stock for cash at $0.001 per share (August 2003) | 2,890,500 | 2,891 | 93,459 | — | 96,350 | |||||||||||||||
Redemption and cancellation of common stock for cash at $0.001 per share (September 2003) | (210,000 | ) | (210 | ) | (6,790 | ) | — | (7,000 | ) | |||||||||||
Net loss for the year ended September 30, 2003 | — | — | — | (43,102 | ) | (43,102 | ) | |||||||||||||
Balance at September 30, 2003 | 10,480,500 | $ | 10,481 | $ | 136,102 | $ | (79,801 | ) | $ | 66,782 | ||||||||||
Additional paid in capital for office expenses | — | — | 900 | — | 900 | |||||||||||||||
Additional paid in capital for services from officers | — | — | 7,800 | — | 7,800 | |||||||||||||||
Net loss for the year ended September 30, 2004 | — | — | — | (77,528 | ) | (77,528 | ) | |||||||||||||
Balance, September 30, 2004 | 10,480,500 | $ | 10,481 | $ | 144,802 | $ | (157,329 | ) | $ | (2,046 | ) | |||||||||
Additional paid in capital for operating expenses | — | — | 165,000 | — | 165,000 | |||||||||||||||
Net loss for the year ended September 30, 2005 | — | — | — | (233,338 | ) | (233,338 | ) | |||||||||||||
Balance, September 30, 2005 | 10,480,500 | $ | 10,481 | $ | 309,802 | $ | (390,667 | ) | $ | (70,384 | ) | |||||||||
F-5
Table of Contents
Year ended Sept. 30, | Dec. 13, 2001 | |||||||||||||||
(Inception) — | ||||||||||||||||
2005 | 2004 | Sept. 30, 2005 | ||||||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net loss | $ | (233,338 | ) | $ | (77,528 | ) | $ | (390,667 | ) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
Expenses paid with common stock | — | — | 2,000 | |||||||||||||
Expenses paid by officer | — | 900 | 3,000 | |||||||||||||
Services provided by officers | — | 7,800 | 45,935 | |||||||||||||
Changes in operating assets and liabilities | ||||||||||||||||
(Increase) decrease in accounts receivable | 6,500 | (6,500 | ) | — | ||||||||||||
Decrease in prepaids | — | 5,000 | — | |||||||||||||
Increase in accounts payable and accrued expenses | 52,984 | 5,638 | 74,478 | |||||||||||||
Increase (decrease) in accrued payroll and related expenses | (2,236 | ) | 2,236 | — | ||||||||||||
Increase (decrease) in related party payable | — | (5,500 | ) | — | ||||||||||||
Net cash used in operating activities | (176,090 | ) | (67,954 | ) | (265,254 | ) | ||||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Loan from stockholder | — | (7,000 | ) | (7,000 | ) | |||||||||||
Additional paid in capital | 165,000 | — | 165,000 | |||||||||||||
Proceeds from issuance of common stock | — | — | 111,350 | |||||||||||||
Net cash provided by (used in) financing activities | 165,000 | (7,000 | ) | 269,350 | ||||||||||||
Net increase (decrease) in cash | (11,090 | ) | (74,954 | ) | 4,096 | |||||||||||
Cash, beginning of period | 15,186 | 90,140 | — | |||||||||||||
Cash, end of period | $ | 4,096 | $ | 15,186 | $ | 4,096 | ||||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||
Income taxes paid | $ | 800 | $ | 800 | $ | 1,600 | ||||||||||
Interest paid | $ | — | $ | — | $ | — | ||||||||||
F-6
Table of Contents
F-7
Table of Contents
Office Space |
F-8
Table of Contents
Page | |||||
F-10 | |||||
Financial Statements: | |||||
F-11 | |||||
F-12 | |||||
F-13 | |||||
F-14 | |||||
F-15 |
F-9
Table of Contents
HALL & COMPANY Irvine, California |
F-10
Table of Contents
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 15,186 | ||||||
Accounts receivable, net | 6,500 | |||||||
Total assets | $ | 21,686 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 21,497 | ||||||
Accrued payroll and related expenses | 2,236 | |||||||
Total current liabilities | 23,732 | |||||||
Contingencies | ||||||||
Stockholders’ Equity (Deficit) | ||||||||
Preferred stock, $.001 par value; | ||||||||
Authorized shares — 5,000,000 | ||||||||
Issued and outstanding share — 0 | ||||||||
Common stock, $.001 par value; | ||||||||
Authorized shares — 50,000,000 | ||||||||
Issued and outstanding shares — 10,480,500 | 10,481 | |||||||
Additional paid-in capital | 144,802 | |||||||
Deficit accumulated during the development stage | (157,329 | ) | ||||||
Total stockholders’ (deficit) | (2,046 | ) | ||||||
Total liabilities and stockholders’ (deficit) | $ | 21,686 | ||||||
F-11
Table of Contents
Year Ended | Year Ended | Inception — | ||||||||||
September 30, 2004 | September 30, 2003 | Sept 30, 2004 | ||||||||||
Net revenues | $ | 6,500 | $ | 8,466 | $ | 20,966 | ||||||
Selling, general and administrative | 83,228 | 51,568 | 177,495 | |||||||||
Loss before provision for income taxes | (76,728 | ) | (43,102 | ) | (156,529 | ) | ||||||
Provision for income taxes | 800 | — | 800 | |||||||||
Net loss | $ | (77,528 | ) | $ | (43,102 | ) | $ | (157,329 | ) | |||
Net loss per common share — basic and diluted | $ | ( — | ) | $ | (0.01 | ) | $ | (0.02 | ) | |||
Weighted average of common shares — basic and diluted | 10,480,500 | 8,203,032 | 8,789,000 | |||||||||
F-12
Table of Contents
Common Stock | Deficit Accum. | |||||||||||||||||||
Paid in | during | |||||||||||||||||||
Shares | Amount | Capital | Development Stage | Total | ||||||||||||||||
Balance at December 13, 2001, date of incorporation | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Issuance of Founders Shares for services at $0.001 per share (January 2002) (as restated for 3:1 stock split) | 3,000,000 | 3,000 | (2,000 | ) | — | 1,000 | ||||||||||||||
Issuance of common stock for cash at $0.001 per share (February 2002) | 4,500,000 | 4,500 | 10,500 | — | 15,000 | |||||||||||||||
Issuance of common stock for services at $0.001 per share (March 2002) | 300,000 | 300 | 700 | — | 1,000 | |||||||||||||||
Additional paid-in capital in exchange for office expenses | — | — | 900 | — | 900 | |||||||||||||||
Additional paid-in capital in exchange for services from officers | — | — | 17,333 | — | 17,333 | |||||||||||||||
Net loss from inception to September 30, 2002 | — | — | — | (36,699 | ) | (36,699 | ) | |||||||||||||
Balance at September 30, 2002 | 7,800,000 | 7,800 | 27,433 | (36,699 | ) | (1,466 | ) | |||||||||||||
Additional paid-in capital in exchange for office expenses | — | — | 1,200 | — | 1,200 | |||||||||||||||
Additional paid-in capital in exchange for services from officers | — | — | 20,800 | — | 20,800 | |||||||||||||||
Issuance of common stock for cash at $0.001 per share (August 2003) | 2,890,500 | 2,891 | 93,459 | — | 96,350 | |||||||||||||||
Redemption and cancellation of common stock for cash at $0.001 per share (September 2003) | (210,000 | ) | (210 | ) | (6,790 | ) | — | (7,000 | ) | |||||||||||
Net loss for the year ended September 30, 2003 | — | — | — | (43,102 | ) | (43,102 | ) | |||||||||||||
Balance at September 30, 2003 | 10,480,500 | $ | 10,481 | $ | 136,102 | $ | (79,801 | ) | $ | 66,782 | ||||||||||
Additional paid in capital for office expenses | — | — | 900 | — | 900 | |||||||||||||||
Additional paid in capital for services from officers | — | — | 7,800 | — | 7,800 | |||||||||||||||
Net loss for the year ended September 30, 2004 | — | — | — | (77,528 | ) | (77,528 | ) | |||||||||||||
Balance, September 30, 2004 | 10,480,500 | $ | 10,481 | $ | 144,802 | $ | (157,329 | ) | $ | (2,046 | ) | |||||||||
F-13
Table of Contents
September 30, | Inception — | |||||||||||||||
Sept. 30, | ||||||||||||||||
2004 | 2003 | 2004 | ||||||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net loss | $ | (77,528 | ) | $ | (43,102 | ) | $ | (157,329 | ) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
Expenses paid with common stock | — | — | 2,000 | |||||||||||||
Expenses paid by officer | 900 | 1,200 | 3,000 | |||||||||||||
Services provided by officers | 7,800 | 20,800 | 45,933 | |||||||||||||
Changes in operating assets and liabilities | ||||||||||||||||
Increase in accounts receivable | (6,500 | ) | — | (6,500 | ) | |||||||||||
Increase (decrease) in prepaid merchandise | 5,000 | (5,000 | ) | — | ||||||||||||
Increase (decrease) in accounts payable and accrued expenses | 5,638 | 7,821 | 21,496 | |||||||||||||
Increase in accrued payroll and related expenses | 2,236 | 2,236 | ||||||||||||||
Decrease in due to stockholder | (7,000 | ) | — | (7,000 | ) | |||||||||||
Increase (decrease) in related party payable | (5,500 | ) | 5,500 | — | ||||||||||||
Net cash used in operating activities | (74,954 | ) | (7,781 | ) | (96,164 | ) | ||||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Proceeds from issuance of common stock | — | 96,350 | 111,350 | |||||||||||||
Net increase (decrease) in cash | (74,954 | ) | 88,569 | 15,186 | ||||||||||||
Cash, beginning of period | 90,140 | 1,571 | — | |||||||||||||
Cash, end of period | $ | 15,186 | $ | 90,140 | $ | 15,186 | ||||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||
Income taxes paid | $ | 800 | $ | — | $ | 800 | ||||||||||
Interest paid | $ | — | $ | — | $ | — | ||||||||||
F-14
Table of Contents
F-15
Table of Contents
Office Space |
Related Party Payable |
Due To Stockholder |
F-16
Table of Contents
Net Operating loss carryforward | $ | 157,329 | ||
Effective Tax Rate | X | 34 | % | |
Deferred tax asset | $ | — | ||
Minimum state franchise tax | $ | 800 |
F-17
Table of Contents
Page | |||||
F-19 | |||||
Financial Statements: | |||||
F-20 | |||||
F-21 | |||||
F-22 | |||||
F-23 | |||||
F-24 |
F-18
Table of Contents
/s/ Stonefield Josephson, Inc. |
F-19
Table of Contents
ASSETS | |||||
Current Assets: | |||||
Cash | $ | 90,140 | |||
Prepaid merchandise | 5,000 | ||||
$ | 95,140 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||
Current Liabilities: | |||||
Accounts payable and accrued expenses | $ | 15,858 | |||
Due to related party | 5,500 | ||||
Due to stockholder | 7,000 | ||||
28,358 | |||||
Stockholders’ Deficit: | |||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding | — | ||||
Common stock, $0.001 par value; 50,000,000 shares authorized; 10,480,500 shares Issued and outstanding | 10,481 | ||||
Additional paid-in capital | 136,102 | ||||
Deficit accumulated during development stage | (79,801 | ) | |||
Total stockholders’ deficit | 66,782 | ||||
$ | 95,140 | ||||
F-20
Table of Contents
For the Period | For the Period | ||||||||||||
For the Year | from December 13, | from December 13, | |||||||||||
Ended | 2001 (Inception) | 2001 (Inception) | |||||||||||
September 30, | to September 30, | to September 30, | |||||||||||
2003 | 2002 | 2003 | |||||||||||
Net revenue | $ | 8,466 | $ | 6,000 | $ | 14,466 | |||||||
General and administrative expenses | 51,568 | 42,699 | 94,267 | ||||||||||
Loss before provision for income taxes | (43,102 | ) | (36,699 | ) | (79,801 | ) | |||||||
Provision for income taxes | — | — | — | ||||||||||
Net loss | $ | (43,102 | ) | $ | (36,699 | ) | $ | (79,801 | ) | ||||
Net loss available to common stockholders per common share — basic and dilutive: | |||||||||||||
Loss per common share — basic and dilutive (as restated) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Weighted average common shares outstanding — basic and dilutive (as restated) | 8,203,032 | 6,379,381 | 7,394,065 | ||||||||||
F-21
Table of Contents
Deficit | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common Stock | Additional | During | Total | |||||||||||||||||
Paid-in | Development | Stockholders’ | ||||||||||||||||||
Shares | Amount | Capital | Stage | Deficit | ||||||||||||||||
Balance at December 13, 2001, date of incorporation | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Issuance of Founders Shares for services at $0.001 per share (January 2002) (as restated for 3:1 stock split) | 3,000,000 | 3,000 | (2,000 | ) | — | 1,000 | ||||||||||||||
Issuance of common stock for cash at $0.001 per share (February 2002) | 4,500,000 | 4,500 | 10,500 | — | 15,000 | |||||||||||||||
Issuance of common stock for services at $0.001 per share (March 2002) | 300,000 | 300 | 700 | — | 1,000 | |||||||||||||||
Additional paid-in capital in exchange for office expenses | — | — | 900 | — | 900 | |||||||||||||||
Additional paid-in capital in exchange for services from officers | — | — | 17,333 | — | 17,333 | |||||||||||||||
Net loss from inception to September 30, 2002 | — | — | — | (36,699 | ) | (36,699 | ) | |||||||||||||
Balance at September 30, 2002 | 7,800,000 | 7,800 | 27,433 | (36,699 | ) | (1,466 | ) | |||||||||||||
