UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 20-F / / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 333-63055 MILLENIUM SEACARRIERS, INC. (Exact name of Registrant as specified in its charter) Not Applicable (Translation of Registrant's Name into English) Cayman Islands (Jurisdiction of incorporation or organization) c/o Ugland House South Church Street Grand Cayman, Cayman Islands (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each Class Name of each exchange on which registered ------------------- ----------------------------------------- Not Applicable Not Applicable Securities registered or to be registered pursuant to Section 12(g) of the Act. None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. Millenium Seacarriers, Inc. 12% First Priority Ship Mortgage Exchange Notes Due 2005 Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 9,500,000 shares of common stock, US$.01 par value per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 / / Item 18 /X/ MILLENIUM SEACARRIERS, INC. INDEX TO REPORT ON FORM 20-F TABLE CAPTION PART I PAGE ---- Item 1. Description of Business..................................................................1 Item 2. Description of Property..................................................................9 Item 3. Legal Proceedings.......................................................................10 Item 4. Control of Registrant...................................................................10 Item 5. Nature of Trading Market................................................................10 Item 6. Exchange Controls and Other Limitations Affecting Security Holders..............................................................................10 Item 7. Taxation................................................................................10 Item 8. Selected Financial Data.................................................................12 Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................13 Item 9A. Quantitative and Qualitative Disclosures About Market Risk..............................19 Item 10. Directors and Officers of Registrant....................................................19 Item 11. Executive Compensation..................................................................21 Item 12. Options to Purchase Securities From Registrant or Subsidiaries.......................................................................22 Item 13. Interest of Management in Certain Transactions..........................................22 PART II Item 14. Description of Securities to be Registered..................................Not applicable PART III Item 15. Defaults Upon Senior Securities.............................................Not applicable Item 16. Changes in Securities, Changes in Security for Registered Securities and Use of Proceeds.................................Not applicable PART IV Item 17. Financial Statements........................................................Not applicable Item 18. Financial Statements....................................................................22 Item 19. Financial Statements and Exhibits.......................................................23 Signature.................................................................................................24 PART I ITEM 1. DESCRIPTION OF BUSINESS - ------- ----------------------- THE COMPANY Millenium Seacarriers, Inc. ("Millenium Seacarriers"), a Cayman Islands company formed in 1998, is an international shipping company that owns and operates a fleet of drybulk carriers, primarily in the 20,000 to 49,999 deadweight ton ("dwt") range ("Handysize drybulk carriers"). Millenium Seacarriers, through its whollyowned subsidiaries (collectively, the "Subsidiary Guarantors" and, together with Millenium Seacarriers, the "Company") had a fleet as of December 31, 1999 consisting of 20 vessels with an aggregate tonnage of approximately 555,666 dwt. In the year ended December 31, 1999, the Company's fleet transported approximately 3.6 million tons of drybulk cargo worldwide. Millenium Seacarriers began operations on July 24, 1998, with the acquisition of the shipowning companies which operated the Clipper Atlantic, Clipper Pacific, Clipper Golden Hind, Clipper Harmony, and Monica Marissa. By the end of 1998, the Company had acquired the Millenium Amethyst, Millenium Yama, Millenium Majestic, Millenium Condor, Millenium Osprey, Millenium Leader, Millenium Hawk, Millenium Falcon, Millenium Eagle, Millenium Aleksander, and Millenium Elmar. The Company continued its acquisitions in the year ended December 31, 1999 and acquired the Millenium Raptor, Millenium Trader, Millenium Dawn, Millenium Express and Millenium Amanda, all of which have been successfully delivered to their charterers under their respective contracts. During 1999, the Company sold the Monica Marissa, reducing its fleet size to 20 vessels. The Company's strategy is to provide superior transportation services to its charterers by operating a fleet of high quality second hand drybulk carriers. The Company intends to generate stable cash flows by mostly using period time charters and to focus on the Handysize drybulk sector of the shipping industry. The Company's business strategy is intensely customer and operations-oriented. By focusing on the Handysize drybulk sector, the Company is able to identify and respond to its market and customer needs. As a customer-oriented service provider, the Company can use this market and customer information to develop creative solutions for its clients, including acquiring additional vessels or reconfiguring existing vessels within its fleet and developing customized trade routes. The Company also has the ability to serve its charter customers in niche trades which require specialized vessels. The Company is generally able to achieve significant cost efficiencies as a result of operating a fleet focused in one sector. These include more efficient drydock service, better rates for insurance and spares and purchasing efficiencies from suppliers. In addition, many of the vessels in the Company's fleet include sister vessels that have similar design characteristics, allowing the Company to benefit from operating, maintenance and crew efficiencies. -1- The vessels in the Company's fleet are all of Cayman Islands, Cypriot, Bahamian, Panamanian or Liberian registry. All of the vessels are currently "in class" with Lloyds Register, the American Bureau of Shipping, Germanischer Lloyd or Det Norske Veritas, each a leading classification society. Each of the vessels in the Company's fleet has received certification under the International Maritime Organization's ("IMO") International Management Code for the Safe Operation of Ships and Pollution Prevention (the "ISM Code") by successfully completing audits conducted by Det Norske Veritas. However, there can be no assurance that such certification will be maintained indefinitely. MANAGEMENT The Company has engaged Millenium Management, Inc. ("MMI"), the sole shareholder of Millenium Seacarriers, to provide certain commercial and technical management services to the Company at current market rates. MMI has subcontracted with Millenium Maritime Services Ltd. ("Millenium Maritime Greece") and Millenium Maritime Services, Inc. ("Millenium Maritime USA" and, collectively with Millenium Maritime Greece, "Millenium Maritime") to provide management services. Millenium Maritime Greece and Millenium Maritime USA collectively employ approximately 38 individuals. Millenium Maritime Greece has offices in Piraeus and Millenium Maritime USA has offices in New York, providing full service and support to the Company's fleet from two locations, each located in strategic shipping epicenters. Millenium Maritime Greece and Millenium Maritime USA coordinate their activities to eliminate duplicative effort and conflicting priorities so as to provide the most complete, efficient, cost effective management services to their respective clients. Millenium Maritime's multi-disciplined and coordinated structure allows it to provide the most effective management services for the differing sizes and types of vessels operated by the Company. MMI and Millenium Maritime provide commercial management services by coordinating with various third party brokers. MMI solicits, researches, evaluates and proposes charters for the Company's fleet and, pursuant to the Company's direction, also negotiates the terms and conditions for the sale and purchase of the Company's fleet, through recognized shipbrokers worldwide. Finally, at the Company's instruction, MMI obtains insurance for the Company's fleet, working through recognized third party brokers worldwide. MMI and Millenium Maritime also provide comprehensive technical management services to each vessel of the Company's fleet. MMI's services include: obtaining qualified officers and crews; managing day-to-day vessel operations and relationships with charterers; purchasing stores, supplies and new equipment; performing general vessel maintenance, reconditioning and repair, including commissioning and supervising shipyards, subcontractors, or drydock facilities required for such work; ensuring regulatory and classification society compliance; performing operational budgeting, evaluating and arranging financing for the vessels and performing accounting, treasury and finance functions (including cash disbursements and collections). MMI provides these services on a collective basis to the Company's fleet, thereby allowing the Company to benefit from certain economies of scale. -2- Each member of Millenium Maritime's staff that interacts with vessels is provided with home and portable linkages to the vessels' communication and data system, so that ship management services can be provided around the clock, seven days a week. All vessels in the Company's fleet will also be linked by electronic communication to Millenium Maritime to allow immediate response to vessel management operations. CREWING The Company employs mainly Russian officers and crews on its vessels, all of whom must be fully licensed and certified in accordance with international regulatory requirements and shipping conventions. As part of its ongoing commitment to maintain a high quality fleet and efficient operations, the Company places great emphasis on attracting qualified crew members and on regular training. Prior to and during employment, the Company requires all shipboard personnel to undergo training courses both in-house and at recognized national training centers. All these courses are selected with a view toward enabling shipboard personnel to maintain a high level of skill within their respective areas, with an emphasis on safety and keeping up to date with the latest technical and professional developments. The Company's seaboard personnel are responsible for carrying out routine maintenance aboard the vessels while at sea. COMPETITION Seaborne transportation services are provided by independently owned fleets, proprietary fleets and state-owned fleets. Competition for charters can be intense and depends on freight rates offered, location, size, age, condition and acceptability of a vessel and its operator to the charterer. Competition in the drybulk sector is also affected by the availability of other size vessels that compete in the Company's markets. Although the Company believes that the markets in which the Company competes are highly fragmented and that no single competitor has a dominant position, the Company is aware that certain competitors may be able to devote greater financial and other resources to their activities, which may result in a competitive threat to the Company. CLASSIFICATION SOCIETY AND OTHER SAFETY REQUIREMENTS Every commercial vessel's hull and machinery must be "classed" by a classification society authorized by its country of registry. The classification society verifies that a vessel is constructed, maintained