UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
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)
(Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.)
Form 20-F |X| Form 40-F |_|
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes |_| No |X|
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):82-_______ )
MILLENIUM SEACARRIERS, INC.
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
PART I PAGE
----
Item 1. Financial Information.........................................................................1
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999.........................................................1
Unaudited Consolidated Statements of Operations
for the three-month periods ended March 31, 2000 and 1999.....................2
Unaudited Consolidated Statements of Cash Flows
for the three-month periods ended March 31, 2000 and 1999.....................3
Consolidated Statement of Shareholders' Equity/(Deficiency)
for the year ended December 31, 1999 and the three-month
period ended March 31, 2000 (unaudited).......................................4
Notes to Consolidated Financial Statements............................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three-month period
ended March 31, 2000.................................................................11
PART II Other Information............................................................................16
Item 1. Legal Proceedings............................................................................16
Item 2. Changes in Securities........................................................................16
Item 3. Defaults Upon Senior Securities..............................................................16
Item 4. Submission of Matters to a Vote of Security Holders..........................................16
Item 5. Other Information............................................................................16
Item 6. Exhibits and Reports on Form 6-K.............................................................16
Signature.............................................................................................17
PART I
ITEM 1. FINANCIAL INFORMATION
- ------- ---------------------
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(Expressed in U.S. Dollars)
MARCH 31,
2000 DECEMBER 31,
ASSETS (UNAUDITED) 1999
- ------ ------------------- --------------------
CURRENT ASSETS
Cash and cash equivalents $ 3,243,879 $ 6,903,645
Restricted cash 4,849,536 4,827,135
------------------- --------------------
8,093,415 11,730,780
Receivables :
Voyages 595,875 516,763
Claims and other 566,581 324,564
Inventories and prepaid expenses 1,528,571 1,479,206
------------------- --------------------
TOTAL CURRENT ASSETS 10,784,442 14,051,313
------------------- --------------------
FIXED ASSETS
Vessels, net of accumulated depreciation of $8,483,550 and $7,164,750 at
March 31, 2000 and December 31, 1999, respectively 92,166,150 93,484,950
Other, net of accumulated depreciation 130,340 138,337
------------------- --------------------
TOTAL FIXED ASSETS 92,296,490 93,623,287
Other assets 5,302,029 5,012,248
------------------- --------------------
TOTAL ASSETS $ 108,382,961 $ 112,686,848
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY)
- -------------------------------------------------
CURRENT LIABILITIES
Trade accounts payable $5,641,370 $5,705,471
Accrued liabilities 6,344,353 8,632,155
Charter revenue received in advance 545,450 504,290
------------------- --------------------
TOTAL CURRENT LIABILITIES 12,531,173 14,841,916
Notes 96,197,405 96,069,637
------------------- --------------------
TOTAL LIABILITIES 108,728,578 110,911,553
------------------- --------------------
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 (24,445,617) (22,324,705)
------------------- --------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (345,617) 1,775,295
------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) $108,382,961 $112,686,848
=================== ====================
The accompanying notes are an integral part of these financial statements
-1-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
(Expressed in U.S. Dollars)
THREE-MONTH PERIOD THREE-MONTH PERIOD
ENDED MARCH 31, ENDED MARCH 31,
2000 1999
REVENUE
Freight and hire from voyages $ $10,521,809 $ 7,517,530
Voyage expenses (1,768,817) (302,618)
Commissions (386,372) (336,845)
-------------------------- -------------------------
NET REVENUE 8,366,620 6,878,067
-------------------------- -------------------------
EXPENSES
Vessel operating expenses 4,132,800 4,157,067
Management fees 1,342,829 672,542
General and administrative 348,090 160,922
Depreciation and amortization 1,537,759 1,528,972
-------------------------- -------------------------
7,361,478 6,519,503
-------------------------- -------------------------
OPERATING (LOSS) / INCOME 1,005,142 358,564
-------------------------- -------------------------
OTHER INCOME / (EXPENSE)
Interest expense (3,208,653) (3,096,488)