Additional paid-in capital in exchange for office expenses | — | — | 1,200 | — | 1,200 | |||||||||||||||
Additional paid-in capital in exchange for services from officers | — | — | 20,800 | — | 20,800 | |||||||||||||||
Issuance of common stock for cash at $0.001 per share (August 2003) | 2,890,500 | 2,891 | 93,459 | — | 96,350 | |||||||||||||||
Redemption and cancellation of common stock for cash at $0.001 per share (September 2003) | (210,000 | ) | (210 | ) | (6,790 | ) | — | (7,000 | ) | |||||||||||
Net loss for the year ended September 30, 2003 | — | — | — | (43,102 | ) | (43,102 | ) | |||||||||||||
Balance at September 30, 2003 | 10,480,500 | $ | 10,481 | $ | 136,102 | $ | (79,801 | ) | $ | 66,782 | ||||||||||
F-22
Table of Contents
For the Period | For the Period | ||||||||||||||
from | from | ||||||||||||||
December 13, | December 13, | ||||||||||||||
For the Year | 2001 | 2001 | |||||||||||||
Ended | (Inception) to | (Inception) to | |||||||||||||
September 30, | September 30, | September 30, | |||||||||||||
2003 | 2002 | 2003 | |||||||||||||
Cash Flows provided by (used for) Operating Activities: | |||||||||||||||
Net loss | $ | (43,102 | ) | $ | (36,699 | ) | $ | (79,801 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used for) operating activities: | |||||||||||||||
Non-cash issuance of common stock for services | — | 2,000 | 2,000 | ||||||||||||
Non-cash contribution of capital in exchange for office expenses | 1,200 | 900 | 2,100 | ||||||||||||
Non-cash contribution of capital in exchange for services from officers | 20,800 | 17,333 | 38,133 | ||||||||||||
(Increase) decrease in assets: | |||||||||||||||
Prepaid merchandise | (5,000 | ) | — | (5,000 | ) | ||||||||||
Deposits | 5,000 | (5,000 | ) | — | |||||||||||
Increase in liabilities: | |||||||||||||||
Accounts payable and accrued expenses | 7,821 | 8,037 | 15,858 | ||||||||||||
Advance from officer — stockholder | 5,500 | — | 5,500 | ||||||||||||
Total adjustments | 35,321 | 23,270 | 58,591 | ||||||||||||
Net cash used for operating activities | (7,781 | ) | (13,429 | ) | (21,210 | ) | |||||||||
Cash Flows provided by Financing Activities — proceeds from issuance of common stock | 96,350 | 15,000 | 111,350 | ||||||||||||
Net increase in cash | 88,569 | 1,571 | 90,140 | ||||||||||||
Cash, beginning of period | 1,571 | — | — | ||||||||||||
Cash, end of period | $ | 90,140 | $ | 1,571 | $ | 90,140 | |||||||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||||||
Income taxes paid | $ | — | $ | — | $ | — | |||||||||
Interest paid | $ | — | $ | — | $ | — | |||||||||
F-23
Table of Contents
(1) | Summary of Significant Accounting Policies: |
Nature of Business: |
1. | During August 2003, the Company raised an additional $96,350 of cash through the issuance of shares. | |
2. | Management believes that with the infusion of $96,350 in funds raised during 2003, the Company will be able to complete the development of its new product line and begin to generate revenues from marketing and selling that product line by means of its website located at www.coveapparel.com. | |
3. | If additional operating capital is needed, management is also committed to contribute additional funds to pay for the Company’s expenses to continue operating. The Company’s belief that its officers and directors will pay its expenses is based on the fact that its officers and directors collectively own 10,200,000 shares of its common stock, which equals approximately 97.3% of its total issued and outstanding common stock. The Company believes that its officers and directors will continue to pay its expenses as long as they maintain their ownership of our common stock. If the Company’s officers and directors loan it operating capital, it will either execute promissory notes to repay those funds or issue stock to those officers and directors. |
Use of Estimates: |
F-24
Table of Contents
Cash: |
Equivalents |
Concentration |
Revenue Recognition: |
Comprehensive Income: |
Basic and Diluted Income (Loss) Per Share: |
Provision for Income Taxes: |
F-25
Table of Contents
Stock-Based Compensation: |
Fair Value of Financial Instruments: |
Advertising Costs: |
Segment Reporting: |
Recent Accounting Pronouncements: |
F-26
Table of Contents
(3) | Commitments and Contingencies: |
(4) | Provision for Income Taxes: |
F-27
Table of Contents
Net operating loss carryforward | $ | 79,801 | ||
Effective tax rate | 34 | % | ||
Deferred tax asset | 27,132 | |||
Valuation allowance | (27,132 | ) | ||
Net deferred tax asset | $ | — | ||
Office Space |
Due to Related Party |
F-28
Table of Contents
Page | |||||
Financial Statements: | |||||
F-30 | |||||
F-31 | |||||
F-32 | |||||
F-33 |
F-29
Table of Contents
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 21,759 | ||||||
Total assets | $ | 21,759 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 95,911 | ||||||
Loan from stockholder | 45,000 | |||||||
Total current liabilities | 140,911 | |||||||
Stockholders’ Deficit | ||||||||
Preferred stock, $.001 par value; | ||||||||
Authorized shares — 5,000,000 | ||||||||
Issued and outstanding share — 0 | ||||||||
Common stock, $.001 par value; | ||||||||
Authorized shares — 50,000,000 | ||||||||
Issued and outstanding shares — 10,480,500 | 10,481 | |||||||
Additional paid-in capital | 144,802 | |||||||
Deficit accumulated during the development stage | (274,435 | ) | ||||||
Total stockholders’ deficit | (119,152 | ) | ||||||
Total liabilities and stockholders’ deficit | $ | 21,759 | ||||||
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Three Months Ended June 30, | Nine Months Ended June 30, | Inception — | ||||||||||||||||||
June 30, | ||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||||||||||||
Net revenues | $ | — | $ | — | $ | — | $ | — | $ | 20,966 | ||||||||||
General and administrative | 84,358 | 20,515 | 116,306 | 45,827 | 293,801 | |||||||||||||||
Loss before provision for income taxes | (84,358 | ) | (20,515 | ) | (116,306 | ) | (45,827 | ) | (272,835 | ) | ||||||||||
Provision for income taxes | — | 800 | 800 | 800 | 1,600 | |||||||||||||||
Net loss | $ | (84,358 | ) | $ | (21,315 | ) | $ | (117,106 | ) | $ | (46,627 | ) | $ | (274,435 | ) | |||||
Net loss per common share — basic and diluted | $ | (— | ) | $ | (— | ) | $ | (— | ) | $ | (— | ) | $ | (0.03 | ) | |||||
Weighted average of common shares — basic and diluted | 10,480,500 | 10,480,500 | 10,480,500 | 10,480,500 | 9,151,464 | |||||||||||||||
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June 30, | Inception — | |||||||||||||||
June 30, | ||||||||||||||||
2005 | 2004 | 2005 | ||||||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net loss | $ | (117,106 | ) | $ | (46,627 | ) | $ | (274,435 | ) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
Expenses paid with common stock | — | — | 2,000 | |||||||||||||
Expenses paid by officer | — | 900 | 3,000 | |||||||||||||
Services provided by officers | — | 7,800 | 45,933 | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Decrease in accounts receivable | 6,500 | — | — | |||||||||||||
Increase in prepaid expenses | — | (2,900 | ) | — | ||||||||||||
Increase (decrease) in accounts payable and accrued expenses | 72,179 | (2,606 | ) | 95,911 | ||||||||||||
Increase (decrease) in due to stockholder | 45,000 | (7,000 | ) | 38,000 | ||||||||||||
Decrease in related party payable | — | (5,500 | ) | — | ||||||||||||
Net cash from (used in) operating activities | 6,573 | (55,933 | ) | (89,591 | ) | |||||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Proceeds from issuance of common stock | — | — | 111,350 | |||||||||||||
Net increase (decrease) in cash | 6,573 | (55,933 | ) | 21,759 | ||||||||||||
Cash, beginning of period | 15,186 | 90,140 | — | |||||||||||||
Cash, end of period | $ | 21,759 | $ | 34,207 | $ | 21,759 | ||||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||
Income taxes paid | $ | 800 | $ | 800 | $ | 1,600 | ||||||||||
Interest paid | $ | — | $ | — | $ | — | ||||||||||
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Office Space |
Loan from Stockholder |
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Pages | ||||
F-35 | ||||
F-36 | ||||
F-37 | ||||
F-38 | ||||
F-39 | ||||
F-40 | ||||
Schedule I — Consolidated Financial Information of Euroseas Ltd. | ||||
F-57 | ||||
F-58 | ||||
F-59 | ||||
F-60 | ||||
F-61 |
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Deloitte. | |
Hadjipavlou, Sofianos & Cambanis S.A. |
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Notes | 2003 | 2004 | ||||||||||
(All amounts expressed in | ||||||||||||
U.S. dollars) | ||||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | 8,100,047 | 15,497,482 | ||||||||||
Trade accounts receivable, net | 431,740 | 245,885 | ||||||||||
Prepaid expenses | 74,114 | 207,551 | ||||||||||
Claims and other receivables | 346,307 | 137,783 | ||||||||||
Inventories | 3 | 354,927 | 303,478 | |||||||||
Restricted cash | 102,204 | 68,980 | ||||||||||
Total current assets | 9,409,339 | 16,461,159 | ||||||||||
Fixed Assets | ||||||||||||
Vessels, net | 4 | 41,096,067 | 34,171,164 | |||||||||
Total fixed assets | 41,096,067 | 34,171,164 | ||||||||||
Long-Term Assets | ||||||||||||
Deferred charges, net | 5 | 929,757 | 2,205,178 | |||||||||
Investment in associate | 6 | 22,856 | — | |||||||||
Total long-term assets | 952,613 | 2,205,178 | ||||||||||
Total assets | 51,458,019 | 52,837,501 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Long-term debt, current portion | 10 | 5,105,000 | 6,030,000 | |||||||||
Trade accounts payable | 802,054 | 879,541 | ||||||||||
Accrued expenses | 7 | 254,863 | 321,056 | |||||||||
Deferred revenue | 8 | 1,235,032 | 1,908,189 | |||||||||
Due to related companies | 9 | 1,084,824 | 4,626,060 | |||||||||
Total current liabilities | 8,481,773 | 13,764,846 | ||||||||||
Long-Term Liabilities | ||||||||||||
Long-term debt, net of current portion | 10 | 15,490,000 | 7,960,000 | |||||||||
Total long-term liabilities | 15,490,000 | 7,960,000 | ||||||||||
Total liabilities | 23,971,773 | 21,724,846 | ||||||||||
Commitments and contingencies | 13 | — | — | |||||||||
Shareholders’ Equity | ||||||||||||
Common Stock (par value $0.01, 100,000,000 shares authorized, 29,754,166 issued and outstanding) | 297,542 | 297,542 | ||||||||||
Preferred shares (par value $0.01, 20,000,000 shares authorized, no shares issued and outstanding) | — | — | ||||||||||
Additional paid-in capital | 14 | 18,623,236 | 17,073,381 | |||||||||
Retained earnings | 8,565,468 | 13,741,732 | ||||||||||
Total shareholders’ equity | 27,486,246 | 31,112,655 | ||||||||||
Total liabilities and shareholders’ equity | 51,458,019 | 52,837,501 | ||||||||||
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Notes | 2002 | 2003 | 2004 | |||||||||||||
(All amounts expressed in U.S. dollars) | ||||||||||||||||
Revenues | ||||||||||||||||
Voyage Revenue | 15,291,761 | 25,951,023 | 45,718,006 | |||||||||||||
Commissions | 9 | (420,959 | ) | (906,017 | ) | (2,215,197 | ) | |||||||||
Net revenue | 14,870,802 | 25,045,006 | 43,502,809 | |||||||||||||
Operating Expenses | ||||||||||||||||
Voyage expenses | 15 | 531,936 | 436,935 | 370,345 | ||||||||||||
Vessel operating expenses | 15 | 7,164,271 | 8,775,730 | 8,906,252 | ||||||||||||
Management fees | 9 | 1,469,690 | 1,722,800 | 1,972,252 | ||||||||||||
Amortization and depreciation | 4, 5 | 4,053,049 | 4,757,933 | 3,461,678 | ||||||||||||
Net gain on sale of vessel | 4 | — | — | (2,315,477 | ) | |||||||||||
Total operating expenses | 13,218,946 | 15,693,398 | 12,395,050 | |||||||||||||
Operating income | 1,651,856 | 9,351,608 | 31,107,759 | |||||||||||||
Other Income/(Expenses) | ||||||||||||||||
Interest and finance cost | (799,970 | ) | (793,257 | ) | (708,284 | ) | ||||||||||
Derivative gain | — | — | 27,029 | |||||||||||||
Foreign exchange gain/(loss) | 2,849 | (690 | ) | (1,808 | ) | |||||||||||
Interest income | 6,238 | 36,384 | 187,069 | |||||||||||||
Other expenses, net | (790,883 | ) | (757,563 | ) | (495,994 | ) | ||||||||||
Equity in earnings/(losses) | 6 | 30,655 | (167,433 | ) | — | |||||||||||
Net income for the year | 891,628 | 8,426,612 | 30,611,765 | |||||||||||||
Earnings per share, basic and diluted | 12 | 0.03 | 0.28 | 1.03 | ||||||||||||