and equipped in accordance with the rules of such classification society and that the vessel complies with flag state regulations and with international conventions, including the Safety of Life at Sea Convention ("SOLAS") and the regulations promulgated by the IMO. Insurance underwriters make it a condition of insurance coverage for the vessel to be "classed" and the failure of a vessel to be "classed" may render such a vessel uninsurable. Insurance underwriters may also require that vessels comply with standards more restrictive than those of the classification society. All the Company's fleet is currently "in class," with the Lloyds Register, the American Bureau of Shipping, Germanischer Lloyd or Det Norske Veritas, each of which is a member of the International Association of Classification Societies. -3- A vessel must be inspected by a surveyor of the classification society at least every year, every two and one-half years ("Intermediate Survey") and every four or five years ("Special Survey"). If any defects are found, the classification society will issue a "recommendation" which requires the ship owner to remedy the defect within a prescribed time limit. The Intermediate Survey includes an underwater examination of the vessel's submerged hull and machinery. The Special Survey includes a mandatory drydocking. In connection with a Special Survey, the vessel is examined extensively, including an inspection to determine the thickness of the steel plates in various parts of the vessel. If the vessel experiences excessive wear and tear, substantial expenditures may become necessary for steel renewals and other repairs to pass a Special Survey. Although the useful life of a vessel may be extended by capital improvements and upgradings, the costs necessary to meet classification society and other safety and regulatory requirements generally increase significantly as a vessel becomes older. All the vessels in the Company's fleet are on a five-year Special Survey cycle. In addition to the drydocking conducted as part of the Special Survey, each vessel must be drydocked at some time between special surveys. INSURANCE The business of the Company is affected by a number of risks, including mechanical failure, personal injury, vessel and cargo loss or damage, business interruption due to political conditions in foreign countries, hostilities, labor strikes, adverse weather conditions and catastrophic marine disaster, including environmental accidents and collisions. The Company's fleet is insured against these risks with the following forms of insurance for each vessel. HULL AND MACHINERY INSURANCE. The Company maintains marine hull and machinery insurance, which insures against the risk of damage and the total or constructive total loss of an insured vessel and against damage to third parties directly caused by an insured vessel. Constructive total loss occurs when the vessel is damaged to the extent that the repair costs exceed the insured value of the vessel. The Company also maintains war risk insurance, which insures against the risk of damage and the total or constructive total loss of an insured vessel directly caused by certain warlike situations such as military use of weapons or terrorist activities. Coverage for areas designated from time to time as war zones may be excluded or additional premiums may be required in respect of vessels operating in such zones. The Company maintains coverage for at least the full value of each insured vessel and updates this insurance at least annually. The Company maintains civil and war risk hull and machinery insurance on all of its vessels. This insurance has been placed in the French, Italian and Norwegian markets, and is subject to deductibles consistent with industry practice. P&I INSURANCE. The Company maintains protection and indemnity ("P&I") insurance coverage for its shipping activities, which includes the legal liability and other related expenses of injury to or death of crew members and third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third party property, pollution liability and salvage, towing and other related costs. The Company's P&I insurance coverage is arranged through P&I mutual insurance clubs. As a member of a club, the Company may be required to pay additional premiums at the end of a year in which claims made on the club were particularly large. The Company's total premium is based on the Company's own claims record, the total claims record of the members of the club and the aggregate claims record of all clubs which are members of the -4- international association of P&I clubs. In line with industry practice, coverage for damages arising out of hazardous materials discharges is limited to $500 million per vessel per incident. For trading in United States Waters, the Company arranges additional insurance coverage, satisfactory to United States Coast Guard ("USCG") regulatory approval, for liability arising from oil pollution. The Company's insurance policies are subject to commercially reasonable deductibles. REGULATION The Company's operations are materially affected by regulation in the form of international conventions and national, state and local laws and regulations in force in the jurisdictions in which the Company's fleet operates, as well as in the country or countries of their registration. Because such conventions, laws and regulations are subject to revision, the Company cannot predict the ultimate cost of compliance or the impact thereof on the resale price or useful life of its vessels. The Company is required to carry certain permits, licenses and certificates with respect to its operations. The Company believes that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will impose greater inspection and safety requirements on all vessels. The Company's fleet is subject to both scheduled and unscheduled inspections by a variety of governmental and private interests, each of which may have a different perspective or impose different standards. These interests include the local port state authority (USCG or equivalent), classification society, flag state administration (country of registry) and charterers. ENVIRONMENTAL REGULATION--INTERNATIONAL The IMO is an agency of the United Nations whose purpose is to develop international regulations and practices affecting shipping and international trade, and to encourage the adoption of standards of safety and navigation. All IMO agreements must be ratified by the IMO's individual government constituents. The International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (the "CCL"), and the Convention for the Establishment of an International Fund for Oil Pollution of 1979, as amended, are the principal international laws adopted by most jurisdictions for imposing strict liability on a vessel's registered owner for pollution damage caused on the territorial waters of a contracting state by the discharge of persistent oil. The liability of the vessel owner is subject to certain complete defenses. The United States is not a party to the CCL. Approximately one-quarter of the countries that have ratified the CCL have increased the liability limits through a 1992 Protocol to the CCL that has recently entered into force. As of April 17, 2000, for vessels of between 5,000 and 140,000 gross tons, the liability limits in the countries that have ratified this Protocol to the CCL are approximately $3.9 million plus approximately $546 per gross ton above 5,000 gross tons, with an approximate maximum of $78.0 million. The exact amount of liability is tied to a unit of account which varies according to a basket of currencies. The exchange rate in effect on April 17, 2000 for the dollar equivalent of this unit of account was approximately 1.3. The right to limit liability is forfeited under the CCL where the spill is caused by the owner's intentional or reckless conduct. Vessels carrying cargo in bulk trading to contracting states must establish evidence of insurance covering the limited liability of the owner. In jurisdictions where the CCL has -5- not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to the CCL. The ISM Code and implementing regulations require shipowners and bareboat charterers to have developed, no later than July 1, 1998, an extensive "Safety Management System" that includes policy statements and instruction manuals that set forth standard operating, maintenance and communication protocol. Noncompliance with the ISM Code may subject shipowners and bareboat charterers to increased liability, may lead to decreases in available insurance coverage for affected vessels, and may result in the denial of access to, or detention in, certain ports. The Company, through Millenium Maritime, has obtained ISM certification for all of the vessels in the Company's fleet. The IMO recently adopted new survivability and structural requirements for drybulk carriers aimed at preventing the sinking of any such vessel if one cargo hold floods. The new requirements will apply to existing ships carrying heavy cargoes, including iron ore, steel, bauxite and cement and future vessels carrying lighter cargo. On certain of the vessels in the Company's fleet, the transverse watertight bulkhead below the foremost cargo hold, and the bottom of that hold, would have to withstand flooding of the fore hold. All drybulk vessels of 150 meters or more built after July 1, 1999 would have to withstand flooding of any one hold, even if they only haul lighter cargo, such as grain. The IMO has called on member states to enact these new requirements and begin enforcing them on July 1, 1999. The Company believes that it will be able to comply with these requirements without incurring material costs. The IMO continues to review and introduce new regulations on a regular basis. It is impossible to predict what additional regulations, if any, may be passed by the IMO, whether those regulations will be adopted by member countries, and what effect, if any, such regulations might have on the Company's operations. ENVIRONMENTAL REGULATION--OPA 90 OPA 90 applies to all owners, operators and bareboat charterers of vessels ("Responsible Parties") that trade within the United States or its territories or possessions or that operate in the navigable waters of the United States or adjoining shorelines, including the 200-nautical mile exclusive economic zone of the United States ("U.S. Waters"). Under OPA 90, Responsible Parties are strictly liable, on a joint and several basis, for all oil spill containment, removal costs and damages arising from actual or threatened discharges of oil from their vessels (unless the discharge results solely from the act or omission of a third party, an act of God or an act of war). Damages include (i) natural resources damages and the costs of assessment thereof, (ii) real and personal property damages, (iii) net loss of taxes, royalties, rent fees and other lost government revenues, (iv) lost profits or impairment of earning capacity due to property or natural resources damage, (v) net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards and (vi) loss of subsistence use of natural resources. OPA 90 limits the strict liability of Responsible Parties to the greater of $1,200 per gross ton or $10 million per tanker, but such limitation may not be available to the Responsible Parties in certain circumstances. -6- The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") contains a similar strict liability regime for the release of hazardous substances, which the Company's vessels may carry. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million. These limits of liability under CERCLA and OPA 90 do not apply if the incident is proximately caused by violation of applicable United States federal safety, construction or operating regulations, or by the Responsible Party's gross negligence or willful misconduct, or if the Responsible Party failed or refused to report the incident or to cooperate and assist in connection with oil removal activities. OPA 90 specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their waters, and most states that border on a navigable waterway have enacted legislation providing for unlimited liability for the discharge of pollutants. Moreover, OPA 90 and CERCLA preserve the right to recover damages under existing law, including maritime tort law. OPA 90 increased the financial requirements of the Federal Water Pollution Control Act for vessels operating in United States waters and requires owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the limit of their potential strict liability under OPA 90 and CERCLA. Bulk carriers must demonstrate financial responsibility in the amount of the greater of $500,000 or $600 per gross ton. Such financial responsibility, evidenced by the USCG's issuance of a Certificate of Financial Responsibility ("COFR"), may be demonstrated by a guarantee in the form of acceptable insurance, surety bond, self-insurance or other means approved by the USCG. Claimants may bring suit directly against an insurer, surety or other party that furnishes that guarantee. An insurer, surety or other party that is sued directly is limited to asserting the following defenses: (i) the defense that the incident was caused by the willful misconduct of the Responsible Party; (ii) the defenses available to the Responsible Party under OPA 90 or CERCLA; (iii) the defense that the claim exceeds the amount of the guarantee; (iv) the defense that the claim exceeds the property amount of the guarantee based on the gross tonnage of the vessel; and (v) the defense that the claim has not been made under either OPA 90 or CERCLA. The Company has demonstrated its financial responsibility by purchasing insurance from special purpose insurers approved by the USCG. The Company believes that its vessels that call within U.S. Waters comply with these USCG requirements. OPA 90 requires owners or operators of vessels operating in U.S. Waters to file vessel response plans with the USCG and with certain states detailing the steps to be taken to address an oil spill and to operate their vessels in compliance with their USCG-approved plans. Such response plans must, among other things, (i) address a "worst case" scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a "worst case discharge," (ii) describe crew training and drills and (iii) identify a qualified individual with full authority to implement removal actions. The Company has vessel response plans approved by the USCG for vessels in its fleet operating in United States Waters and the Company's vessels are operated in substantial compliance with such plans. INDUSTRY The Company operates in the Handysize drybulk carrier sector. Handysize drybulk carriers are versatile, single deck ships that transport unpacked cargo, which is poured, tipped or placed -7- through hatchways into the hold of the vessel. Their size, dimension and self-sustaining cargo gear enable Handysize drybulk carriers to access geographic markets which larger and gearless vessels cannot service and respond to the widest range of trade movements. Handysize drybulk carriers carry a wide variety of cargoes, including agricultural products, sugar, salt, minerals, phosphates, bauxite and alumina, forest products, petcoke, cement, steel products, scrap metal and pig iron, as well as cargoes generally carried by larger, gearless drybulk carriers, such as coal, iron ore and grain. The Handysize drybulk carrier market is highly fragmented and cyclical. Demand for Handysize drybulk carriers is geographically diverse and is affected by a number of factors including world and regional economic and political conditions, developments in international trade, changes in seaborne and other transportation patterns, weather patterns, crop yields, armed conflicts, port congestion, canal closures and other diversions in trade. These factors cause the demand for drybulk cargoes, and consequently the demand for Handysize drybulk carriers, to fluctuate. In addition, demand for Handysize drybulk carriers is affected by geo-political trends. As political and economic barriers to international trade are removed, international trade increases, thereby increasing demand for the seaborne transportation of cargoes, such as the cargoes Handysize drybulk carriers transport. Freight rates are strongly influenced by the supply of and demand for shipping capacity. The demand for shipping capacity is primarily determined by demand for the commodities carried and by the distance that those commodities are to be moved by sea. Demand for commodities is affected by, among other things, world and regional economic and political conditions (including developments in international trade, fluctuations in industrial and agricultural production and armed conflicts), environmental concerns, weather patterns, and changes in seaborne and other transportation costs. TAXATION Millenium Seacarriers has been incorporated as an exempted company under the laws of the Cayman Islands and has received an undertaking from the Governor in Council of the Cayman Islands under Section 6 of The Tax Concessions Law (1995 Revision) that for a period of 20 years from the date of the undertaking (a) that no Law which is hereafter enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to Millenium Seacarriers or its operations; and (b) that no tax to be levied on profits, income, gains, or appreciations or which is the nature of estate duty or inheritance tax shall be payable by Millenium Seacarriers (i) on or in respect of its shares, debentures or other obligations; or (ii) by way of the withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (1995 Revision). The Cayman Islands does not have an income tax treaty arrangement with the United States or any other country. EXECUTIVE OFFICES The principal executive offices of the Company are located at c/o Ugland House, South Church Street, Grand Cayman, Cayman Islands and its telephone number is 345-949-8066. -8- ITEM 2. DESCRIPTION OF PROPERTIES - ------- ------------------------- THE COMPANY'S FLEET The following list provides information with respect to the Company's vessels as of December 31, 1999. NAME OF VESSEL YEAR BUILT CAPACITY (DWT) FLAG MILLENIUM ALEKSANDER............... 1988 52,670(A) CAYMAN ISLANDS MILLENIUM ELMAR.................... 1987 52,640(A) CAYMAN ISLANDS MILLENIUM EXPRESS.................. 1984 39,055 LIBERIA MILLENIUM LEADER................... 1984 37,489 CAYMAN ISLANDS MILLENIUM AMANDA................... 1983 36,249 LIBERIA MILLENIUM RAPTOR................... 1982 30,670 CAYMAN ISLANDS MILLENIUM HAWK..................... 1984 28,791 CAYMAN ISLANDS MILLENIUM EAGLE.................... 1983 28,786 CAYMAN ISLANDS MILLENIUM OSPREY................... 1984 28,786 CAYMAN ISLANDS MILLENIUM FALCON................... 1981 27,048 CAYMAN ISLANDS MILLENIUM CONDOR................... 1981 27,036 CAYMAN ISLANDS MILLENIUM DAWN..................... 1985 26,563 LIBERIA MILLENIUM TRADER................... 1985 26,536 LIBERIA MILLENIUM AMETHYST................. 1978 23,538 BAHAMAS MILLENIUM YAMA..................... 1979 23,540 BAHAMAS MILLENIUM MAJESTIC................. 1979 17,152 BAHAMAS MILLENIUM HARMONY.................. 1978 16,711 PANAMA MILLENIUM GOLDEN HIND.............. 1978 16,560 LIBERIA CLIPPER PACIFIC.................... 1976 7,923 CYPRUS CLIPPER ATLANTIC................... 1975 7,923 CYPRUS (A) ALTHOUGH THE VESSEL CAPACITY IS SLIGHTLY GREATER THAN 49,999 DWT, IT IS CONSIDERED A HANDY SIZE DRYBULK CARRIER. -9- ITEM 3. LEGAL PROCEEDINGS From time to time the Company has been, and expects to continue to be, subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. As of December 31, 1999, the Company was not aware of any legal proceedings or claims that it believed would have, individually or in the aggregate, a material adverse effect on the Company or on its financial condition or results of operation. On March 28, 2000, an action was brought against the Company by Wayland Investment Fund, LLC ("WIF") in the United States District Court, Southern District of New York. In the First Amended Complaint filed on March 30, 2000 (the "Complaint"), WIF claims that it is a beneficial holder of in excess of 25% of the 12% First Priority Ship Mortgage Notes. The factual basis alleged to underlie the proceeding concerns the calculation of interest due and owing on the 12% First Priority Ship Mortgage Notes. WIF makes three claims in the Complaint: the first is for mutual mistake; the second is for breach of contract; and the third is for violations of Section 10(b) of the Exchange Act and Rule 10b-5. WIF's first claim for relief is that the 12% First Priority Ship Mortgage Notes be reformed to provide for interest on the principal amount at maturity of the 12% First Priority Ship Mortgage Notes and that damages be paid in the amount of $517,263.16. WIF's second claim of relief is damages in the amount of $74,417,263.15. WIF's third claim for relief is that damages be paid in the amount of $517,263.16. On April 19, 2000, the Company filed a Motion to Dismiss WIF's second claim and answered WIF's first and third claims. The Company intends to vigorously contest this litigation. ITEM 4. CONTROL OF REGISTRANT - ------- --------------------- As of April 17, 2000, all of the Company's issued and outstanding shares are owned by MMI. ITEM 5. NATURE OF TRADING MARKET - ------- ------------------------ The Millenium Seacarriers, Inc.12% First Priority Ship Mortgage Exchange Notes Due 2005 (the "Exchange Notes") do not trade on an organized exchange but rather trade in private transactions among the parties. ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS - ------- ------------------------------------------------------------------ Not applicable. ITEM 7. TAXATION - ------- -------- UNITED STATES - CAYMAN ISLAND INCOME TAX TREATY There is currently no income tax treaty between the United States and the Cayman Islands. -10- CAYMAN ISLANDS TAX CONSIDERATIONS There is no income tax, corporation tax, capital gains tax, withholding tax or any other kind of tax on profits or gains or tax in the nature of estate duty or inheritance tax currently in effect in the Cayman Islands. Holders who bring individual Exchange Notes in original form to the Cayman Islands may be liable to pay stamp duty in an amount of up to C.I.$250 on each Exchange Note. LIBERIAN TAX CONSIDERATIONS No taxes or withholding will be imposed by the Republic of Liberia on or with respect to any payments to be made in respect of the Exchange Notes, PROVIDED that (i) each of the Subsidiary Guarantors that is incorporated under the laws of the Republic of Liberia (each a "Liberian Guarantor") is and maintains its status as a "nonresident Liberian entity" under the Liberian Internal Revenue Code, (ii) each of the Liberian Guarantors is not now carrying on, and in the future does not expect to carry on, any operations within the Republic of Liberia, (iii) the Exchange Notes and all related documentation will be executed outside of the Republic of Liberia and (iv) the holders of the Exchange Notes will neither reside in, maintain offices in, nor engage in business in, the Republic of Liberia. CYPRIOT TAX CONSIDERATIONS No taxes or withholding will be imposed by the Republic of Cyprus on or with respect to any payments to be made in respect of the Exchange Notes, provided that (i) each of the Subsidiary Guarantors is and maintains its status as a shipping company of limited liability under the Cyprus Merchant Shipping (Fees and Taxing Provisions) Law No. 38(1)(92), (ii) the Company and each of the Subsidiary Guarantors is not now carrying on, and in the future is not expected to carry on, any operations exclusively within the Republic of Cyprus, (iii) the Exchange Notes and all related documentation will be executed outside the Republic of Cyprus and (iv) the Holders of the Exchange Notes will neither reside in, maintain offices in, nor engage in business in, the Republic of Cyprus. -11- ITEM 8. SELECTED FINANCIAL DATA - ------- ----------------------- The selected consolidated financial and other data set forth below for the Company have been derived from the Company's consolidated financial statements. The data set forth below should be read in conjunction with the consolidated financial statements and related notes thereto and the reports of the independent accountants. (IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA) INCOME STATEMENT DATA: Year ended 161-day period December 31, ended December 1999 31, 1998 ---------------------------------------------- Net revenue (a)......................................... $ 32,253 $ 12,136 Operating expenses (b).................................. 