Other income 82,599 371,229
-------------------------- -------------------------
(3,126,054) (2,725,259)
-------------------------- -------------------------
LOSS BEFORE INCOME TAXES (2,120,912) (2,366,695)
INCOME TAX PROVISION - -
-------------------------- -------------------------
NET LOSS $ (2,120,912) $ (2,366,695)
========================== =========================
LOSS PER SHARE, BASIC AND DILUTED $ (0.22) $ (0.25)
========================== =========================
The accompanying notes are an integral part of these financial statements
-2-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
(Expressed in U.S. Dollars)
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
MARCH 31, 2000 MARCH 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,120,912) $ (2,366,695)
Adjustments to reconcile loss to net cash provided by operating
activities:
Depreciation and amortization 1,537,759 1,528,972
Amortization of bond discount and deferred financing costs 297,803 282,658
Changes in operating assets and liabilities
Increase in Receivables (321,129) (307,455)
Increase in Inventories and prepaid expenses (49,365) (337,575)
Decrease in Trade accounts payable (64,101) (1,131,318)
Decrease in Accrued liabilities (2,287,802) (1,888,638)
Deferred dry-docking and special survey (665,504) (49,978)
Increase in Charter revenue received in advance 41,160 1,697
---------------------- --------------------
NET CASH USED IN OPERATING ACTIVITIES (3,632,091) (4,268,332)
---------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances for purchase of vessels - (365,000)
Purchase of vessels - (3,075,000)
Additions to vessels - (183,312)
Purchase of other fixed assets (5,274) (65,680)
---------------------- --------------------
NET CASH USED IN INVESTING ACTIVITIES (5,274) (3,688,992)
---------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from working capital facility - 250,000
Escrow account and restricted cash (22,401) 3,582,223
---------------------- --------------------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (22,401) 3,832,223
---------------------- --------------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,659,766) (4,125,101)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,903,645 5,736,645
---------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,243,879 $ 1,611,544
====================== ====================
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 5,815,200 $ 5,639,958
====================== ====================
The accompanying notes are an integral part of these financial statements
-3-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY/DEFICIENCY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
THREE-MONTH PERIOD ENDED MARCH 31, 2000 (UNAUDITED)
COMMON STOCK
AND PAID-IN ACCUMULATED
CAPITAL WARRANTS DEFICIT TOTAL
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,
1999 $ 22,900,000 $ 1,200,000 $ (22,324,705) $ 1,775,295
Net Loss for the quarter
ended March 31, 2000 (2,120,912) (2,120,912)
------------------ ------------ ---------------- --------------
$ 22,900,000 $ 1,200,000 $ (24,445,617) $ (345,617)
================== ============ ================ ==============
The accompanying notes are an integral part of these financial statements
-4-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. 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 March 31, 2000, 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.
For a description of significant accounting policies, see the Notes to the
consolidated financial statements in the 1999 Form 20-F annual report.
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.
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.
-5-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
COMPREHENSIVE INCOME
The Company has no components of comprehensive income, and as a result,
comprehensive income is equal to net income (loss) for all periods presented.
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 March 31, 2000 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 deposits made towards contingencies and vessel upgrades, and also
includes proceeds from the sale of a vessel in 1999 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,
-6-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
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 March 31, 2000 and December 31, 1999 were
$1,528,571 and $1,479,206 respectively.
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.
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 $205,688 in
the quarter ended March 31, 2000 and $161,195 in the quarter ended March 31,
1999.
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).
ACCRUED LIABILITIES
Accrued liabilities primarily consists of accrued payroll, accrued interest and
other accrued expenses. These liabilities at March 31, 2000 were, $1,727,782,
$2,427,450 and $2,189,121 respectively, and at December 31, 1999 were
$1,393,366, $5,330,600 and $1,908,189, respectively.
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.