Weighted average number of shares outstanding during the period | 12 | 29,754,166 | 29,754,166 | 29,754,166 | ||||||||||||
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Common | Preferred | |||||||||||||||||||||||||||
Number of | Shares | Shares | Paid-In | |||||||||||||||||||||||||
Comprehensive | Shares | Amount | Amount | Capital | Retained | |||||||||||||||||||||||
Income | (Note 12) | (Note 12) | (Note 12) | (Note 12) | Earnings | Total | ||||||||||||||||||||||
(All amounts, except per share data, expressed in U.S. dollars) | ||||||||||||||||||||||||||||
Balance, January 1, 2002 | — | 29,754,166 | 297,542 | — | 15,073,236 | 1,210,728 | 16,581,506 | |||||||||||||||||||||
Net income | 891,628 | — | — | — | — | 891,628 | 891,628 | |||||||||||||||||||||
Contribution | — | — | — | 4,500,000 | — | 4,500,000 | ||||||||||||||||||||||
Dividend paid | — | — | — | — | — | (687,500 | ) | (687,500 | ) | |||||||||||||||||||
Balance, December 31, 2002 | — | 29,754,166 | 297,542 | — | 19,573,236 | 1,414,856 | 21,285,634 | |||||||||||||||||||||
Net income | 8,426,612 | — | — | — | — | 8,426,612 | 8,426,612 | |||||||||||||||||||||
Dividends paid/return of capital | — | — | — | — | (950,000 | ) | (1,276,000 | ) | (2,226,000 | ) | ||||||||||||||||||
Balance, December 31, 2003 | 29,754,166 | 297,542 | — | 18,623,236 | 8,565,468 | 27,486,246 | ||||||||||||||||||||||
Net income | 30,611,765 | — | — | — | — | 30,611,765 | 30,611,765 | |||||||||||||||||||||
Dividends paid/return of capital | — | — | — | — | (1,549,855 | ) | (25,435,501 | ) | (26,985,356 | ) | ||||||||||||||||||
Balance, December 31, 2004 | 29,754,166 | 297,542 | — | 17,073,381 | 13,741,732 | 31,112,655 | ||||||||||||||||||||||
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2002 | 2003 | 2004 | ||||||||||
(All amounts expressed in U.S. dollars) | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income | 891,628 | 8,426,612 | 30,611,765 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation of vessel | 3,514,403 | 4,158,159 | 2,530,100 | |||||||||
Amortization of dry-docking expenses | 538,646 | 599,774 | 931,578 | |||||||||
Amortization of deferred finance cost | 55,497 | 67,402 | 50,681 | |||||||||
Equity in earnings | (30,655 | ) | 167,433 | |||||||||
Provision for doubtful accounts | — | 3,592 | (27,907 | ) | ||||||||
Gain on sale of vessel | — | — | (2,315,477 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase)/decrease in: | ||||||||||||
Trade accounts receivable, net | 68,888 | 110,471 | 213,762 | |||||||||
Prepaid expenses | (3,213 | ) | 26,552 | (133,437 | ) | |||||||
Claims and other receivables | 29,728 | (171,731 | ) | 208,524 | ||||||||
Inventories | (125,499 | ) | (7,748 | ) | 51,449 | |||||||
Increase/(decrease) in: | ||||||||||||
Due to related companies | 177,169 | (482,778 | ) | 3,541,236 | ||||||||
Trade accounts payable | 644,749 | (650,863 | ) | 77,487 | ||||||||
Accrued expenses | 3,125 | (43,308 | ) | 66,193 | ||||||||
Other liabilities | (133,123 | ) | (274,764 | ) | 673,157 | |||||||
Deferred dry-docking expenses | — | (972,671 | ) | (2,270,418 | ) | |||||||
Net cash provided by operating activities | 5,631,343 | 10,956,132 | 34,208,693 | |||||||||
Cash Flows from Investing Activities: | ||||||||||||
Purchase of vessel | (16,993,811 | ) | — | — | ||||||||
(Increase)/decrease in cash retention accounts | (42,268 | ) | 214,832 | 33,224 | ||||||||
Proceeds from sale of vessels | — | — | 6,723,018 | |||||||||
Net cash from investing activities | (17,036,079 | ) | 214,832 | 6,756,242 | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Increase in common stock and paid-in capital | 4,500,000 | — | — | |||||||||
Dividends | (687,500 | ) | (1,200,000 | ) | (26,962,500 | ) | ||||||
Advance from shareholders | 300,000 | — | — | |||||||||
Repayment of advances from shareholders | — | (300,000 | ) | — | ||||||||
Deferred finance costs | (120,145 | ) | (28,000 | ) | — | |||||||
Proceeds from long-term debt | 11,900,000 | 3,000,000 | — | |||||||||
Repayment of long-term debt | (3,645,000 | ) | (6,250,000 | ) | (6,605,000 | ) | ||||||
Net cash used in financing activities | 12,247,355 | (4,778,000 | ) | (33,567,500 | ) | |||||||
Net increase in cash and cash equivalents | 842,619 | 6,392,964 | 7,397,435 | |||||||||
Cash and cash equivalents at beginning of year | 864,464 | 1,707,083 | 8,100,047 | |||||||||
Cash and cash equivalents at end of year | 1,707,083 | 8,100,047 | 15,497,482 | |||||||||
Supplemental cash flow information | ||||||||||||
Cash paid during the year for: | ||||||||||||
Cash paid for interest | 582,740 | 725,034 | 474,430 | |||||||||
Non Cash Items: | ||||||||||||
Dividend and return of capital from investment in associates (note 6) | — | 1,026,000 | 22,856 |
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1. | Basis of Presentation and General Information |
• | Searoute Maritime Ltd. incorporated in Cyprus on May 20, 1992, owner of the Cyprus flag 33,712 DWT bulk carrier motor vessel “Ariel”, which was built in 1977 and acquired on March 5, 1993. | |
• | Oceanopera Shipping Ltd. incorporated in Cyprus on June 26, 1995, owner of the Cyprus flag 34,750 DWT bulk carrier motor vessel “Nikolaos P”, which was built in 1984 and acquired on July 22, 1996. | |
• | Oceanpride Shipping Ltd. incorporated in Cyprus on March 7, 1998, owner of the Cyprus flag 26,354 DWT bulk carrier motor vessel “John P”, which was built in 1981 and acquired on March 7, 1998. | |
• | Alcinoe Shipping Ltd. incorporated in Cyprus on March 20, 1997, owner of the Cyprus flag 26,354 DWT bulk carrier motor vessel “Pantelis P”, which was built in 1981 and acquired on June 4, 1997. | |
• | Alterwall Business Inc. incorporated in Panama on January 15, 2001, owner of the Panama flag 18,253 DWT container carrier motor vessel “HM Qingdao1” (ex Kuo Jane), which was built in 1990 and acquired on February 16, 2001. | |
• | Allendale Investment S.A. incorporated in Panama on January 22, 2002, owner of the Panama flag 18,154 DWT container carrier motor vessel “Kuo Hsiung”, which was built in 1993 and acquired on May 13, 2002. | |
• | Diana Trading Ltd. incorporated in the Marshall Islands on September 25, 2002, owner of the Marshall Islands flag 69,734 DWT bulk carrier motor vessel “Irini”, which was built in 1988 and acquired on October 15, 2002. |
(a) Silvergold Shipping Ltd. incorporated in Cyprus on May 16, 1994. Up to June 3, 1996, the Company was engaged in ship owning activities, but thereafter, the Company’s assets and liabilities were |
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liquidated and the retained earnings were distributed to the shareholders. The Company remained dormant until October 10, 2000 when it acquired the 18,000 DWT, Cyprus flag, container carrier motor vessel “Widar”, which was built in 1986. The vessel was sold on April 24, 2004. The group of beneficial shareholders which own the above mentioned ship-owing companies also own the ship owning company, Silvergold Shipping Ltd., accordingly, these accompanying financial statements also consolidate the accounts of Silvergold Shipping Ltd until May 31, 2005, when Silvergold Shipping Ltd. paid a final dividend of $35,000 to its shareholders. | |
(b) Fitsoulas Corporation Limited which was incorporated in Malta on September 24, 1999, is the owner of the Malta flag 41,427 DWT bulk carrier motor vessel Elena Heart, which was built in 1983 and acquired on October 22, 1999. The vessel was sold on March 31, 2003. The group of beneficial shareholders which own the above mentioned ship-owing companies also exercised significant influence over the ship-owning company Fitsoulas Corporation Limited through their 38% interest in that company, and this investment was therefore accounted for using the equity method. |
Year Ended December 31, | ||||||||||||
Charterer | 2002 | 2003 | 2004 | |||||||||
A | 42.40 | % | 31.30 | % | 12.20 | % | ||||||
B | 28.68 | % | 23.01 | % | 11.50 | % | ||||||
C | — | 10.55 | % | — | ||||||||
D | — | — | 20.60 | % | ||||||||
E | — | — | 10.52 | % | ||||||||
F | — | — | 14.07 | % |
2. | Significant Accounting Policies |
Principles of Consolidation |
Investment in Associates |
Use of Estimates |
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Other Comprehensive Income |
Foreign Currency Translation |
Cash and Cash Equivalents |
Restricted Cash |
Trade Accounts Receivable |
Claims and Other Receivables |
Inventories |
Vessels |
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Depreciation |
Revenue and Expense Recognition |
Repairs and Maintenance |
Accounting for Dry-Docking Costs |
Pension and Retirement Benefit Obligations — Crew |
Financing Costs |
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Assets Held for Sale |
Impairment of Long-Lived Assets |
Derivative Financial Instruments |
Earnings Per Common Share |
Segment Reporting |
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Recent Accounting Pronouncements |
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3. | Inventories |
2003 | 2004 | |||||||
Lubricants | 263,408 | 256,223 | ||||||
Victualling | 91,519 | 47,255 | ||||||
Total | 354,927 | 303,478 | ||||||
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4. | Vessels |
Vessel | Accumulated | Net Book | ||||||||||
Cost | Depreciation | Value | ||||||||||
(Amount expressed in thousands) | ||||||||||||
Balance, December 31, 2001 | 44,593 | (12,818 | ) | 31,775 | ||||||||
— Depreciation for the year | — | (3,515 | ) | (3,515 | ) | |||||||
— Acquisition of vessels | 16,994 | — | 16,994 | |||||||||
Balance, December 31, 2002 | 61,587 | (16,333 | ) | 45,254 | ||||||||
— Depreciation for the year | — | (4,158 | ) | (4,158 | ) | |||||||
Balance, December 31, 2003 | 61,587 | (20,491 | ) | 41,096 | ||||||||
— Depreciation for the year | — | (2,530 | ) | (2,530 | ) | |||||||
— Sale of vessel | (5,827 | ) | 1,432 | (4,395 | ) | |||||||
Balance, December 31, 2004 | 55,760 | (21,589 | ) | 34,171 | ||||||||
5. | Deferred Charges |
2002 | 2003 | 2004 | ||||||||||
Balance, beginning of year | 1,070,261 | 596,262 | 929,757 | |||||||||
Additions: | 120,144 | 1,000,671 | 2,270,418 | |||||||||
Amortization of dry-docking expenses | (538,646 | ) | �� | (599,774 | ) | (931,578 | ) | |||||
Amortization of loan arrangement fees | (55,497 | ) | (67,402 | ) | (50,681 | ) | ||||||
Written-off on sale of vessel M/ V Widar | — | — | (12,738 | ) | ||||||||
Balance, end of year | 596,262 | 929,757 | 2,205,178 | |||||||||
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6. | Investment in Associate |
2002 | 2003 | 2004 | ||||||||||
Balance, beginning of year | 1,185,634 | 1,216,289 | 22,856 | |||||||||
Equity in earnings/(losses) | 30,655 | (167,433 | ) | — | ||||||||
Dividends and return of capital | — | (1,026,000 | ) | (22,856 | ) | |||||||
Balance, end of year | 1,216,289 | 22,856 | — | |||||||||
7. | Accrued Expenses |
2003 | 2004 | |||||||
Accrued payroll expenses | 83,240 | 95,615 | ||||||
Accrued interest | 23,800 | 100,366 | ||||||
Other accrued expenses | 147,823 | 125,075 | ||||||
Total | 254,863 | 321,056 | ||||||
8. | Deferred Revenue |
9. | Related Party Transactions |
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10. | Long-Term Debt |
December 31, | ||||||||||||
Borrower | 2003 | 2004 | ||||||||||
Alterwall Business Inc. | (a | ) | 4,350,000 | 3,750,000 | ||||||||
Alcinoe Shipping Limited/ Oceanpride Shipping Limited | (b | ) | 2,500,000 | 1,600,000 | ||||||||
Diana Trading Limited | (c | ) | 5,020,000 | 4,140,000 | ||||||||
Allendale Investments S.A. | (d | ) | 5,100,000 | 4,500,000 | ||||||||
Searoute Maritime Limited | (e | ) | 250,000 | — | ||||||||
Silvergold Shipping Limited | (e | ) | 2,000,000 | — | ||||||||
Oceanopera Shipping Limited | (e | ) | 1,375,000 | — | ||||||||
20,595,000 | 13,990,000 | |||||||||||
Current portion | (5,105,000 | ) | (6,030,000 | ) | ||||||||
Long-term portion | 15,490,000 | 7,960,000 | ||||||||||
2005 | 6,030,000 | |||
2006 | 2,280,000 | |||
2007 | 1,480,000 | |||
2008 | 4,200,000 | |||
Total | $ | 13,990,000 | ||