22,882 8,563 Depreciation and amortization........................... 7,048 2,318 Provision for vessel impairment......................... 7,000 0 ---------------------- ---------------------- Vessel Operating Income/(loss)....................... (4,677) 1,255 Interest expense........................................ 12,643 5,812 Other income............................................ (611) (1,030) Loss on sale of vessel.................................. 2,089 0 Net Loss............................................. $ $ (18,798) (3,527) OTHER FINANCIAL DATA: Capital expenditures.................................... $ 24,219 55,119 ---------------------- ---------------------- BALANCE SHEET DATA: as of December 31, as of December 31, 1999 1998 ---------------------- ---------------------- Net book value of vessels(c)............................ $ 93,485 82,719 Total assets............................................ 112,687 129,625 Total debt.............................................. 96,070 95,604 Shareholders' equity.................................... 1,775 20,573 (a) Net revenue is gross revenues from charters net of charter commissions and voyage related expenses. (b) Operating expenses include, among other things, vessel running costs, management fees and general and administrative expenses. (c) During 1999, Millenium Seacarriers, through its subsidiaries, purchased the Millenium Raptor, Millenium Trader, Millenium Dawn, Millenium Express,and Millenium Amanda -12- ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ------------------------------------------------------------ AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 - -------------------------------------------------------------- GENERAL The Company is an international shipping company that owns and operates a fleet of drybulk carriers, primarily Handysize (generally classified as being in the 20,000-49,000 deadweight-ton range) drybulk carriers. As of December 31, 1999, the Company's fleet consisted of 20 vessels totalling 555,666 deadweight-tons. The Company was incorporated on March 10, 1998 in the Cayman Islands. The Company began operations on July 24, 1998, with five vessels and subsequently expanded its fleet to 21 vessels as of June 30, 1999, all of which were acquired from the net proceeds of an offering of Units ("Units") consisting of $100 million principal amount at maturity of Notes and $1.2 million of Warrants. The Company also received an equity contribution of $24 million from Millenium Management, Inc., MMI, the holder of 100% of the outstanding common stock of the Company. In the quarter ended September 30, 1999, the Company sold a vessel, the Monica Marissa, thereby reducing its fleet to 20 vessels as of December 31, 1999. The following benchmarks are used by the Company to measure revenues: (i) utilization as an index that indicates vessel earning days (on the basis that 350 calendar days per year equals 100% utilization), and (ii) the average daily time charter equivalent (TCE) rate to analyze net revenues after commissions on the basis of 350-days utilization. The following table sets forth certain statement of operations and other operating data for the Company. Year ended Period ended December 31, December 31, 1999 1998 ------------------ --------------------- Net Revenue $ 32,253,199 $ 12,136,209 Vessel Operating Expenses (18,237,342) (7,001,095) Management Fees (3,822,801) (965,666) General and Administrative (821,507) (596,497) ------------------ ----------------- Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) $ 9,371,549 $ 3,572,951 ================== ================= Average Utilization (%) 97.5% 95.4% ================== ================= While the Company does have a comparable year in 1998, the comparisons are not meaningful as the year ended December 31, 1998 was only for 161 days of operations since inception, and also there were fewer vessels in the Company's fleet in 1998. EBITDA consists of net income prior to deductions for interest expense, income taxes, other income or expense net, and depreciation, and impairment write-downs. EBITDA is not required by United States generally accepted accounting principles, and should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows from operations as a measure of liquidity. -13- RESULTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1999 NET REVENUE Net revenue for the year ended December 31, 1999 was $32.3 million. During the period, 92% of the Company's gross revenues were earned from period time charters contracted with first class charterers, many of which continued from the previous year. The period consisted of 6,877 ship-operating days at an average fleet gross hire rate of $5,674 per day. The fleet averaged a utilization rate of 97.5% during the period. The year saw the Company's fleet expand from 16 vessels to 21 vessels, and then down to 20 vessels. The revenue earnings profile of the fleet also changed as many vessels ended their period charters contracted in 1998 and were entered into service with new charterers at market rates of hire. The revenues during the year were impacted by adverse market conditions which existed through most of the year compared to market conditions during inception of the Company in 1998. The Company's average hire rate per day is not reflective of market rates as the acquired younger vessels enjoy a higher charter rate while charter rates on its older tonnage have declined. During the year, 92% of revenues were earned from period time charters. A few of the company's vessels performed short voyages in the spot market during the course of the year for positioning purposes. The Clipper Atlantic and the Clipper Pacific ended their charters with Clipper in December 1999. The Clipper Golden Hind and Clipper Harmony charters with Clipper ended in mid-June and these vessels were subsequently renamed Millenium Golden Hind and Millenium Harmony and chartered by other charterers without loss of hire days. The Millenium Leader's charter with HSH of Singapore ended in the third quarter and the vessel was immediately placed on another period charter with a different charterer. The Millenium Aleksander's charter with Estonian Shipping Company ("Esco") concluded at the end of the first quarter and the vessel was placed into a period charter with another charterer. The Millenium Elmar's charter with Esco ended in mid-May following which it was placed with another charterer. During the first quarter, Fednav International Ltd. redelivered the Laker-type vessels, the Millenium Osprey, Millenium Condor, Millenium Falcon and Millenium Hawk, for three months during the Winter when the Great Lakes freeze, as per terms of the charter contract. These vessels were immediately placed into short term charters with other reputable charterers, albeit at lower daily hire rates due to adverse market conditions. However, Fednav re-hired the Millenium Hawk during this period, but at market rates which were lower than the contracted charter party rates. In April, Fednav re-took delivery of all these vessels back at the previously contracted charter rates, while the Millenium Eagle reverted to its contracted rate in May. The Millenium Raptor entered into service with Fednav in April. The Monica Marissa's charter with Cementos Mexicanos ("Cemex") ended in January following which the vessel was placed on a short-term charter with another charterer at market rates. This charter ended in May when the vessel went on a voyage charter after a brief repair period, and at the conclusion of this voyage in September the vessel was sold. The Millenium Trader went on a voyage charter upon acquisition and following the conclusion of this voyage the vessel was placed on a period charter. The Millenium Dawn, the Millenium Express, and the Millenium Amanda were all placed on period charters upon acquisition. -14- VESSEL OPERATING EXPENSES Vessel operating expenses, excluding management fees and depreciation and amortization, and impairment provisions, were $18.2 million for the year ended December 31, 1999. The year consisted of 6,877 ship-operating days; the Monica Marissa was sold 69-days into the third quarter of the year. The average vessel running costs for crewing, insurance, lubricants, repairs and maintenances, registry and survey costs, and vessel communications, came to $2,652 per day. MANAGEMENT FEES Management fees incurred to MMI for contracted technical and commercial management services for the year ended December 31, 1999 were $3.8 million. Each of the Company's vessels receives management services from its equity shareholder MMI pursuant to a Management Agreement among the Company's vessel owning subsidiaries (the "Vessel Owning Subsidiaries") and MMI. Under the Management Agreement, MMI acts as the fleet's technical and commercial manager. As a technical manager, MMI, on behalf of the Vessel Owning Subsidiaries, (i) provides qualified officers and crews on board vessels, (ii) manages day-to-day vessel operations and maintains relationships with charterers, (iii) purchases on behalf of the Company stores, spares, supplies and equipment for vessels, (iv) performs general vessel maintenance, subcontracts for drydock facilities for any major repairs and overhauls, (v) ensures regulatory and classification society compliance, (vi) performs vessel operational budgeting and evaluations, and (vii) provides accounting, treasury and finance functions (including cash collections and disbursements on behalf of the Company). As remuneration for its services, MMI receives a fixed management fee (payable monthly in advance) ranging from $350 to $600 per day per vessel. The Company treats the management fee paid to MMI as an operating expense. Under commercial management services, MMI, on behalf of the Vessel Owning Subsidiaries, primarily maintains and negotiates vessel charters, vessel sale-and-purchase brokering, and places insurance covers for vessels. As remuneration for its services, MMI receives a commission of 1.25% on all gross time charter revenue and 1.75% on all gross spot charter revenue earned by each vessel managed, 1% on the gross sale or purchase price of a vessel for brokerage services, and 2% of all insurance covers placed per vessel managed. MMI sub-contracts certain of its technical and commercial management services to Millenium Maritime Services Ltd. and Millenium Maritime Services, Inc. GENERAL AND ADMINISTRATIVE These expenses totalled $821,507 for the year ended December 31, 1999. These expenses included, among other things, legal and professional fees of $371,491, advisory fees of $300,000 paid to Millenium Advisors, L.L.C. and new vessel inspections of $90,138. -15- DEPRECIATION AND AMORTIZATION Total depreciation for the year ended December 31, 1999 was $5,777,652. Vessel depreciation is calculated based on the remaining useful life of the vessel, assuming a maximum life of 30 years, net of salvage value. Deferred vessel costs, including deferred dry-docking expenses, are capitalized and amortized over a period of two and a half years (30 months). During the year ended December 31, 1999, the new costs for dry-docking