-7-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Balance at Balance at
March 31, 2000 December 31, 1999
------------------------ ----------------------------
Vessels, at cost $ 100,649,700 $ 100,649,700
Less: accumulated depreciation (8,483,550) (7,164,750)
------------------------ ----------------------------
Vessels, net 92,166,150 93,484,950
======================== ============================
Other assets, at cost 180,508 175,234
Less: accumulated depreciation (50,168) (36,897)
------------------------ ----------------------------
Other assets, net $ 130,340 $ 138,337
======================== ============================
4. LONG-TERM DEBT
Long term debt is as follows:
March 31, December 31,
2000 1999
-------------------------- ---------------------------
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 (3,802,595) (3,930,363)
-------------------------- ---------------------------
Notes $ 96,197,405 $ 96,069,637
========================== ===========================
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 is included in interest expense and
amounted to $127,768 and $112,623 in the three-month periods ended March 31,
2000 and March 31, 1999, respectively. The deferred financing costs amortized in
connection with the debt issue is included in interest expense and amounted to
$170,035 in each of the three-month periods ended March 31, 2000 and 1999.
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
Indenture.
-8-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
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
"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 Indenture at March 31, 2000.
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
March 31, 2000, there is a payable to MMI which is reflected in Accrued
liabilities, amounting to $1,077,794. During the three-
-9-
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
month periods ended March 31, 2000 and 1999, respectively, the Company incurred
management fees of $1,342,829 and $672,542 in connection with the aforementioned
agreement.
6. 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.
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 is vigorously contesting this litigation.
7. 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.
-10-
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
- -------------------------------------------------------------------------------
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 March 31, 2000, 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 1999, the Company sold a vessel, the Monica Marissa, thereby
reducing its fleet to 20 vessels.
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.
Three-month Three-month
period ended period ended
March 31, March 31,
2000 1999
------------------ ---------------------
Net Revenue $ 8,366,620 $ 6,878,067
Vessel Operating Expenses (4,132,829) (4,157,067)
Management Fees (1,342,829) (672,542)
General and Administrative (348,090) (160,922)
------------------ -----------------
Earnings Before Interest, Tax, Depreciation and
Amortization (EBITDA) $ 2,542,901 $ 1,887,536
================== =================
Average Utilization (%) 96.5% 95.3%
================== =================
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.
RESULTS OF OPERATIONS FOR THREE-MONTH PERIOD ENDED MARCH 31, 2000 VERSUS MARCH
31, 1999
NET REVENUE
Net revenue for the three-month period ended March 31, 2000 was $8.4 million
compared to $6.9 million in the 1999 period. This increase was primarily due to
the larger fleet size of 20 vessels during the three- month period ended March
31, 2000 compared to a fleet size of 17 vessels during the comparable 1999
period. During the three-month period ended March 31, 2000, 73% of the Company's
gross revenues were earned from period time charters compared to 95% in the same
1999 period . The increase in the number of
-11-
spot voyages performed by the Company's vessels during the three-month period of
2000 resulted in a consequent increase in contribution from freight income.
However, due to the steep escalation in bunker fuel prices prevalent during the
period, the voyage expenses also increased commensurately. The period consisted
of 1,820 ship-operating days. The fleet averaged an utilization rate of 96.5%
during the period.
During the period ended March 31, 2000, the number of the Company's vessels in
the spot market increased. This was mainly because of the annual redelivery of
the Laker-type vessels, which are vessels which ply in the Great Lakes trade,
from Fednav International ("Fednav"). As per terms of the charter contract,
Fednav redelivers the Laker-type vessels, the Millenium Osprey, Millenium
Condor, Millenium Falcon, Millenium Hawk and Millenium Eagle, for three months
during the Winter when the Great Lakes freeze. These vessels performed a
substantial number of spot market voyages during this period in 2000. The
Millenium Golden Hind, the Millenium Harmony, the Millenium Yama, the Millenium
Amethyst, the Millenium Majestic, the Millenium Aleksander, the Millenium Elmar,
the Millenium Leader, the Millenium Raptor, the Millenium Trader, the Millenium
Dawn, the Millenium Express, and the Millenium Amanda continue to be on their
period charters which were contracted for in 1999. The Clipper Atlantic and
Clipper Pacific were mostly in the spot market trades during the quarter ended
March 31, 2000.