(a) | On January 30, 2001, Alterwall Business Inc. (the owner of M/ V HM Qingdao I (ex M/ V Kuo Jane)) entered into a loan agreement for an amount of $6,000,000. The loan is repayable in sixteen quarterly installments of $150,000 each and a balloon payment of $3,600,000 due in February 2005. (See Subsequent events e.(1)). Interest is calculated at LIBOR plus 1.5% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.26%, 2.75% and 3.65%. |
(b) | On April 1, 2003, Alcinoe Shipping Limited (the owner of M/ V Pantelis P.) and Oceanpride Shipping Limited (the owner of M/ V John P.) jointly and severally entered into a new loan amounting to $3,000,000 when the outstanding amount of the old loan was $780,000. The loan is repayable in twelve consecutive quarterly installments being four installments of $250,000 each, eight installments of $200,000 each and a balloon payment of $400,000 payable with the last installment in August 2006. The first installment is due in August 2003. Interest is calculated on LIBOR plus 1.75% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.15%, 2.91% and 3.89%. | |
(c) | On October 10, 2002, Diana Trading Limited (the owner of M/ V Irini) entered into a loan agreement for an amount of $5,900,000 which was drawn down in to tranches of $4,900,000 on October 16, 2002 and of $1,000,000 on December 2, 2002. The loan is repayable in twenty-four consecutive quarterly installments of $220,000 each, and a balloon payment of $600,000 payable together with the last installment due in October 2008. The first installment is payable in January 2003. The interest is calculated at LIBOR plus |
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1.6% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.03%, 2.93% and 3.8%. | ||
(d) | On May 1, 2002, Allendale Investments S.A. (the owner of M/ V Kuo Hsiung) entered into a loan agreement for an amount of $6,000,000 which was drawn down on May 31, 2002. The loan is repayable in twenty-four consecutive quarterly installments of $150,000 plus a balloon payment of $2,400,000 payable with the last installment in May 2008. The interest is calculated at LIBOR plus 1.75% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.56%, 3.05% and 3.63%. | |
(e) | The loans of Searoute Maritime Limited (the owner of M/ V Ariel), Silvergold Shipping Limited (the owner of M/ V Widar) and Oceanopera Shipping Limited (the owner of M/ V Nikolaos) were fully repaid in 2004. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.5%, 2.94% and 2.94%. |
• | a first priority mortgage over the respective vessels. | |
• | a first priority assignment of earnings and insurances. | |
• | a personal guarantee of one shareholder. | |
• | the corporate guarantee of the management company. |
11. | Income Taxes |
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12. | Earnings Per Common Share |
December 31, | December 31, | December 31, | |||||||||||
2002 | 2003 | 2004 | |||||||||||
Income: | |||||||||||||
Net income for the year available to common stockholders | 891,628 | 8,426,612 | 30,611,765 | ||||||||||
Basic earnings per share: | |||||||||||||
Weighted average common shares — outstanding | 29,754,166 | 29,754,166 | 29,754,166 | ||||||||||
Diluted earnings per share: | |||||||||||||
Weighted average common shares — diluted | 29,754,166 | 29,754,166 | 29,754,166 | ||||||||||
Basic earnings per share: | 0.03 | 0.28 | 1.03 | ||||||||||
Diluted earnings per share: | 0.03 | 0.28 | 1.03 |
13. | Commitments and Contingencies |
14. | Common Stock and Paid-In Capital |
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15. | Voyage and Vessel Operating Expenses |
Year Ended December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Voyage Expense | ||||||||||||
Port charges | 132,076 | 202,537 | 188,319 | |||||||||
Bunkers | 387,973 | 227,398 | 182,026 | |||||||||
Other | 11,887 | 7,000 | — | |||||||||
Total | 531,936 | 436,935 | 370,345 | |||||||||
Vessel Operating Expenses | ||||||||||||
Crew wages and related costs | 3,934,140 | 4,569,039 | 4,460,233 | |||||||||
Insurance | 875,319 | 1,334,517 | 1,486,179 | |||||||||
Repairs and maintenance | 503,761 | 595,194 | 515,820 | |||||||||
Lubricants | 391,576 | 455,931 | 446,034 | |||||||||
Spares and consumable stores | 1,310,317 | 1,555,286 | 1,660,600 | |||||||||
Professional and legal fees | 31,327 | 34,206 | 46,997 | |||||||||
Others | 117,831 | 231,557 | 290,389 | |||||||||
Total | 7,164,271 | 8,775,730 | 8,906,252 | |||||||||
Year Ended December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Commissions charged by third parties | 265,899 | 619,552 | 1,334,307 | |||||||||
Commissions charges by related parties | 155,060 | 286,465 | 880,890 | |||||||||
Total | 420,959 | 906,017 | 2,215,197 | |||||||||
16. | Financial Instruments |
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17. | Subsequent Events |
1. | Transaction with Euroseas Ltd. and Cove Apparel Inc. |
2. | Dividends |
3. | New Loans |
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• | a second priority mortgage over the respective vessel. | |
• | general assignment of earnings and insurance. | |
• | a personal guarantee of one shareholder. |
• | first priority mortgage over the respective vessels on a joint and several basis. | |
• | first assignment of earnings and insurance. | |
• | a personal guarantee of one shareholder. | |
• | a corporate guarantee of Eurobulk Ltd. | |
• | a minimum liquidity balance equal to no less than $1,000,000 through out the life of the facility. |
• | first priority mortgage over the respective vessels on a joint and several basis; | |
• | first assignment of earnings and insurance; |
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• | a corporate guarantee of Euroseas Ltd.; and | |
• | a minimum liquidity balance equal to no less than $300,000 per vessel in the Euroseas fleet throughout the life of the facility. |
4. | Refinance of Loans |
• | first priority mortgage over the respective vessels on a joint and several basis. | |
• | first assignment of earnings and insurance. | |
• | a personal guarantee of one shareholder. | |
• | a corporate guarantee of Eurobulk Ltd. | |
• | a pledge of all the issued shares of each borrower |
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December 31 | December 31 | |||||||
2003 | 2004 | |||||||
ASSETS | ||||||||
Current assets | — | — | ||||||
Investments | 27,486,245 | 31,112,654 | ||||||
Total assets | 27,486,245 | 31,112,654 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Total current liabilities | — | — | ||||||
Total liabilities | — | — | ||||||
Commitments and contingencies | — | — | ||||||
Shareholders’ equity | ||||||||
Common shares (par value $0.01, 100,000,000 shares authorized, 29,754,166 issued and outstanding) | 297,542 | 297,542 | ||||||
Preferred shares (par value $0.01, 20,000,000 shares authorized, no shares issued and outstanding) | ||||||||
Additional paid-in capital | 18,623,236 | 17,073,381 | ||||||
Retained earnings/ (accumulated deficit) | 8,565,467 | 13,741,731 | ||||||
Total shareholders’ equity | 27,486,245 | 31,112,654 | ||||||
Total liabilities and shareholders’ equity | 27,486,245 | 31,112,654 | ||||||
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Year Ended December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Revenues | ||||||||||||
Equity in net income of subsidiaries | 891,627 | 8,426,612 | 30,611,765 | |||||||||
Net income | 891,627 | 8,426,612 | 30,611,765 | |||||||||
Earnings per share, basic and diluted | 0.03 | 0.28 | 1.03 | |||||||||
Weighted average number of shares outstanding during the period | 29,754,166 | 29,754,166 | 29,754,166 | |||||||||
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Retained | ||||||||||||||||||||||||||||
Common | Preferred | Earnings/ | ||||||||||||||||||||||||||
Comprehensive | Number of | Shares | Shares | Paid-in | (Accumulated | |||||||||||||||||||||||
Income | Shares | Amount | Amount | Capital | Deficit) | Total | ||||||||||||||||||||||
Balance, January 1, 2002 | 29,754,166 | 297,542 | — | 15,073,236 | 1,210,728 | 16,581,506 | ||||||||||||||||||||||
Net income | 891,628 | — | — | — | — | 891,628 | 891,628 | |||||||||||||||||||||
Contribution | — | — | — | 4,500,000 | ||||||||||||||||||||||||
Dividends paid | — | — | — | — | (687,500 | ) | (687,500 | ) | ||||||||||||||||||||
Balance, December 31, 2002 | 29,754,166 | 297,542 | — | 19,573,236 | 1,414,856 | 21,285,634 | ||||||||||||||||||||||
Net income | 8,426,612 | — | — | — | — | 8,426,612 | 8,426,612 | |||||||||||||||||||||
Dividends paid/ return of capital | — | — | — | (950,000 | ) | (1,276,000 | ) | (2,226,000 | ) | |||||||||||||||||||
Balance, December 31, 2003 | 29,754,166 | 297,542 | — | 18,623,236 | 8,565,468 | 27,486,246 | ||||||||||||||||||||||
Net income | 30,611,765 | — | — | — | — | 30,611,765 | 30,611,765 | |||||||||||||||||||||
Dividends paid/ return of capital | — | — | — | (1,549,855 | ) | (25,435,501 | ) | (26,985,356 | ) | |||||||||||||||||||
Balance, December 31, 2004 | 29,754,166 | 297,542 | — | 17,073,381 | 13,741,732 | 31,112,655 |
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2002 | 2003 | 2004 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | 891,628 | 8,426,612 | 30,611,765 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Undistributed earnings/(losses) of subsidiaries | (204,127 | ) | (6,002,612 | ) | (3,626,409 | ) | ||||||
Net cash used in operating activities | 687,500 | 2,226,000 | 26,985,356 | |||||||||
Cash flows from investing activities: | ||||||||||||
Investment in subsidiaries | (4,500,000 | ) | — | — | ||||||||
Net cash used in investing activities | (4,500,000 | ) | — | — | ||||||||
Cash flows from financing activities: | ||||||||||||
Dividends paid/ return of capital | (687,500 | ) | (2,226,000 | ) | (26,985,356 | ) | ||||||
Contributions to paid in capital | 4,500,000 | — | — | |||||||||
Net cash used in financing activities | 3,812,500 | (2,226,000 | ) | (26,985,356 | ) | |||||||
Net change in cash and cash equivalents | — | — | — | |||||||||
Cash and cash equivalents at beginning of year | — | — | — | |||||||||
Cash and cash equivalents at end of year | — | — | — | |||||||||
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Notes | Historical | ProForma(1) | ||||||||||
(All amounts | ||||||||||||
expressed in | ||||||||||||
U.S. Dollars) | ||||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | 5,452,608 | |||||||||||
Accounts receivable trade, net | 9,652 | |||||||||||
Prepaid expenses | 129,706 | |||||||||||
Claims and other receivables | 69,641 | |||||||||||
Due from related party | 4 | 3,995,602 | ||||||||||
Inventories | 2 | 319,765 | ||||||||||
Restricted cash | 1,299,135 | |||||||||||
Total current assets | 11,276,109 | |||||||||||
Fixed Assets | ||||||||||||
Vessels, net book value | 32,978,300 | |||||||||||
Total fixed assets | 32,978,300 | |||||||||||
Long-Term Assets | ||||||||||||
Deferred charges, net | 2,357,775 | |||||||||||
Total long-term assets | 2,357,775 | |||||||||||
Total assets | 46,612,184 | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Long-term debt, current portion | 14,780,000 | 14,780,000 | ||||||||||
Trade accounts payable | 946,760 | 946,760 | ||||||||||
Accrued expenses | 437,570 | 437,570 | ||||||||||
Deferred revenue | 3 | 2,176,825 | 2,176,825 | |||||||||
Due to related companies | 4 | — | ||||||||||
Dividend payable | — | 2,650,223 | ||||||||||
Total current liabilities | 18,341,155 | 20,991,738 | ||||||||||
Long-Term Liabilities | ||||||||||||
Long-term debt, net of current portion | 26,620,000 | 26,620,000 | ||||||||||
Total long-term liabilities | 26,620,000 | 26,620,000 | ||||||||||
Total liabilities | 44,961,155 | 47,611,378 | ||||||||||
Commitments and contingencies | 6 | — | — | |||||||||
Shareholders’ Equity | ||||||||||||
Common Stock (par value $0.01, 100,000,000 shares authorized, 29,754,166 issued and outstanding) | 297,542 | 297,542 | ||||||||||
Preferred shares (par value $0.01, 20,000,000 shares authorized, no shares issued and outstanding) | — | — | ||||||||||
Additional paid-in capital (restated) | 8 | 373,381 | 373,381 | |||||||||
Retained Earnings/(Accumulated deficit) (restated) | 8 | 980,106 | (1,670,117 | ) | ||||||||
Total shareholders’ equity | 1,651,029 | (999,194 | ) | |||||||||
Total liabilities and shareholders’ equity | 46,612,184 | 46,612,184 | ||||||||||