and special surveys amounted to $1,148,578 which included $538,539 for the Millenium Majestic, $312,832 for the Clipper Atlantic, $149,799 for the Millenium Osprey and $110,624 for the Millenium Trader. For the year December 31, 1999, total amortization of deferred vessel charges, including deferred dry-docking expenses, were $804,654. Also included in amortization in the the statement of operations for the year ended December 31, 1999, is $465,682 of amortization of costs associated with the acquisition costs relating to the issuance of the Units. These costs are amortized over the life of the Notes, being 7 years from their issuance in July 1998. In December 1999, these costs were reduced to $0 and the total charge was included in Provision for vessel impairment. PROVISION FOR VESSEL IMPAIRMENT Subsequent to the loss incurred on the sale of the Monica Marissa, some tests were carried out on the impact of current market conditions on the market value of the fleet. Accordingly, cash flow projections were prepared and this indicated that, except for three vessels, the estimated net cash flows of each of the vessels generated through the end of their useful lives will exceed their net book value as of December 31, 1999. Consequently, an impairment of $4,400,000 was recorded in December of 1999. Additionally, in December 1999, during the Company's periodic review of the carrying value of its goodwill based on undiscounted estimated future cash flows of the vessels acquired, determined that none of the goodwill remaining at December 31, 1999 would be recoverable. Accordingly, in December 1999, the Company also recorded a $2,600,088 charge which reduced the remaining balance of goodwill to $0. The total charge as included in Provision for vessel impairment on the statement of operations amounts to $7,000,088. INTEREST EXPENSE For the year ended December 31, 1999, the interest expense on the Company's long-term debt was $11,498,404. During the year ended December 31, 1999, interest earned on cash balances was $682,051. Interest expense also includes amortization of $465,160 recorded in connection with the bond discount relating to the debt issue, and the amortization of $680,140 recorded in connection with the deferred financing costs incurred relating to the debt issue. LOSS ON SALE OF VESSEL During the quarter ended September 31, 1999, the vessel Monica Marissa was sold for scrap. The vessel had a lightweight of 13,881 long-tons. Net proceeds from the sale amounted to $1,610,196. The loss on the sale was $2,088,655. -16- NET LOSS Net loss for the year ended December 31, 1999 was $18.8 million. Earnings were impacted by a decline in charter rates during the period, a $2.0 million loss on the sale of the Monica Marissa, and a $7.0 million impairment loss. However, earnings before interest, taxes, depreciation and amortization, and provision for impairment (EBITDA) for the period was $9.4 million. LIQUIDITY AND CAPITAL RESOURCES The Company is a holding company. As of December 31, 1999, it owns all of the issued and outstanding shares of 20 Vessel Owning Subsidiaries. As of December 31, 1999, the Company's cash position consisted of $6.9 million in unrestricted cash and cash equivalents. Restricted cash includes $1.6 million of proceeds from the sale of the Monica Marissa which are in escrow. Restricted cash also includes other deposits made toward contingencies and vessel upgrades. OPERATING ACTIVITIES Net cash flows used in operations for the period ended December 31, 1999 were $2.8 million compared to cash provided by operations in 1998 of $7.0 million. This change is due primarily to increases in current liabilities relating to initiating operations in 1998 which was not repeated in 1999. In addition, net loss before adjustments to reconcile loss to net cash used in operating activities increased from $0.7 million in the 1998 period to $1.7 million in 1999, which is attributable to 1999 operations being for the entire year compared to only 161 days of operations in 1998. As is common in the shipping industry, the Company collects its hire for all time charters 15 days in advance. The Company also has established long-term relationships with many suppliers resulting in the Company receiving favorable credit terms. INVESTING ACTIVITIES Principal investing activities were the acquisition of the companies which own the Existing Vessels and the purchase of Committed Vessels. Transactions for the purchase of vessels from the international shipping market is usually conducted in two stages: (i) a deposit of approximately 10% of the purchase price is paid upon the execution of the related purchase agreement, and (ii) the balance of the purchase price is paid upon the vessel's physical delivery, usually within 90 days from the date of the execution of the agreement. Net cash used in investing activities in 1999 were $22.8 million compared to net cash used of $55.3 million in 1998. This decrease is attributable to there being 16 vessels acquired in 1998 compared to only 5 being acquired in 1999. Additionally, the 1999 use of cash was partially offset by the proceeds from the sale of a vessel. -17- FINANCING ACTIVITIES Net cash provided by financing activities were $26.7 million in 1999 compared to $54.0 million. Cash provided in 1998 was due to proceeds of $96.6 million relating to the net proceeds from the issuance of Notes and Warrants And shareholder contributions of $7.1 million, offset by $31.5 million of cash put into escrow for the purchase of vessels, deferred financing costs of $5.9 million and repayment of debt on a vessel of $12.3 million. In 1999, cash provided consisted of $26.7 million released from escrow in connection with the purchase of 5 additional vessels. The Company believes that based upon the current level of operation, cash flow from operations, together with other readily available sources of funds, including the balance escrow cash, which was made available to the Company on July 31, 1999, for use as working capital and other corporate purposes, it has adequate liquidity to fund its working capital requirements, meet capital expenditures for repairs and maintenance and make required payments of interest on the Company's debt. The Company has completed its schedule of vessel acquisitions, and any further expansion of its fleet is dependent on its ability to raise capital through either borrowing activities or from cash generated from operations, or both. WORKING CAPITAL Pursuant to a Working Capital Facility Agreement between the Company and The Bank of New York, the Company had a standby line of credit in a principal amount up to $7.0 million available for its working capital requirements, which expired on July 20, 1999. The Bank, however, extended the maturity of a $500,000 tranche until August 5, 1999 which also expired unused. The facility was only used once during its tenure for an amount of $250,000 which was repaid. The facility, collateralized by the Company's vessels and subject to various covenants, bore interest at LIBOR+1.5% and was subject to a 0.375% commitment fee on the unused portion. On December 23, 1999, the Company accepted a commitment for a standby line of credit in a principal amount up to $2.5 million available for its working capital requirements from the Allfirst Bank. The facility, collateralized by the Company's vessels and subject to various covenants, provided that interest would accrue at the US Prime rate and was subject to a 1% commitment fee on the unused portion. This commitment, which was valid until March 23, 2000, was subject to consent from Note Holders due to the fact that the Allfirst Bank will be both the Working Capital Facility provider as well as the Indenture Trustee and a potential of conflict of interest could arise under certain conditions. Pending such consent, the Allfirst Bank has extended the commitment until June 1, 2000. FOREIGN EXCHANGE RATE FLUCTUATIONS All of the Company's revenue, and most of its expenses, are denominated in United States dollars. For the year ended December 31, 1999, approximately 5% of the Company's expenses were denominated in foreign currencies, primarily Greek drachmae. The Company does not hedge its exposure to foreign currency fluctuations. -18- INFLATION The Company does not believe that inflation has had a material impact on its operations during the periods presented, although certain of the Company's operating expenses (E.G. crewing, insurance and drydocking costs) are subject to fluctuations as a result of market forces. Inflationary pressures on bunker costs are not expected to have a material effect on the Company's results from operations and cash flows since such costs are paid by the charterers as the majority of the Company's vessels are on period time charters. YEAR 2000 CONSEQUENCES The year 2000 issue is the result of prior computer programs being written using two digits, rather than four digits, to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major system failure or miscalculations. The Company has analyzed its operations and has identified four primary areas that may be affected by the year 2000 issue, including crew safety, vessel maneuverability, vessel communications and vessel navigation. In addition, to ensure year 2000 compliance, the Company had auxiliary systems in place in all of these areas. These auxiliary systems include with respect to (a) crew safety, having fire detectors and other safety equipment on the vessels which are analogue technology and non-computer based, (b) vessel maneuverability, having emergency steering wheels that are not computer-cased, (c) vessel communications, having non-digital-based radio transmitters, having crew members trained to employ semi-fores, aldis lights and fog horns and (d) vessel navigation, having crew members trained to employ gyro-compasses, sextants and magnetic compasses. Subsequent to the end of the year, the Company entered 2000 with no disruptions and there were no Year 2000 related computer malfunctions. The Company continues to prepare and enhance its systems and embedded technologies for future computer related compliance. ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------- ---------------------------------------------------------- The Company's outstanding debt bears a fixed interest rate and therefore the Company is not susceptible to interest rate fluctuations. In addition, all of the Company's revenues and expenses are denominated in United States dollars, except for 5% of its expenses which are denominated primarily in Greek drachmae, and therefore the Company believes it is not susceptible to foreign exchange fluctuations. ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT - -------- ------------------------------------ The following table sets forth the name, age and principal position with the Company of each of its directors and executive officers. -19- The following individuals are the senior officers and directors of Millenium Seacarriers (ages as of April 17, 2000): Vassilios M. Livanos 52 Chairman and Director Theotokis S. Milas 56 Chief Operating Officer Nicholas A. Cotzias, Jr. 39 Chief Financial Officer and Director Emanuel Kyprios 56 Vice President, Projects Michael A. Dritz 61 Director Harald H. Ludwig 44 Director Connor O'Brien 38 Director Tom Stage Petersen 41 Director Certain biographical information about each of these individuals is set forth below: VASSILIOS M. LIVANOS has been involved in the shipping industry for over 25 years. In 1993 he was one of the founding partners of Millenium Maritime Greece. From 1985 to 1993, Mr. Livanos was president of Kedma Ltd., a New York-based shipowning company which was founded in 1985. As President of Kedma, Mr. Livanos directed the growth of Kedma's fleet from four vessels to over 20 vessels. From 1972 to 1985, Mr. Livanos worked for Seres Shipping Inc., in New York and Tokyo, as Director of Engineering responsible for the technical management of a fleet of over 100 vessels. Mr. Livanos spent four years in Japan, where he supervised the construction of over 20 vessels of various types. During his tenure at Seres Shipping Inc., Mr. Livanos was a principal shipowner of two vessels from 1981 and a principal in a drybulk chartering operation from 1983. Mr. Livanos graduated from the Massachusetts Institute of Technology in 1971, with a B.A. and M.S. in Naval Architecture and Marine Engineering, and an M.S. in Shipping and Shipbuilding Management. THEOTOKIS S. MILAS has been involved in the shipping industry for over 30 years. In 1993 Mr. Milas was one of the founding members of Millenium Maritime Greece. In 1984 he was a founding partner of IMI, a New York based shipowning company with 15 vessels having an aggregate tonnage of 1.25 million dwt. Prior to 1984, Mr. Milas held various management positions with other shipping companies based in the United States. Also during that time, Mr. Milas was appointed and acted as a qualified surveyor for the American Bureau of Shipping and the NKK, the Japanese Classification society. He graduated from City University of New York with a B.S. degree in Mechanical Engineering in 1966, and from Massachusetts Institute of Technology in 1971 with M.S. degrees in Naval Architecture and Marine Engineering, as well as in Shipping and Shipbuilding Management. Mr. Milas was elected a member of the Society of Maritime Arbitrators in 1981. NICHOLAS A. COTZIAS, JR. has been involved in the shipping industry for over 15 years. In 1993, he was one of the founding partners of Millenium Maritime Greece. From 1988 to 1993, Mr. Cotzias served as the General Manager and Director of Trade and Transport (UK) Ltd. in London, part of Brokerage & Management Group, a United States connected shipping venture which controlled, at the time, in excess of 40 vessels including drybulk carriers, tankers and offshore supply and support vessels, trading primarily in the North Seas. Mr. Cotzias handled a number of transactions in the sale and purchase sector, and period charter employments, for and on behalf of the owners of vessels, and was responsible for successfully preparing, analyzing and negotiating investment proposals in -20- assisting the group implement various programs and maximizing returns by meeting targets. From 1984 to 1988, Mr. Cotzias worked at Cotzias Shipping of Greece, an international family owned concern established in 1892, as sale and purchase manager. Mr. Cotzias graduated from Boston University in 1982 with a B.A. and an M.A. degree in International Economics. EMANUEL KYPRIOS has been involved in the shipping industry for over 25 years. In 1993 Mr. Kyprios was one of the founding members of Millenium Maritime Greece. In 1985, Mr. Kyprios founded the OSI Group which specializes in merchant banking for the shipping industry, and has provided financial services to some of the leading shipping groups and financial shipping institutions in the world. From 1970 to 1984, Mr. Kyprios was an executive at Bankers Trust Company and Manufacturers Hanover Trust Company and Vice President and Group Head of Shipping and Transportation at Marine Midland Bank. Mr. Kyprios graduated from The Wharton School of Finance and Commerce in 1968 with an MBA degree. MICHAEL DRITZ is the Chairman of Dritz Enterprises LLC, a New York based investment firm which also provides consulting services for the financial industry since 1996. Mr. Dritz also serves on the board of directors of Compass Aerospace Corporation, a supplier of aerospace parts. Mr. Dritz was previously a Managing Director for Merrill Lynch & Co. and Chairman of its Smith Brothers International Advisory Division. Until 1996, following the acquisition by Merrill Lynch & Co. of Smith New Court PLC, Mr. Dritz was the President and Chief Executive Officer of Smith New Court, Inc. and an Executive Director of Smith New Court PLC from 1985 to 1995. Mr. Dritz is a graduate of Syracuse University. HARALD H. LUDWIG is a co-founder and President of Macluan Capital Corporation, a private investment company based in Vancouver, British Columbia. Under Mr. Ludwig's leadership, Macluan Capital Corporation has invested in over 20 companies since 1986. Mr. Ludwig serves on the board of directors of Compass Aerospace Corporation, a supplier of aerospace parts. Mr. Ludwig graduated from Simon Fraser University and received a law degree from Osgoode Hall Law School. CONNOR O'BRIEN is a co-founder and Managing Director of Stanton Capital Corporation, a private equity investment firm based in New York. Prior to forming Stanton Capital in 1995, he worked in the Investment Banking Group at Merrill Lynch & Co., following four years in the Mergers & Acquisitions and Natural Resources Groups at Lehman Brothers Inc. and two years at a major New York bank. Mr. O'Brien sits on the board of directors of several privately-held companies, including ESCO and Siderperu, the former government-owned national steel company in Peru. Mr. O'Brien received an M.B.A. from the Tuck School at Dartmouth College. TOM STAGE PETERSEN is the Managing Director of ESCO and has 23 years experience in the shipping industry. Prior to joining ESCO in the beginning of 1998, Mr. Petersen worked for Norasia Lines Ltd. for ten years, where he held various management positions in Asia, the Middle East and Europe. Prior to that Mr. Petersen worked at Maersk Line/A.P. Moller for thirteen years. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- The directors of the Company are each entitled to receive approximately $10,000 plus -21- expenses from the Company annually. Neither the Company nor any of its subsidiaries have set aside or reserved funds for pension, retirement or similar benefits for directors and officers. Certain officers and directors of the Company will also be officers and directors of and might be compensated by MMI, Millenium Maritime Greece and/or Millenium Maritime USA. ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE REGISTRANT OR SUBSIDIARIES - -------- ------------------------------------------------------------------ Not applicable. ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS - -------- ---------------------------------------------- The Company has engaged MMI, the sole shareholder of Millenium Seacarriers, to provide certain commercial and technical management services to the Company at current market rates. MMI has subcontracted with Millenium Maritime Greece and Millenium Maritime USA to provide management services. PART II ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED - -------- ------------------------------------------ Securities have already been registered. PART III ITEM 15. DEFAULTS UPON SENIOR SECURITIES - -------- ------------------------------- Not applicable. ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED - -------- ------------------------------------------------------------- SECURITIES - ---------- Not applicable. PART IV ITEM 17. FINANCIAL STATEMENTS - -------- -------------------- See Item 19 for a list of financial statements required under Item 18. The financial information and the report of the Independent Certified Public Accountants set forth on pages F-2 to F-14 of the annexed Financial Statements of the Company are incorporated into this Annual Report on Form 20-F. ITEM 18. FINANCIAL STATEMENTS - -------- -------------------- See Item 19(a) below. -22- ITEM 19. FINANCIAL STATEMENTS - -------- -------------------- (a) Financial Statements The following financial statements, together with the reports of the independent auditors thereon, are filed as part of this Annual Report. (b) Exhibits 1. Copies of all amendments or modifications, not previously filed, to all exhibits previously file. Not Applicable. 2. Copies of all contracts and other documents of a character required to be filed as an exhibit to an original registration statement which were executed or in effect during the fiscal year end and not previously filed. Not Applicable. -23- SIGNATURES Pursuant to the requirements of Section 12 of the Securities Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. MILLENIUM SEACARRIERS, INC. By: /s/ Vassilios M. Livanos ---------------------------- Name: Vassilios M. Livanos Title: Chairman Dated: April 28, 2000 -24- MILLENIUM SEACARRIERS INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGES ----- Independent Auditors' Reports F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Cash Flows F-6 Consolidated Statements of Shareholders' Equity F-7 Notes to the Consolidated Financial Statements F-8 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Millenium Seacarriers Inc. Grand Cayman, Cayman Islands We have audited the accompanying consolidated balance sheet of Millenium Seacarriers, Inc. and subsidiaries (the "Company") as of December 31, 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for the year ended December 31, 1999 (all expressed in U.S. Dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Millenium Seacarriers, Inc. and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the year ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York March 23, 2000 F-2 PRICEWATERHOUSECOOPERS - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Millenium Seacarriers Inc. and Subsidiaries In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, cash flows and shareholders' equity present fairly, in all material respects, the financial position of Millenium Seacarriers Inc. and its subsidiaries at December 31, 1998 and the results of their operations and cash flows for the period from inception (March 10, 1998) to December 31, 1998, in conformity with generally accepted accounting principles in the United States. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers PricewaterhouseCoopers Piraeus, Greece April 21, 1999 F-3 MILLENIUM SEACARRIERS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998 (Expressed in U.S. Dollars) DECEMBER 31, DECEMBER 31, ASSETS 1999 1998 - ------ CURRENT ASSETS Cash and cash equivalents $ 6,903,645 $ 5,736,645 Restricted cash 4,827,135 31,524,890 ------------------- ------------------- 11,730,780 37,261,535 Receivables : Voyages 516,763 311,574 Claims and other 324,564 242,552 Inventories and prepaid expenses 1,479,206 443,252 ------------------- ------------------- Total current assets 14,051,313 38,258,913 ------------------- ------------------- Fixed assets Vessels, net of accumulated depreciation of $7,164,750 93,484,950 82,719,321 and $1,774,349 at December 31, 1999 and 1998, respectively Other, net of accumulated depreciation 138,337 25,536 ------------------- ------------------- Total fixed assets 93,623,287 82,744,857 Intangible assets, net - 3,065,775 Other assets 5,012,248 5,555,303 ------------------- ------------------- Total Assets $ 112,686,848 $ 129,624,848 =================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 5,705,471 $ 5,465,844 Accrued liabilities 8,632,155 7,368,365 Charter revenue received in advance 504,290 613,031 ------------------- ------------------- Total current liabilities 14,841,916 13,447,240 Notes 96,069,637 95,604,477 ------------------- ------------------- TOTAL LIABILITIES 110,911,553 109,051,717 ------------------- ------------------- Commitments and contingencies Shareholders' equity Common stock and paid in capital 22,900,000 22,900,000 Warrants 1,200,000 1,200,000 Accumulated deficit (22,324,705) (3,526,869) ------------------- ------------------- Total shareholders' equity 1,775,295 20,573,131 ------------------- ------------------- Total Liabilities and shareholders' equity $ 112,686,848 $ 129,624,848 =================== =================== The accompanying notes are an integral part of these financial statements F-4 MILLENIUM SEACARRIERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM MARCH 10, 1998 TO DECEMBER 31, 1998 (Expressed in U.S. Dollars) Period from PERIOD FROM January 1, MARCH 10, 1999 to 1998 TO December 31, DECEMBER 31, 1999 1998 REVENUE