VESSEL OPERATING EXPENSES
Vessel operating expenses, excluding management fees and depreciation and
amortization were $4.1 million for the three-month period ended March 31, 2000,
the same as the three-month period ended March 31, 1999.
MANAGEMENT FEES
Management fees incurred to MMI for contracted technical and commercial
management services for the period ended March 31, 2000 were $1.3 million,
compared to $672,542 in the corresponding period ended March 31, 1999.
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.
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GENERAL AND ADMINISTRATIVE
These expenses totalled $348,090 for the period ended March 31, 2000 compared to
$160,922 in the same period ended March 31, 1999. For the period ended March 31,
2000, these expenses included, among other things, legal and professional fees
of $226,344, advisory fees of $75,000 paid to Millenium Advisors, L.L.C.,
marketing expenses of $32,967 and other expenses of $13,779.
DEPRECIATION AND AMORTIZATION
Total depreciation for the three-month period ended March 31, 1999 was
$1,332,071 compared to $1,251,355 for the same period ended March 31, 1999.
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
three-month period ended March 31, 2000, the new deferred costs for dry-docking
and special surveys amounted to $665,504 which included $308,008 for the
Millenium Dawn, and $357,496 for the Millenium Leader. For the period ended
March 31, 2000, total amortization of deferred vessel charges, including
deferred dry-docking expenses, were $205,688. For the comparable period ended
March 31, 1999, total amortization of deferred vessel charges, including
deferred dry-docking expenses, were $161,195.
Included in amortization in the statement of operations for the three-month
period ended March 31, 1999, is $116,422 of amortization of goodwill. In
December 1999, the Company wrote off its entire goodwill balance, resulting in
no amortization in 2000.
INTEREST EXPENSE
For the three-month period ended March 31, 2000, the interest expense on the
Company's long-term debt was $2,910,850, compared to $2,813,830 in the
three-month period ended March 31, 1999. During the three-month period ended
March 31, 2000, interest earned on cash balances was $71,604, compared to
$341,056 in the quarter ended March 31, 1999. Interest expense in the statement
of operations for the quarter ended March 31, 2000 also includes amortization of
$127,768 recorded in connection with the bond discount relating to the debt
issue, and the amortization of $170,035 recorded in connection with the deferred
financing costs incurred relating to the debt issue. Comparable amortization
charges recorded in the quarter ended March 31, 1999 were $112,623 and $170,035
respectively.
NET LOSS
Net loss for the three-month period ended March 31, 2000 was $2.1 million
compared to $2.4 million in the same three-month period ended March 31, 1999.
Earnings in the period ended March 31, 2000 were impacted by escalating voyage
costs due to an unusually large number of spot market trading activity during
the period. However, earnings before interest, taxes, depreciation and
amortization, and provision for impairment (EBITDA) for the quarter neded March
31, 2000 was $2.5 million compared to $1.9 million in the quarter ended March
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company. As of March 31, 2000, it owns all of the
issued and outstanding shares of 20 Vessel Owning Subsidiaries.
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As of March 31, 2000, the Company's cash position consisted of $3.2 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 three-month period ended March 31,
2000 were $3.6 million. As is common in the shipping industry, the Company
collects its hire for all time charters 15 days in advance.
The Company also continues to have well established long-term relationships with
many suppliers resulting in the Company receiving favorable credit terms.
INVESTING ACTIVITIES
The quarter ended March 31, 2000 saw negligible investing activities.
FINANCING ACTIVITIES
The quarter ended March 31, 2000, saw negligible financing activity, primarily
interest earnings on cash in escrow.
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.
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FOREIGN EXCHANGE RATE FLUCTUATIONS
All of the Company's revenue, and most of its expenses, are denominated in
United States dollars. For the period ended March 31, 2000, 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.
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.
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PART II
ITEM 1. LEGAL PROCEEDINGS
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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.
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 is vigorously contesting this litigation.
ITEM 2. CHANGES IN SECURITIES
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None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
ITEM 5. OTHER INFORMATION
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None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K
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a. Exhibits
None
b. Reports on Form 6-K
None
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this 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: May 15, 2000
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