(1) | Gives effect to the payment of a cash dividend of $2.65 million to (i) our shareholders of record on December 16, 2005, and (ii) either Cove Apparel Inc.’s shareholders that will exchange their shares to Euroseas shares, if the merger with Cove Apparel Inc. is consummated, or, Friends which will issue the shares that would have been issued to Cove Apparel Inc.’s Shareholders, if the merger is not consummated. It assumes no exercise of any of the Company’s warrants. |
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Six Months Ended June 30, | ||||||||
2004 | 2005 | |||||||
(All amounts expressed | ||||||||
in U.S. dollars) | ||||||||
(Unaudited) | (Unaudited) | |||||||
Revenues | ||||||||
Voyage revenue | 21,321,769 | 23,833,736 | ||||||
Commissions | (1,018,218 | ) | (1,340,228 | ) | ||||
Net revenue | 20,303,551 | 22,493,508 | ||||||
Operating Expenses | ||||||||
Voyage expenses | 60,829 | 131,903 | ||||||
Vessel operating expenses | 4,727,324 | 4,270,787 | ||||||
Management fees | 1,007,771 | 965,384 | ||||||
Amortization and depreciation | 1,640,565 | 1,824,322 | ||||||
Gain on sale of vessel | (2,315,477 | ) | — | |||||
Total operating expenses | 5,121,012 | 7,192,396 | ||||||
Operating income | 15,182,539 | 15,301,112 | ||||||
Other Income/(Expenses) | ||||||||
Interest and finance cost | (297,916 | ) | (545,719 | ) | ||||
Derivative gain/(loss) | 11,000 | (82,029 | ) | |||||
Foreign exchange gain/(loss) | (3,734 | ) | 312 | |||||
Interest income | 18,535 | 89,698 | ||||||
Other income/(expenses), net | (272,115 | ) | (537,738 | ) | ||||
Net income for the period | 14,910,424 | 14,763,374 | ||||||
Earnings per share, basic and diluted | 0.50 | 0.50 | ||||||
Weighted average number of shares outstanding during the period | 29,754,166 | 29,754,166 | ||||||
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Retained | ||||||||||||||||||||||||||||
Earnings/ | ||||||||||||||||||||||||||||
Paid-In | (Accumulated | |||||||||||||||||||||||||||
Common | Preferred | Capital | Deficit) | Total | ||||||||||||||||||||||||
Comprehensive | Number of | Shares | Shares | (Restated - | (Restated - | (Restated - | ||||||||||||||||||||||
Income | Shares | Amount | Amount | see Note 8) | see Note 8) | see Note 8) | ||||||||||||||||||||||
(All amounts, except per share data, expressed in U.S. dollars) | ||||||||||||||||||||||||||||
Balance, December 31, 2004 | 29,754,166 | 297,542 | — | 17,073,381 | 13,741,732 | 31,112,655 | ||||||||||||||||||||||
Net income | 14,763,374 | — | — | — | — | 14,763,374 | 14,763,374 | |||||||||||||||||||||
Dividends/Return of capital | — | — | — | (16,700,000 | ) | (27,525,000 | ) | (44,225,000 | ) | |||||||||||||||||||
Balance June 30, 2005 | 29,754,166 | 297,542 | — | 373,381 | 980,106 | 1,651,029 | ||||||||||||||||||||||
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Six Months Ended June 30, | ||||||||
2004 | 2005 | |||||||
(All amounts expressed | ||||||||
in U.S. dollars) | ||||||||
(Unaudited) | (Unaudited) | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | 14,910,424 | 14,763,374 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 1,328,247 | 1,191,864 | ||||||
Amortization for deferred dry-docking | 312,318 | 632,458 | ||||||
Amortization for deferred finance cost | 26,269 | 61,784 | ||||||
Gain on sale of vessel | (2,315,477 | ) | — | |||||
Provision for doubtful accounts | (27,907 | ) | — | |||||
(Gain)/ Loss on derivative | (11,000 | ) | 82,029 | |||||
Changes in operating assets and liabilities: | ||||||||
(Increase)/decrease in: | ||||||||
Accounts receivable trade, net | (170,965 | ) | 236,233 | |||||
Prepaid expenses | (319,914 | ) | 77,845 | |||||
Claims and other receivables | 333,139 | (13,887 | ) | |||||
Inventories | 98,927 | (16,287 | ) | |||||
Due from related companies | 108,277 | (8,621,660 | ) | |||||
Increase/(decrease) in: | ||||||||
Trade accounts payable | 866,962 | 67,219 | ||||||
Accrued expenses | (182,671 | ) | 116,914 | |||||
Other liabilities | (93,714 | ) | 268,634 | |||||
Deferred dry docking expenses | (1,480,078 | ) | (688,739 | ) | ||||
Net cash provided by operating activities | 13,382,837 | 8,157,781 | ||||||
Cash flows from investing activities: | ||||||||
(Increase)/decrease in cash retention accounts | (494 | ) | (1,230,155 | ) | ||||
Proceeds from sale of vessel | 6,723,018 | — | ||||||
Net cash used in investing activities | 6,722,524 | (1,230,155 | ) | |||||
Cash flows from financing activities: | ||||||||
Deferred financing costs | — | (157,500 | ) | |||||
Dividends paid/ return of capital | (11,762,500 | ) | (44,225,000 | ) | ||||
Proceeds from long term debt | — | 28,810,000 | ||||||
Repayment of long-term debt | (5,468,780 | ) | (1,400,000 | ) | ||||
Net cash used in financing activities | (17,231,280 | ) | (16,972,500 | ) | ||||
Net increase in cash and cash equivalents | 2,874,081 | (10,044,874 | ) | |||||
Cash and cash equivalents at beginning of period | 8,100,047 | 15,497,482 | ||||||
Cash and cash equivalents at end of period | 10,974,128 | 5,452,608 | ||||||
Cash paid for interest | 253,644 | 260,376 | ||||||
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1. | Basis of Presentation and General Information |
• | Searoute Maritime Ltd. incorporated in Cyprus on May 20, 1992, owner of the Cyprus flag 33,712 DWT bulk carrier motor vessel “Ariel”, which was built in 1977 and acquired on March 5, 1993. | |
• | Oceanopera Shipping Ltd. incorporated in Cyprus on June 26, 1995, owner of the Cyprus flag 34,750 DWT bulk carrier motor vessel “Nikolaos P”, which was built in 1984 and acquired on July 22, 1996. | |
• | Oceanpride Shipping Ltd. incorporated in Cyprus on March 7, 1998, owner of the Cyprus flag 26,354 DWT bulk carrier motor vessel “John P”, which was built in 1981 and acquired on March 7, 1998. | |
• | Alcinoe Shipping Ltd. incorporated in Cyprus on March 20, 1997, owner of the Cyprus flag 26,354 DWT bulk carrier motor vessel “Pantelis P”, which was built in 1981 and acquired on June 4, 1997. | |
• | Alterwall Business Inc. incorporated in Panama on January 15, 2001, owner of the Panama flag 18,253 DWT container carrier motor vessel “HM Qingdao1” (ex Kuo Jane), which was built in 1990 and acquired on February 16, 2001. | |
• | Allendale Investment S.A. incorporated in Panama on January 22, 2002, owner of the Panama flag 18,154 DWT container carrier motor vessel “Kuo Hsiung”, which was built in 1993 and acquired on May 13, 2002. | |
• | Diana Trading Ltd. incorporated in the Marshall Islands on September 25, 2002, owner of the Marshall Islands flag 69,734 DWT bulk carrier motor vessel “Irini”, which was built in 1988 and acquired on October 15, 2002. | |
• | Euroseas Acquisition Company Inc. was incorporated in Delaware, United States of America on June 21, 2005, to effect a merger with Cove Apparel Inc. See Note 7. |
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(a) Silvergold Shipping Ltd. incorporated in Cyprus on May 16, 1994. Up to June 3, 1996, the Company was engaged in ship owning activities, but thereafter, the Company’s assets and liabilities were liquidated and the retained earnings were distributed to the shareholders. The Company remained dormant until October 10, 2000 when it acquired the 18,000 DWT, Cyprus flag, container carrier motor vesselWidar, which was built in 1986. The vessel was sold on April 24, 2004. The group of beneficial shareholders which own the above mentioned ship-owing companies also own the ship owning company, Silvergold Shipping Ltd., accordingly, these accompanying financial statements also consolidate the accounts of Silvergold Shipping Ltd. until May 31, 2005, when Silvergold Shipping Ltd paid a final dividend of $35,000 to its shareholders. | |
(b) Fitsoulas Corporation Limited which was incorporated in Malta on September 24, 1999, is the owner of the Malta flag 41,427 DWT bulk carrier motor vesselElena Heart, which was built in 1983 and acquired on October 22, 1999. The vessel was sold on March 31, 2003. The group of beneficial shareholders which own the above mentioned ship-owing companies also exercised significant influence over the ship-owning company Fitsoulas Corporation Limited through their 38% interest in that company, and this investment was therefore accounted for using the equity method. |
Six Months | ||||||||
Ended June 30, | ||||||||
Charterer | 2004 | 2005 | ||||||
A | 12.91 | % | 16.77 | % | ||||
B | 12.37 | % | — | |||||
C | 11.6 | % | — | |||||
D | 10.87 | % | — | |||||
E | 10.81 | % | 19.52 | % |
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2. | Inventories |
June 30, | ||||
2005 | ||||
Lubricants | 261,954 | |||
Victualling | 57,811 | |||
Total | 319,765 | |||
3. | Deferred Revenue |
4. | Related Party Transactions |
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5. | Long-Term Debt |
June 30, | ||||||||
Borrower | 2005 | |||||||
Diana Trading Limited | (a | ) | 7,900,000 | |||||
Alterwall Business Inc./Allendale Investments S.A. | (c | ) | 20,000,000 | |||||
Alcinoe Shipping Limited/ | ||||||||
Oceanpride Shipping Limited/ | ||||||||
Searoute Maritime Limited/ | ||||||||
Oceanopera Shipping Limited | (b | ) | 13,500,000 | |||||
41,400,000 | ||||||||
Current portion | (14,780,000 | ) | ||||||
Long-Term Portion | 26,620,000 | |||||||
To June 30 | ||||
2005 | 14,780,000 | |||
2006 | 8,980,000 | |||
2007 | 10,180,000 | |||
2008 | 2,860,000 | |||
2009 | 1,800,000 | |||
thereafter | 2,800,000 | |||
Total | $ | 41,400,000 | ||
(a) | On May 9, 2005 Diana Trading Ltd. (the owner of M/ V Irini) entered into a loan agreement amounting to $4,200,000 which was drawn down on May 9, 2005. The loan is repayable in twelve consecutive quarterly installments being four installments of $450,000 each, and eight installments of $300,000 each with the last installment due in May 2008. The first installment is payable in August 2005. The interest is calculated at LIBOR plus 1.25% per annum. |
(b) | On May 16, 2005 Alcinoe Shipping Ltd (the owner of M/ V Pantelis P.), Oceanpride Shipping Ltd. (the owner of M/ V John P.), Searoute Maritime Ltd. (the owner of M/ V Ariel) and Oceanopera Shipping Ltd. (the owner of M/ V Nikolaos P) jointly and severally entered into a new eurodollar loan amounting to $13,500,000 which was drawn down on May 16, 2005. Prior to obtaining the loan an amount of $1,400,000 was paid in settlement of the outstanding loans as at March 31, 2005 for Alcinoe Shipping Ltd. and Oceanpride Shipping Ltd. The new loan is repayable in twelve consecutive quarterly installments being two installments of $2,000,000 each, one installment of $1,500,000, nine installments of $600,000 each and a balloon payment of $2,600,000 payable with the last installment in May 2008. The first installment is due in August 2005. Interest is calculated on LIBOR plus 1.5% per annum. | |
(c) | On May 24, 2005, Allendale Investments S.A. (the owner of M/ V Kuo Hsiung) and Alterwall Business Inc. (the owner of M/ V HM Qingdao1” (ex Kuo Jane)) jointly and severally entered into a loan agreement amounting to $20,000,000 which was drawn down on May 26, outstanding amount of the old loans was 7,800,000 and was repaid in full. The loan is repayable in twenty-four unequal consecutive quarterly installments of $1,500,000 each in the first year, $1,125,000 each in the second year, $775,000 in the third year, $450,000 each in the forth through to the sixth year and a balloon payment of |
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$1,000,000 payable with the last installment in May 2011. The interest is calculated at LIBOR plus 1.25% per annum as long as the outstanding amount remains below 60% of the fair market value (FMV) of the vessel and 1.375% if the outstanding amount is above 60% of the FMV of the vessel. |
• | first priority mortgage over the respective vessels on a joint and several basis. | |
• | first assignment of earnings and insurance. | |
• | a personal guarantee of one shareholder. | |
• | a corporate guarantee of Eurobulk Ltd. | |
• | a pledge of all the issued shares of each borrower |
6. | Commitments and Contingencies |
7. | Subsequent Events |