Freight and hire from voyages $ 36,488,454 $ 12,721,853 Voyage expenses (2,642,675) (43,757) Commissions (1,592,580) (541,887) -------------------- -------------------- Net revenue 32,253,199 12,136,209 -------------------- -------------------- EXPENSES Vessel operating expenses 18,237,342 7,001,095 Management fees 3,822,801 965,666 General and administrative 821,507 596,497 Depreciation and amortization 7,047,988 2,318,452 Provision for vessel impairment 7,000,088 - -------------------- -------------------- 36,929,726 10,881,710 -------------------- -------------------- Operating (loss) / income (4,676,527) 1,254,499 -------------------- -------------------- OTHER INCOME / (EXPENSE) Interest expense (12,643,704) (5,811,573) Other income 611,050 1,030,205 Loss on sale of vessel (2,088,655) - -------------------- -------------------- (14,121,309) (4,781,368) -------------------- -------------------- Loss before income taxes (18,797,836) (3,526,869) Income tax provision - - -------------------- -------------------- Net loss $ (18,797,836) $ (3,526,869) ==================== ==================== Loss per Share, Basic and Diluted $ (1.98) $ (0.67) ==================== ==================== The accompanying notes are an integral part of these financial statements F-5 MILLENIUM SEACARRIERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM MARCH 10, 1998 TO DECEMBER 31, 1998 (Expressed in U.S. Dollars) YEAR ENDED PERIOD FROM DECEMBER 31, MARCH 10, 1998 TO 1999 DECEMBER 31, 1998 Cash flows from operating activities Net loss $ (18,797,836) $ (3,526,869) Adjustments to reconcile loss to net cash provided by operating activities: Loss on sale of vessel 2,088,655 - Provision for vessel impairment 7,000,088 - Depreciation and amortization 7,047,988 2,318,452 Amortization of bond discount and deferred financing costs 1,145,300 534,420 Changes in operating assets and liabilities Increase in Receivables (287,201) (443,643) Increase in Inventories and prepaid expenses (1,035,954) (291,063) Increase in Trade accounts payable 58,888 2,571,585 Increase in Accrued liabilities 1,263,790 6,100,896 Deferred dry-docking and special survey (1,148,574) (622,782) (Decrease) Increase in Charter revenue received in advance (108,741) 376,045 ------------------ ----------------------------- Net cash (used in)/provided by operating activities (2,773,597) 7,017,041 ------------------ ----------------------------- Cash flows from investing activities Purchase of vessels (23,615,000) (53,412,500) Additions to vessels (603,797) (1,706,170) Proceeds from sale of vessel 1,610,196 - Acquisitions, net of cash acquired - (106,944) Purchase of other fixed assets (148,557) (26,678) ------------------ ----------------------------- Net cash used in investing activities (22,757,158) (55,252,292) ------------------ ----------------------------- Cash flows from financing activities Proceeds from working capital facility 250,000 - Repayment of Proceeds from working capital facility (250,000) - Proceeds from Escrow account and restricted cash 26,697,755 (31,524,890) Proceeds from long-term debt - 95,393,000 Principal payments on Existing Vessel Debt - (12,325,856) Issuance of warrants - 1,200,000 Deferred financing costs - (5,870,360) Shareholder contribution - 7,100,000 ------------------ ----------------------------- Net cash provided by financing activities 26,697,755 53,971,894 ------------------ ----------------------------- Increase in cash and cash equivalents 1,167,000 5,736,643 Cash and cash equivalents at beginning of period 5,736,645 2 ------------------ ----------------------------- Cash and cash equivalents at end of period $ 6,903,645 $ 5,736,645 ================== ============================= Supplementary cash flow information Interest paid $ 11,445,018 $ 480,872 ================== ============================= The accompanying notes are an integral part of these financial statements F-6 MILLENIUM SEACARRIERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999 (Expressed in U.S. Dollars) COMMON STOCK AND PAID-IN ACCUMULATED CAPITAL WARRANTS DEFICIT TOTAL Issuance of stock : Incorporation, March 10, $ 2 $ - $ - $ 2 1998 Acquisition of Existing Vessel Owning Companies, July 24, 1998 3,999,998 - - 3,999,998 ------------------ ------------ ---------------- -------------- Balance, July 24, 1998 4,000,000 - - 4,000,000 Contributions 18,900,000 - - 18,900,000 Warrants - 1,200,000 - 1,200,000 Net Loss, December 31, - - (3,526,869) (3,526,869) 1998 ------------------ ------------ ---------------- -------------- Balance January 1, 1999 22,900,000 1,200,000 (3,526,869) 20,573,131 Net Loss for the year ended December 31, 1999 (18,797,836) (18,797,836) ------------------ ------------ ---------------- -------------- Balance December 31, $ 22,900,000 $ 1,200,000 $ (22,324,705) $ 1,775,295 1999 ================== ============ ================ ============== The accompanying notes are an integral part of these statements F-7 MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US Dollars) 1. BUSINESS INFORMATION On March 10, 1998, Millenium Seacarriers, Inc. ("Millenium") was formed (the "Formation") to directly hold the capital stock of a group of subsidiaries (collectively the "Company") each of which owns one of Millenium's vessels. These consolidated financial statements give effect to the Formation pursuant to which all of Millenium subsidiaries became wholly owned subsidiaries of Millenium. Millenium owns and operates a fleet of dry-bulk carriers, primarily of Handy-size type. As of December 31, 1999, the Company's fleet consisted of 20 vessels, with an aggregate tonnage of 555,666 dwt. The Company is registered and incorporated in the Cayman Islands. Its principal business is the acquiring, upgrading and operating of vessels. Millenium conducts its operations through its subsidiaries whose principal activity is the operation and ownership of dry-bulk vessels that will be under the exclusive management of Millenium Management, Inc. ("MMI") and the submanagement of Millenium Maritime Services Ltd. and Millenium Maritime Services, Inc. 2. BASIS OF FINANCIAL STATEMENT PRESENTATION AND ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. All inter-company balances and transactions have been eliminated upon consolidation. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the consolidated financial statements, and the stated amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to the 1998 financial statements to conform to the classifications in the 1999 financial statements. REVENUE AND EXPENSE RECOGNITION Revenue and expenses resulting from each voyage or time charter are accounted for on the accrual basis and are recognized in the income statement on the percentage of completed voyage basis. Chartered revenue received in advance is recorded as a liability until charter services are rendered. Operating expenses comprise all expenses relating to the operation of the vessels, including crewing, repairs and maintenance, insurance premiums, stores and lubricants, and miscellaneous expenses, including communications. Voyage expenses comprise all expenses relating to particular voyages, including bunkers, port charges, canal tolls and agency fees. F-8 INCOME TAXES The countries of the vessel-owning companies' incorporation do not impose taxes on international shipping income. Minor registration and tonnage taxes must be paid annually and have been included in the vessels' operating expenses in the accompanying consolidated statements of operations. Pursuant to the Internal Revenue Code of the United States (the Code), U.S. source income from the international operations of ships is generally exempt from U.S. tax if the company operating the ships meets certain requirements. Among other things, in order to qualify for this exemption, the company operating the ships must be incorporated in a country which grants an equivalent exemption from income taxes to U.S. citizens and U.S. corporations and must be more than 50% owned by individuals who are resident, as defined, in such country or another foreign country that grants an equivalent exemption to U.S. citizens and U.S. corporations. At December 31, 1999 the Company had met the requirement for exemption from U.S. income tax. FOREIGN CURRENCIES The Company's functional currency is the U.S. dollar. Certain of the expenses which are denominated in foreign currencies are remeasured into U.S. dollars at exchange rates prevailing at the date of the transaction. Resulting exchange gains and/or losses on settlement are included in operating expenses in the accompanying consolidated statement of operations. BASIC AND DILUTED LOSS PER ORDINARY SHARE Basic and diluted loss per ordinary share have been computed by dividing net loss by the average number of outstanding ordinary shares (9,500,000) following the formation of the Company. There are also 500,000 warrants outstanding to acquire 500,000 shares of common stock for $0.01 per share. Assumed exercise of these warrants has been excluded from the calculation of loss per common share as the effect of such exercise would be antidilutive. CASH AND CASH EQUIVALENTS AND ESCROW ACCOUNTS The Company considers time deposits or other certificates purchased with an original maturity of three months or less to be cash equivalents. Restricted cash includes proceeds deposits made towards contingencies and vessel upgrades, and also includes proceeds from the sale of a vessel (see Note 6) which have been placed in a restricted Escrow account under the governing rules of the Indenture. RECEIVABLES Voyage receivables include balance freights and demurrages, contested charterers hire deductions, advances to agents and unsubstantiated charterers deductions in respect of vessels' disbursements at the various ports of call. Claims and other receivables principally represent claims arising from hull and machinery damages, or other insured risks, which have been submitted to insurance underwriters and insurance adjusters or are currently being compiled. INVENTORIES AND PREPAID EXPENSES Inventories consist of bunkers, lubricants, spares and stores on board the Company's vessels at the balance sheet date. Inventories are stated at the lower of cost or market value. Cost is determined on a first-in, first- out method. Inventories and prepaid expenses as of December 31, 1999 and 1998 were $1,479,206 and $443,252, respectively. F-9 FIXED ASSETS Vessels, net is stated at cost less accumulated depreciation. Vessels are depreciated on a straight-line basis over their estimated remaining useful lives, based on cost less scrap value. The useful lives have been estimated to be 30 years from completion of construction. Depreciation is calculated on a straight-line basis by reference to the vessels' cost, age and scrap value as estimated at the date of acquisition which is $150 per ton. The Company has adopted the provision of Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-lived Assets to Be Disposed Of. The statement requires that long-lived assets used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss for an asset held for use should be recognized when the estimate of non-discounted future net cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount. Measurement of impairment loss is based on the fair market value of the asset. (See Note 3.) OTHER ASSETS Other assets include dry-docking, special survey and debt issue costs. Dry-docking and special survey costs are deferred and amortized over the estimated period to the next scheduled dry-docking or survey, which are generally, two and a half years and five years, respectively. The amortization of dry-docking and special survey costs are included in amortization in the accompanying consolidated statement of operations and amounted to $804,651 in 1999 and $322,441 in 1998. Debt issue costs also include costs associated with the issuance of Notes and the acquisition of the Millenium subsidiaries. These deferred financing costs are amortized over the life of the Notes and is included in interest expense in the accompanying consolidated statement of operations (see Note 4). INTANGIBLE ASSETS Intangible assets consist of goodwill relating the excess of cost over fair value of five vessels built between 1975 and 1978 which were acquired on July 24, 1998. This goodwill, which aggregated $3,259,812 at the time the vessels were acquired, was being amortized over a seven year period. Amortization was $465,682 and $194,037 in 1999 and 1998, respectively, and is included in amortization in the accompanying consolidated statement of operations. In December 1999, the Company reviewed the carrying value of its goodwill and determined that an impairment existed that based on a fair value analysis none of the goodwill remaining would be recoverable. Accordingly, in December 1999, the Company recorded a $2,600,088 charge which reduced the remaining balance of goodwill to $0. This charge is included in Provision for vessel impairment on the statement of operations. ACCRUED LIABILITIES Accrued liabilities primarily consists of accrued payroll, accrued interest and other accrued expenses. These liabilities at December 31, 1999 were, $1,393,366, $5,330,600 and $1,908,189 respectively, and at December 31, 1998 were $808,675, $5,277,153 and $1,282,537, respectively. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. The Company has no elements of comprehensive income and the net loss reported in the statements of operations is equivalent to the total comprehensive loss. F-10 Effective January 1, 1998, the Company adopted SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the way business enterprises report information about operating segments, as well as enterprise-wide disclosures about products and services, geographic areas and major customers. The Company operates in one segment. The Company's customers are located worldwide. All of the Company's transactions have been conducted in United States dollars. In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and reporting standards for derivative instruments and hedging activities. Generally, it requires that an entity recognizes all derivatives as either an asset or liability and measures those instruments at fair value, as well as identifies the conditions for which a derivative may be specifically designed as a hedge. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company does not currently engage or plan to engage in any derivative or hedging activities. 3. FIXED ASSETS Fixed assets consists of the Company's fleet of dry bulk carriers and other assets. Vessels owned by the Company are stated at cost, which comprises the vessels' contract price, capital improvements, direct delivery and acquisition expenses, and finance charges relating to the acquisition of vessels, reduced by impairment writedowns described in the following paragraph. Management believes that depressed freight market conditions have impacted the fair market value of certain older vessels in the fleet. In December 1999, the Company reviewed the carrying value of its vessels and determined that an impairment existed. Accordingly, the Company estimated an impairment of $4,400,000, which represents the aggregate amount by which carrying value exceeded fair value of the vessels. This amount is included in Provision for vessel impairment in the accompanying consolidated statement of operations. Balance at Balance at December 31, 1999 December 31, 1998 ------------------------ ------------------------ Vessels, at cost $100,649,700 $84,493,670 Less: accumulated depreciation (7,164,750) (1,774,349) ----------- ----------- Vessels, net $93,484,950 $82,719,321 =========== =========== Other assets, at cost $175,234 $26,678 Less: accumulated depreciation (36,897) (1,142) -------- ------- Other assets, net $138,337 $25,536 ======== ======= F-11 4. LONG-TERM DEBT Long term debt is as follows: December 31, December 31, 1999 1998 ---------------------------------------------------- 12% First Priority Ship Mortgage Exchange Notes (the "Notes") due 2005. Interest on the Notes is payable semi-annually on January 15 and July 15 of each year, commencing January 15, 1999, at a rate of 12% per annum on the accreted value. The Notes will mature on July 15, 2005 and will be redeemable, in whole or part, at the option of the Company at any time on or after July 15, 2003. $ 100,000,000 $ 100,000,000 Less: Unamortized portion of bond discount (3,930,363) (4,395,523) ---------------------------------------------------- Notes $ 96,069,637 $ 95,604,477 ==================================================== The gross bond discount of $4,607,000 at date of issuance is amortized using the effective interest method over the life of the Notes (7 years). Amortization recorded in connection with this discount was $465,160 and $211,477 in 1999 and 1998, respectively and is included in interest expense. The deferred financing costs amortized in connection with the debt issue was $680,140 and $322,943 in 1999 and 1998, respectively and is included in interest expense. Semiannual interest payments are made on the Notes on January 15 and July 15 of each year commencing on January 15, 1999. Cash interest payments are made to holders of the Notes based on the Accreted Value of the Notes as defined in the Note Indenture. During 1999, the Company paid cash interest of $11,445,018 in accordance with the terms of the Note. No cash interest was paid on the Notes in 1998. The Notes are fully and unconditionally guaranteed (the "Subsidiary Guarantees"), jointly and severally, on a senior basis by each of the subsidiaries of Millenium (the "Subsidiary Guarantors"). The Notes are currently collateralized by First Priority Ship Mortgages on the Company's vessels. The Company's bonds are registered by the United States Securities & Exchange Commission pursuant to the United States Securities Act of 1933. The indebtedness evidenced by the Notes constitutes a general secured senior obligation of the Company and is fully and unconditionally guaranteed by each of the subsidiaries of the Company and will rank PARI PASSU in right of payment with all future senior indebtedness of the Company and its subsidiary guarantors. The Indenture, pursuant to where the Notes were issued (the Notes Indenture), contains certain covenants that among other things, limit the type and amount of additional indebtedness that may be incurred by the Company and imposes certain limitations on investments, loans and advances, sales or transfers of assets, dividends and other payments, the ability of the Company to enter into sale-leaseback transactions, certain transactions with affiliates and certain mergers, consolidations and purchases of assets, and amendments to security agreements. The Company is currently in compliance with the terms of the Notes Indenture at December 31, 1999. F-12 5. RELATED PARTY TRANSACTIONS Each of the Company's vessels receives management services from its equity shareholder MMI pursuant to a Management Agreement among the Company's vessel owning subsidiaries and MMI. Under the Management Agreement, MMI acts as the fleet's technical manager and performs all commercial management functions, including arranging, chartering, advising the Company on the purchase and sale of vessels and advising on obtaining insurance. As a technical manager, MMI (i) provides qualified officers and crews on board vessels, (ii) manages day-to-day vessel operations and maintains relationships with charterers, (iii) purchases on behalf of the Company stores, spares, supplies and equipment for vessels, (iv) performs general vessel maintenance, subcontracts for dry-dock facilities for any major repairs and overhauls, (v) ensures regulatory and classification society compliance, (vi) performs vessel operational budgeting and evaluations, and (vii) provides accounting, treasury and finance functions (including cash collections and disbursements on behalf of the Company). As remuneration for its services, MMI receives a fixed management fee (payable monthly in advance) ranging from $350 to $600 per day per vessel depending on the vessel type. In addition, any visit to a vessel by a superintendent of MMI to evaluate and supervise any repairs, dry-docking or other activities will entitle MMI to expenses incurred and, from visits in excess of five days per annum per vessel, its expenses incurred and an amount equal to $550 for each additional day. As additional remuneration for its services, MMI receives commission of (i) 1.25% on all gross time charter revenue, (ii) 1.75% on all gross freight revenue, (iii) 1% on the gross sale or purchase price of a vessel and (iv) 2% of insurance premiums for insurance placed, in each case as adjusted to reflect fluctuations in market rates and practices. MMI has sub-contracted certain of its technical and commercial management services to Millenium Maritime Services Ltd. and Millenium Maritime Services, Inc., both affiliates of MMI. The Company records the management fee paid to MMI in operating expenses. As of December 31, 1999, there is a payable to MMI which is reflected in Accrued liabilities, amounting to $550,957. During 1999 and 1998, the Company incurred management fees of $3,822,801 and $965,666 in connection with the aforementioned agreement. 6. LOSS ON SALE OF VESSEL During the year ended December 31, 1999, the Company disposed one vessel, the Monica Marissa, for scrap incurring a loss on sale of $2,088,655. 7. CONTINGENCIES From time to time the Company has been, and expects to continue to be, subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. As of December 31, 1999, the Company was not aware of any legal proceedings or claims that it believed would have, individually or in the aggregate, a material adverse effect on the Company or on its financial condition or results of operation. On March 28, 2000, an action was brought against the Company by Wayland Investment Fund, LLC ("WIF") in the United States District Court, Southern District of New York. In the First Amended Complaint filed on March 30, 2000 (the "Complaint"), WIF claims that it is a beneficial holder of in excess of 25% of the 12% First Priority Ship Mortgage Notes. The factual basis alleged to underlie the proceeding concerns the calculation of interest due and owing on the 12% First Priority Ship Mortgage Notes. WIF makes three claims in the Complaint: the first is for mutual mistake; the second is for breach of contract; and the third is for violations of Section 10(b) of the Exchange Act and Rule 10b-5. WIF's first claim for relief is that the 12% First Priority Ship Mortgage Notes be reformed to provide for interest on the principal amount at maturity of the 12% First Priority Ship Mortgage Notes and that damages be paid in the amount of $517,263.16. WIF's F-13 second claim of relief is damages in the amount of $74,417,263.15. WIF's third claim for relief is that damages be paid in the amount of $517,263.16. On April 19, 2000, the Company filed a Motion to Dismiss WIF's second claim and answered WIF's first and third claims. The Company intends to vigorously contest this litigation. 8. COMMITMENTS On December 23, 1999, the Company accepted a commitment for a standby line of credit in a principal amount up to $2.5 million available for its working capital requirements from the Allfirst Bank. The facility, collateralized by the Company's vessels and subject to various covenants, provided that interest would accrue at the US Prime rate and was subject to a 1% commitment fee on the unused portion. This commitment, which was valid until March 23, 2000, was subject to consent from Note Holders due to the fact that the Allfirst Bank would be both the Working Capital Facility provider as well as the Indenture Trustee and a potential of conflict of interest could arise under certain conditions. Pending such consent, the Allfirst Bank has extended the commitment until June 1, 2000. F-14