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8. | Restatement of previously issued financial statements |
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Table of Contents
Table of Contents
1.1 | Definitions. |
A-1
Table of Contents
A-2
Table of Contents
1.2 | Other Defined Terms. |
Term | Section | |
Agreement | Preamble | |
Certificates | 2.6 | |
Closing and Closing Date | 2.2 | |
Cove | Preamble | |
Cove Acquisition Transaction | 5.2(b) | |
Cove Common Stock | 4.2 | |
Cove Contracts | 4.5 | |
Cove Directors | 6.4 | |
Cove Financial Statements | 4.13 | |
Cove Intellectual Property | 4.17 | |
Cove Permits | 4.9(b) | |
Cove Principals | Preamble | |
Cove SEC Reports | 4.14 | |
Cove Software | 4.17(b)(iii) | |
Cove Special Meeting | 3.9 | |
Cove Stockholders’ Approval | 6.4 | |
DGCL | 2.1 | |
Dissenting Shares | 2.7 | |
Effective Time | 2.2 | |
Employment Agreements | 6.11 |
A-3
Table of Contents
Term | Section | |
Enforceability Exception | 3.3(a) | |
Environmental Laws | 3.7(c) | |
Euroseas | Preamble | |
Euroseas Acquisition Transaction | 5.2(a) | |
Euroseas Contracts | 3.5 | |
Euroseas Financial Statements | 3.11 | |
Euroseas Registration Statement | 6.2(a) | |
Euroseas Shares | Recitals | |
EuroSub | Preamble | |
Exchange Act Listing | 6.5 | |
Exchange Agent | 2.9(a) | |
Indemnified Party | 9.3(a) | |
Indemnifying Party | 9.3(a) | |
Information Statement | 6.2(a) | |
Licensed Software | 4.17(b)(ii) | |
Loss | 9.2(a) | |
Merger | Recitals | |
Merger Certificate | 2.2 | |
Notice of Claim | 9.3(a) | |
NGCL | 2.1 | |
Owned Software | 4.17(b)(i) | |
PFIC | 3.15 | |
Pledge Agreement | 9.2(c) | |
Significant Breach | 9.2(b) | |
Stock Exchange Listing | 6.5 | |
Surviving Corporation | 2.1 |
1.3 | Rules of Construction. |
(i) a term has the meaning assigned to it; | |
(ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; | |
(iii) “or” is not exclusive; | |
(iv) “including” means including without limitation; | |
(v) words in the singular include the plural and words in the plural include the singular; and | |
(vi) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented (as provided in such agreements) and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. |
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2.1 | The Merger. |
2.2 | Closing; Effective Time. |
2.3 | Effect of the Merger. |
2.4 | Articles of Incorporation; By-laws. |
2.5 | Directors and Officers. |
2.6 | Conversion of Cove Capital Stock. |
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2.7 | Appraisal Rights. |
2.8 | Anti-Dilution Provisions. |
2.9 | Surrender of Certificates. |
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2.10 | Dissenting Shares After Payment of Fair Value. |
2.11 | Tax and Accounting Consequences. |
3.1 | Organization and Qualification. |
3.2 | Capitalization. |
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3.3 | Authority; Non-Contravention; Approvals. |
3.4 | Contracts; No Default. |
3.5 | Litigation. |
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3.6 | Taxes. |
3.7 | No Violation of Law. |
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3.8 | Properties. |
3.9 | Information Statement and Form 8-K. |
3.10 | Employees. |
3.11 | Financial Statements. |
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3.12 | Absence of Certain Changes or Events. |
(a) any material adverse change in the financial condition, operations, properties, assets, liabilities or business of Euroseas or its Subsidiaries; | |
(b) any material damage, destruction or loss of any material properties of Euroseas and the Subsidiaries, whether or not covered by insurance, which would have a Material Adverse Effect on Euroseas; | |
(c) any material change in the manner in which the business of Euroseas and its Subsidiaries has been conducted, which would have a Material Adverse Effect on Euroseas; | |
(d) any material change in the treatment and protection of trade secrets or other confidential information of Euroseas and the Subsidiaries, which would have a Material Adverse Effect on Euroseas or its Subsidiaries; and | |
(e) any occurrence not included in paragraphs (a) through (d) of this Section 3.12 which has resulted, or which Euroseas has reason to believe, could reasonably be expected to result, in a Material Adverse Effect on Euroseas or its Subsidiaries. |
3.13 | Dividends and Distributions. |
3.14 | Investment Company. |
3.15 | Passive Foreign Investment Company. |
3.16 | Insurance. |
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3.17 | Funds. |
3.18 | Books, Records and Accounts. |
3.19 | Brokers and Finders. |
3.20 | No Omissions or Untrue Statements. |
4.1 | Organization and Qualification. |
4.2 | Capitalization. |
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4.3 | Subsidiaries. |
4.4 | Authority; Non-Contravention; Approvals. |
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4.5 | Contracts Listed; No Default. |
4.6 | Litigation. |
4.7 | Taxes. |
4.8 | Employee Plans. |
4.9 | No Violation of Law. |
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4.10 | Properties. |
4.11 | Information Statement. |
4.12 | Business. |
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4.13 | Financial Statements. |
4.14 | Cove SEC Reports. |
4.15 | OTC Bulletin Board. |
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4.16 | Absence of Certain Changes or Events. |
(a) any material adverse change in the financial condition, operations, properties, assets, liabilities or business of Cove; | |
(b) any material damage, destruction or loss of any material properties of Cove, whether or not covered by insurance; | |
(c) any change in the manner in which the business of Cove has been conducted; | |
(d) any material change in the treatment and protection of trade secrets or other confidential information of Cove; and | |
(e) any occurrence not included in paragraphs (a) through (d) of this Section which has resulted, or which Cove has reason to believe, could reasonably be expected to result, in a Material Adverse Effect on Cove. |
4.17 | Intellectual Property; Software. |
(ii) Section 4.17(b)(ii) of the Cove Disclosure Schedule sets forth a list of the agreements which require the payment of license fees, rents, royalties or other charges by Cove with respect to all software (other than“off-the-shelf” software that has not been customized for its use) under which Cove is a licensee, lessee or otherwise has obtained the right to use (the “Licensed Software”). Cove has the right and license to use, sublicense, modify and copy Licensed Software, free and clear of any limitations or encumbrances, except as may be set forth in Section 4.17(b)(ii) of the Cove Disclosure Schedule or in the agreements referenced therein. Cove is in material compliance with all provisions of each license, lease or other similar agreement pursuant to which it has rights to use the Licensed Software. Except as disclosed on Section 4.17(b)(ii) of the Cove Disclosure Schedule, none of the Licensed Software has been incorporated into or made a part of any Owned Software or any other Licensed Software. Cove has not published or knowingly disclosed any Licensed Software to any other party except, in the case of Licensed Software which it leases or markets to others, in accordance with and as permitted by any license, lease or similar agreement relating to the Licensed Software and except pursuant to contracts requiring such other parties to keep the Licensed Software confidential. Section 4.17(b)(ii) of the Cove Disclosure Schedule sets forth the names of any parties to whom the Licensed Software has been |
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disclosed. As of the date hereof, to Cove’s Knowledge, no party to whom Cove has disclosed Licensed Software has breached such obligation of confidentiality. | |
(iii) The Owned Software and Licensed Software constitute all software used in the business of Cove (collectively, the “Cove Software”). To the best of Cove’s Knowledge, the transactions contemplated herein will not cause a breach or default under any license, lease or similar agreement relating to Cove Software or impair the ability of Cove to use Cove Software subsequent to the Effective Time in the same manner as Cove Software is currently used by Cove. Cove is not knowingly infringing in any material respect any intellectual property rights of any other person or entity with respect to Cove Software, and, except as set forth in Section 4.17(b)(iii) of the Cove Disclosure Schedule, to Cove’s Knowledge, no other person or entity is infringing any intellectual property rights of Cove with respect to the Cove Software. |
4.18 | Business Locations. |
4.19 | Compensation of Directors, Officers and Employees. |
4.20 | Investment Company. |
4.21 | Insurance. |
4.22 | Funds. |
4.23 | Related Transactions. |
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4.24 | Books, Records and Accounts. |
4.25 | Disclosure Controls. |
4.26 | Absence of Material Weaknesses. |
4.27 | Brokers and Finders. |
4.28 | No Omissions or Untrue Statements. |
5.1 | Conduct of Business Prior to Effective Time. |
(a) It shall conduct its business in the ordinary and usual course of business and consistent with past practice; |
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(b) It shall not (i) split, combine or reclassify its outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise (other than a reverse stock split by Euroseas with the prior consent of Cove, which consent shall not be unreasonably withheld or delayed), (ii) spin-off any assets or businesses, (iii) engage in any transaction for the purpose of effecting a recapitalization, or (iv) engage in any transaction or series of related transactions which has a similar effect to any of the foregoing; | |
(c) It shall not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of, or any options, warrants or rights of any kind to acquire any shares of its capital stock of any class or any debt or equity securities convertible into or exchangeable for such capital stock or amend or modify the terms and conditions of any of the foregoing (except, in the case of Euroseas, it may issue shares and warrants as contemplated in connection with the Private Placement Transaction); | |
(d) It shall not (i) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock, other than as required by the governing terms of such securities, (ii) take or fail to take any action which action or failure to take action would cause it or its stockholders (except to the extent that any stockholders receive cash in lieu of fractional shares) to recognize gain or loss for Tax purposes as a result of the consummation of the Merger, (iii) in the case of Cove, make any acquisition of any material assets or businesses, (iv) in the case of Cove, sell any material assets or businesses, (v) in the case of Cove, enter into any contract, agreement, commitment or arrangement to do any of the foregoing; or (vi) in the case of Kevin Peterson, he or she shall not resign as a director or officer of Cove until the Effective Time; | |
(e) It shall use reasonable efforts to preserve intact its business organization and goodwill, keep available the services of its present officers and key employees, and preserve the goodwill and business relationships with suppliers, distributors, customers, and others having business relationships with it, and not engage in any action, directly or indirectly, with the intent to impact adversely the transactions contemplated by this Agreement; | |
(f) It shall confer on a regular basis with one or more representatives of the other to report on material operational matters and the general status of ongoing operations; and | |
(g) It shall file with the SEC all forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) required to be filed by it pursuant to the Exchange Act. |
5.2 | No Solicitation. |
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6.1 | Access to Information. |
6.2 | Euroseas Registration Statement. |
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6.3 | SEC Filings by Cove. |
6.4 | Stockholders’ Approval. |
6.5 | Stock Exchange Listing/ Exchange Act Listing. |
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6.6 | Cove Warrants and Cove Options. |
6.7 | Agreement to Cooperate. |
6.8 | Public Statements. |
6.9 | Corrections to the Information Statement and the Euroseas Registration Statement. |
6.10 | Disclosure Supplements. |
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7.1 | Conditions to Each Party’s Obligations to Effect the Merger. |
(a) Cove shall have obtained the Cove Stockholders’ Approval; | |
(b) The Euroseas Registration Statement shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order; | |
(c) Euroseas shall have applied for the Stock Exchange Listing and the Exchange Act Listing. | |
(d) No preliminary or permanent injunction or other order or decree by any Governmental Authority which prevents or materially burdens the consummation of the Merger shall have been issued and remain in effect (each party agreeing to use its reasonable efforts to have any such injunction, order or decree lifted); | |
(e) No action shall have been taken, and no statute, rule or regulation shall have been enacted, by any Governmental Authority, which would prevent or materially burden the consummation of the Merger; | |
(f) All consents, orders and approvals legally required for the consummation of the Merger and the transactions contemplated hereby shall have been obtained and be in effect at the Effective Time without any material limitations or conditions. |
7.2 | Conditions to Obligations of Euroseas to Effect the Merger. |
(a) Cove and the Cove Principals shall have performed in all material respects their agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of Cove and the Cove Principals contained in this Agreement shall be true and correct in all material respects (except for those representations and warranties which are themselves limited by a reference to materiality, which shall be true and correct in all respects other than as modified) on and as of (i) the date made and (ii) the Closing Date (in each case except in the case of representations and warranties expressly made solely with reference to a particular date which shall be true and correct in all material respects as of such date); and Euroseas shall have received a certificate of each of the Cove Principals and of the president of Cove to that effect; | |
(b) Euroseas shall have received an opinion of Kirkpatrick & Lockhart Nicholson Graham, LLP (“K&L”), counsel to Cove, dated the Closing Date, in form and substance reasonably satisfactory to Euroseas, which shall include, among other things, an opinion that the Merger should qualify as a reorganization within the meaning of Code Section 368. In rendering such opinion, K&L shall be entitled to rely upon certain factual representations, customary for transactions of the type contemplated by this Agreement, made to it by authorized officers of Euroseas and Cove, including, but not limited to the following: (i) no more than fifty percent of each of the total voting power and the total value of the Euroseas Shares will be received in the Merger, in the aggregate, by shareholders of Cove; (ii) no more than fifty percent of each of the total voting power and the total value of the Euroseas Shares will be owned, in the aggregate, immediately after the Merger by U.S. persons who are either officers or directors of Cove or who owned at least five percent of either the total voting power or the total value of the stock of Cove immediately prior to the Merger; (iii) any Cove shareholder who owns at least five percent of either the total voting power or the total value of the Euroseas Shares immediately after the Merger shall enter into a five-year agreement to recognize gain with respect to Cove stock or securities exchanged |
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pursuant to the Merger in the form provided by Treasury Regulation Section 1.367(a)-8; (iv) Euroseas satisfies the “active trade or business test” set forth in Treasury Regulation Section 1.367(a)-3(c)(3); and (v) Cove shall, and Euroseas shall ensure that Cove shall, comply with the information reporting requirements set forth in Treasury Regulation Section 1.367(a)-3(c)(6). | |
(c) Euroseas shall have received a “comfort” letter from the independent public accountants for Cove, dated the date of the Information Statement and the Closing Date (or such other date reasonably acceptable to Euroseas) with respect to certain financial statements of Cove and other related financial information included in the Information Statement in customary form; | |
(d) Since the date of this Agreement there shall not have been any Material Adverse Effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas by Cove in the Cove Disclosure Schedule and which would have a Material Adverse Effect on Euroseas, and Cove shall have engaged in no business activity since the date of its incorporation other than conducting a public offering of its securities, the apparel business and, thereafter, seeking to effect a merger or similar business combination with an operating business; | |
(e) Euroseas shall have received a certificate from the corporate Secretary of Cove, together with a certified copy of the resolutions duly authorized by Cove’s board of directors authorizing the Merger and, if applicable, the transactions contemplated by this Agreement; | |
(f) Euroseas shall have received a certificates of good standing for Cove from the Secretary of State of the State of Nevada dated as of a date that is within five (5) days of the Closing Date; | |
(g) Cove shall have furnished to the Euroseas such additional certificates and other customary closing documents as Euroseas may have reasonably requested as to any of the conditions set forth in this Section 7.2; | |
(h) At the Effective Time, Cove shall have approximately $10,000 in cash or cash equivalents after giving effect to the payment or accrual on or prior to the Effective Time of all fees, costs, expenses and liabilities incurred by Cove, including, but not limited to, the fees, costs and expenses of (i) Cove’s manufacturers, suppliers, vendors and third-party providers, (ii) Cove’s attorneys, accountants, investment bankers and consultants in connection with the transactions contemplated by this Agreement and (iii) the repayment of any outstanding loans; | |
(i) The Pledge Agreement shall have been executed pursuant to which the Cove Principals have pledged or caused the Pledged Shares to be pledged to Euroseas by the Cove Principals or pledgors reasonably acceptable to Euroseas and deposited with an independent collateral agent (in the amount and in accordance with the method set forth in Article IX) to secure the indemnification obligations of the Cove Principals under this Agreement; | |
(j) Euroseas shall have raised at least $21 million in the Private Placement Transaction on terms reasonably satisfactory to Euroseas; | |
(k) At Closing, Cove’s capitalization shall be unchanged from that set forth in Section 4.2 and all loans made to Cove and all other outstanding debt and all other liabilities shall have been paid in full; | |
(l) Euroseas shall have received written resignations and releases from each of Cove’s directors and officers and which resignations and releases, by their respective terms, shall become effective immediately prior to the Effective Time; provided however that Jodi Hunter shall remain an at will employee of Cove and the Surviving Corporation, as contemplated by Section 10.10 of this Agreement; | |
(m) Cove shall have conducted the operation of its business in material compliance with all applicable Laws and all approvals required of Cove under applicable law to enable Cove to perform its obligations under this Agreement shall have been obtained; | |
(n) Cove shall have moved its principal headquarters from California to the Cayman Islands and shall have filed all documentation and paid all fees necessary to locate its principal headquarters in the Cayman Islands and to terminate its authorization to do business in California; and |
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(o) All corporate proceedings of Cove in connection with the Merger and the other transactions contemplated by this Agreement and all agreements, instruments, certificates, and other documents delivered to Euroseas by or on behalf of Cove pursuant to this Agreement shall be reasonably satisfactory to Euroseas and its counsel. |
7.3 | Conditions to Obligations of Cove to Effect the Merger. |
(a) Euroseas shall have performed in all material respects its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of Euroseas contained in this Agreement shall be true and correct in all material respects (except for those representations and warranties which are themselves limited by a reference to materiality, which shall be true and correct in all respects, other than as modified) on and as of (i) the date made and (ii) the Closing Date (in each case except in the case of representations and warranties expressly made solely with reference to a particular date which shall be true and correct in all material respects as of such date); and Cove shall have received a Certificate of the president of Euroseas to that effect; | |
(b) Cove shall have received an opinion of Seward & Kissel LLP, counsel to Euroseas, dated the Closing Date, in form and substance reasonably satisfactory to Cove; | |
(c) Cove shall have received a “comfort” letter from Deloitte & Touche LLP, independent certified public accountants for Euroseas, dated the date of the Information Statement and the Closing Date (or such other date reasonably acceptable to Cove) with respect to certain financial statements of Euroseas and other related financial information included in the Information Statement in customary form; | |
(d) At Closing, Euroseas’ capitalization shall be unchanged from that as set forth in Section 3.2, except as may be adjusted for the issuance of the shares and warrants, if any, in the Private Placement Transaction; | |
(e) Cove shall have received a certificate of the corporate Secretary of Euroseas, together with a certified copy of the resolutions duly authorized by the board of directors and Euroseas authorizing the Merger and the transactions contemplated by this Agreement; | |
(f) Cove shall have received a certificate of good standing for Euroseas from the Registrar of Corporations of the Republic of the Marshall Islands dated as of a date that is within five (5) days of the Closing Date; | |
(g) Euroseas shall have furnished to Cove such additional certificates and other customary closing documents as Cove may have reasonably requested as to any of the conditions set forth in this Section 7.3; | |
(h) Since the date of this Agreement there shall not have been any Material Adverse Effect with respect to Euroseas and its Subsidiaries, the likelihood of which was not previously disclosed to Cove by Euroseas; | |
(i) All corporate proceedings of Euroseas in connection with the Merger and the other transactions contemplated by this Agreement and all agreements, instruments, certificates and other documents delivered to Cove by or on behalf of Euroseas pursuant to this Agreement shall be in substantially the form called for hereunder or otherwise reasonably satisfactory to Cove and its counsel. |
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8.1 | Termination. |
(a) by mutual consent in writing of Cove and Euroseas; | |
(b) unilaterally upon written notice by Cove to Euroseas upon the occurrence of a Material Adverse Effect with respect to Euroseas, the likelihood of which was not previously disclosed to Cove in writing by Euroseas prior to the date of this Agreement; | |
(c) unilaterally upon written notice by Euroseas to Cove upon the occurrence of a Material Adverse Effect with respect to Cove, the likelihood of which was not previously disclosed to Euroseas in writing by Cove prior to the date of this Agreement; | |
(d) unilaterally upon written notice by Cove to Euroseas in the event a material breach of any material representation or warranty of Euroseas contained in this Agreement (unless such breach shall have been cured within ten (10) days after the giving of such notice by Cove), or the willful failure of Euroseas to comply with or satisfy any material covenant or condition of Euroseas contained in this Agreement; | |
(e) unilaterally upon written notice by Euroseas to Cove in the event of a material breach of any material representation or warranty of Cove or the Cove Principals contained in this Agreement (unless such breach shall have been cured by Cove or the Cove Principals within ten (10) days after the giving of such notice by Euroseas), or Cove’s or the Cove Principals’ willful failure to comply with or satisfy any material covenant or condition of Cove or the Cove Principals contained in this Agreement, or if Cove fails to obtain the Cove Stockholders’ Approval; | |
(f) unilaterally upon written notice by either Cove or Euroseas to the other if the Merger is not consummated for any reason not specified or referred to in the preceding provisions of this Section 8.1 by the close of business on February 28, 2006, provided however that no party may avail itself of this ground for termination if such failure to consummate the Merger is caused by such party either in breach of this Agreement or by not proceeding in good faith towards the consummation of the Merger; or | |
(g) unilaterally upon written notice by Euroseas to Cove in the event that by September 1, 2005, Euroseas shall not have raised at least $21 million in the Private Placement Transaction on terms reasonably satisfactory to Euroseas. |
8.2 | Effect of Termination. |
8.3 | Amendment. |
8.4 | Waiver. |
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8.5 | Expenses. |
9.1 | Survival of Representations and Warranties. |
9.2 | Indemnification. |
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9.3 | Third-Party Claims. |
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10.1 | Notices. |
(a) | If to Cove or to the Cove Principals, to: |
Cove Apparel, Inc. | |
1003 Dormador, Suite 21 | |
San Clemente, CA 92672 | |
Attention: Kevin Peterson, President | |
FAX: (949) 250-8656 | |
with a copy to: | |
Leib Orlanski | |
Kirkpatrick & Lockhart, Nicholson, Graham | |
10100 Santa Monica Boulevard, Seventh Floor | |
Los Angeles, CA 90067 | |
FAX: (310) 552-5001 |
(b) | If to Euroseas, to: |
Euroseas Ltd. | |
Aethrion Center | |
40 Ag Konstantinou Ave | |
151-24 Maroussi, Greece | |
FAX: +30-210-6105111 |
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with a copy to: | |
Seward & Kissel LLP | |
One Battery Park Plaza | |
New York, New York 10004 | |
Attention: Larry Rutkowski, Esq. | |
FAX: (212) 480-8421 | |
and to: | |
Broad and Cassel | |
201 S. Biscayne Boulevard | |
Suite 300 | |
Miami, Florida 33131 | |
Attention: A. Jeffry Robinson, Esq. | |
FAX: (305) 995-6402 |
10.2 | Interpretation. |
10.3 | Miscellaneous. |
10.4 | Submission to Jurisdiction. |
10.5 | Waiver of Jury Trial. |
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10.6 | Counterparts. |
10.7 | Benefits of Agreement. |
10.8 | Parties in Interest. |
10.9 | Captions. |
10.10 | Other Obligations. |
10.11 | Amendments. |
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EUROSEAS ACQUISITION COMPANY, INC. |
By: | /s/ Aristides J. Pittas |
Name: Aristides J. Pittas |
Title: | President |
EUROSEAS LTD. |
By: | /s/ Aristides J. Pittas |
Name: Aristides J. Pittas |
Title: | President |
COVE APPAREL, INC. |
By: | /s/ Kevin Peterson |
Name: Kevin Peterson |
Title: | President |
/s/ Kevin Peterson | |
Kevin Peterson | |
/s/ Shawn Peterson | |
Shawn Peterson | |
/s/ Jodi Hunter | |
Jodi Hunter | |
/s/ Daniel Trotter | |
Daniel Trotter |
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“PLEDGED SHARES means 475,000 Euroseas Shares (subject to adjustment for any reverse stock split by Euroseas) to be received in connection with the Merger, acquired in private transactions, in the open market or otherwise) that are pledged to Euroseas by the Cove Principals or other pledgors reasonably acceptable to Euroseas and deposited with an independent collateral agent in accordance with Section 9.2 below to secure the indemnification obligations of the Cove Principals under Article IX of this Agreement.” |
“(a) As of immediately prior to the Closing, the authorized capital stock of Euroseas shall consist solely of 100,000,000 common shares, $0.01 par value, and 20,000,000 preferred shares, $0.01 par value, of which 29,754,166 common shares (subject to adjustment for any reverse stock split by Euroseas and excluding any shares and warrants to be issued in the Private Placement Transaction), and no preferred shares, will be issued and outstanding.” |
“(b) It shall not (i) split, combine or reclassify its outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise (other than (A) a reverse stock split by Euroseas, or (B) any declaration and payment of dividends, so long as the appropriate amount of such dividends are held in trust and paid to the Cove stockholders if the Merger is consummated or paid to Friends if the Merger is not consummated), (ii) spin-off any assets or |
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businesses, (iii) engage in any transaction for the purpose of effecting a recapitalization, or (iv) engage in any transaction or series of related transactions which has a similar effect to any of the foregoing;” |
“This Agreement may not be amended except by an instrument in writing signed by Euroseas and Cove.” |
“In furtherance of the foregoing, on or prior to the Closing Date, the Cove Principals shall pledge or cause to be pledged to Euroseas an aggregate of at least 475,000 Euroseas Shares (after giving effect to the Merger and the exchange of Cove Common Stock for Euroseas Shares in connection therewith and subject to any adjustment for any reverse stock split by Euroseas) by pledgors reasonably acceptable to Euroseas and such Pledged Shares shall be deposited with an independent collateral agent to secure the indemnification obligations of the Cove Principals under this Article IX.” |
“Assumes all outstanding securities in Cove and Euroseas are exchanged for, or converted to, Euroseas Shares and gives effect to the contemplated Private Placement Transaction but does not include any warrants issued in the Private Placement Transaction and does not take into account any reverse stock split by Euroseas.” |
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EUROSEAS ACQUISITION COMPANY, INC. |
By: | /s/ Aristides J. Pittas |
Name: Aristides J. Pittas |
Title: | President |
EUROSEAS LTD. |
By: | /s/ Aristides J. Pittas |
Name: Aristides J. Pittas |
Title: | President |
COVE APPAREL, INC. |
By: | /s/ Kevin Peterson |
Name: Kevin Peterson |
Title: | President |
/s/ Kevin Peterson | |
Kevin Peterson | |
/s/ Shawn Peterson | |
Shawn Peterson | |
/s/ Jodi Hunter | |
Jodi Hunter | |
/s/ Daniel Trotter | |
Daniel Trotter |
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(a) Consummation of a conversion or plan of merger to which the domestic corporation is a constituent entity: (1) If approval by the stockholders is required for the conversion or merger by NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation, regardless of whether the stockholder is entitled to vote on the conversion or plan of merger; or (2) If the domestic corporation is a subsidiary and is merged with its parent pursuant to NRS 92A.180. | |
(b) Consummation of a plan of exchange to which the domestic corporation is a constituent entity as the corporation whose subject owner’s interests will be acquired, if his shares are to be acquired in the plan of exchange. | |
(c) Any corporate action taken pursuant to a vote of the stockholders to the extent that the articles of incorporation, bylaws or a resolution of the board of directors provides that voting or nonvoting stockholders are entitled to dissent and obtain payment for their shares. |
(a) The articles of incorporation of the corporation issuing the shares provide otherwise; or | |
(b) The holders of the class or series are required under the plan of merger or exchange to accept for the shares anything except: (1) Cash, owner’s interests or owner’s interests and cash in lieu of fractional owner’s interests of: (I) The surviving or acquiring entity; or (II) Any other entity which, at the effective date of the plan of merger or exchange, were either listed on a national securities exchange, included in the national market system by the National Association of Securities Dealers, Inc., or held of record by a least 2,000 holders of owner’s interests of record; or (2) A combination of cash and owner’s interests of the kind described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b). |
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(a) He submits to the subject corporation the written consent of the stockholder of record to the dissent not later than the time the beneficial stockholder asserts dissenter’s rights; and | |
(b) He does so with respect to all shares of which he is the beneficial stockholder or over which he has power to direct the vote. (Added to NRS by 1995, 2089) |
(a) Must deliver to the subject corporation, before the vote is taken, written notice of his intent to demand payment for his shares if the proposed action is effectuated; and | |
(b) Must not vote his shares in favor of the proposed action. |
(a) State where the demand for payment must be sent and where and when certificates, if any, for shares must be deposited; | |
(b) Inform the holders of shares not represented by certificates to what extent the transfer of the shares will be restricted after the demand for payment is received; |
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(c) Supply a form for demanding payment that includes the date of the first announcement to the news media or to the stockholders of the terms of the proposed action and requires that the person asserting dissenter’s rights certify whether or not he acquired beneficial ownership of the shares before that date; | |
(d) Set a date by which the subject corporation must receive the demand for payment, which may not be less than 30 nor more than 60 days after the date the notice is delivered; and | |
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS by 1995, 2089) |
(a) Demand payment; | |
(b) Certify whether he or the beneficial owner on whose behalf he is dissenting, as the case may be, acquired beneficial ownership of the shares before the date required to be set forth in the dissenter’s notice for this certification; and | |
(c) Deposit his certificates, if any, in accordance with the terms of the notice. |
(a) Of the county where the corporation’s registered office is located; or | |
(b) At the election of any dissenter residing or having its registered office in this State, of the county where the dissenter resides or has its registered office. The court shall dispose of the complaint promptly. |
(a) The subject corporation’s balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, a statement of income for that year, a statement of changes in the stockholders’ equity for that year and the latest available interim financial statements, if any; | |
(b) A statement of the subject corporation’s estimate of the fair value of the shares; |
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(c) An explanation of how the interest was calculated; | |
(d) A statement of the dissenter’s rights to demand payment under NRS 92A.480; and | |
(e) A copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS by 1995, 2090) |
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(a) For the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the subject corporation; or | |
(b) For the fair value, plus accrued interest, of his after-acquired shares for which the subject corporation elected to withhold payment pursuant to NRS 92A.470. (Added to NRS by 1995, 2091) |
(a) Against the subject corporation and in favor of all dissenters if the court finds the subject corporation did not substantially comply with the requirements of NRS 92A.300 to 92A.500, inclusive; or | |
(b) Against either the subject corporation or a dissenter in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive. |
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