UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
(Mark One)
FORM 20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________
Commission file number 001-37889
TOP SHIPS INC.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
1 Vasilisis Sofias and Megalou Alexandrou Str, 15124 Maroussi, Greece
(Address of principal executive offices)
Alexandros Tsirikos, (Tel) + 30 210 812 8107, info@topships.org
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
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.
As of December 31, 2023, 4,626,197shares of common stock, par value $0.01 per share, 100,000 Series D Preferred Shares, par value $0.01 per share, and 3,659,627 Series F Preferred Shares, par value $0.01 per share, were outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as issued by the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. N/A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 1163)
F-2
Consolidated Balance sheets as of December 31, 2022 and 2023
F-3
Consolidated Statements of Comprehensive income for the years ended December 31, 2021, 2022 and 2023
F-4
Consolidated Statements of Stockholders’ equity for the years ended December 31, 2021, 2022 and 2023
F-5
Consolidated Statements of Cash flows for the years ended December 31, 2021, 2022 and 2023
F-6
Notes to consolidated financial statements
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31,
2022
2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade accounts receivable
Prepayments and other
Inventories
Total current assets
FIXED ASSETS:
Vessels, net (Note 4)
Right of use assets from operating leases (Note 6)
Other fixed assets, net
Total fixed assets
OTHER NON CURRENT ASSETS:
Restricted cash (Note 6 and 7)
Investments in unconsolidated joint ventures (Note 16)
Deposit asset
Total non-current assets
Total assets
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 7)
Due to related parties(Note 5)
Accounts payable
Accrued liabilities
Unearned revenue
Current portion of Operating lease liabilities (Note 6)
Total current liabilities
NON-CURRENT LIABILITIES:
Non-current portion of long term debt (Note 7)
Non-current portion of Operating lease liabilities (Note 6)
Other non-current liabilities
Total non-current liabilities
COMMITMENTS AND CONTINGENCIES (Note 8)
Total liabilities
MEZZANINE EQUITY:
Preferred stock, $0.01par value; 20,000,000 shares authorized; 13,452 and 0 Series E Shares and 5,850,748 and 3,659,627 Series F Shares issued and outstanding at December 31, 2022, and 2023 (Note 15)
Total mezzanine equity
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01par value; 20,000,000 shares authorized; of which 100,000 Series D Shares were outstanding at December 31, 2022 and 2023 (Note 9)
Common stock, $0.01par value; 1,000,000,000 shares authorized; 857,908 and 4,626,197 shares issued and outstanding at December 31, 2022 and 2023 (Note 9)
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities, mezzanine equity and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
2021
Revenues (including $0, $7,294 and $8,943respectively, from related party) (Note 17 & 5)
EXPENSES:
Voyage expenses (including $705, $1,008 and $1,037respectively, to related party) (Note 11)
Operating lease expense (Note 6)
Vessel operating expenses (including $17, $37 and $42respectively, to related party) (Note 11)
Dry-docking costs
Vessel depreciation (Note 4)
Management fees-related parties (Note 5)
General and administrative expenses (including $360, $360 and $5,360 respectively, to related party)(Note 5)
Gain on sale of vessels
Impairment of vessels
Operating income
OTHER EXPENSES:
Interest and finance costs (including $0, $207 and $0respectively, to related party) (Note 12)
Gain on derivative financial instruments (Note 14)
Interest income
Equity gain/(loss) in unconsolidated joint ventures
Total other expenses, net
Net income and comprehensive income
Less: Deemed dividend for beneficial conversion feature of Series E Shares (Note 15)
Less: Deemed dividend equivalents on preferred shares related to redemption value (Note 15)
Less: Preferred shares dividend (Note 15)
Net income/ (loss) attributable to common shareholders
Earnings/(Loss) per common share, basic and diluted (Note 10)
CONSOLIDATED STATEMENTS OF MEZZANINE ANDSTOCKHOLDERS’ EQUITY
(Expressed in thousands of U.S. Dollars – except number of shares and per share data)
# of
Shares
Mezzanine
Equity
Par
Value
Shares*
Value*
Paid-In
Capital*
to common
stockholders
Total
BALANCE, December 31, 2020
Net Income
Stock-based compensation
Issuance of Series E Shares (Note 15)
Deemed dividend equivalents on Series E Shares issued during the period related to redemption value
Dividends of Series E shares (Note 15)
Beneficial conversion feature related to the issuance of Series E Shares
Deemed dividend related to beneficial conversion feature of Series E Shares
Excess of consideration over carrying value of acquired assets (Note 1)
BALANCE, December 31, 2021
Redemption of fractional shares due to reverse stock split
Issuance of preferred shares (Note 15)
Deemed dividend of Series F shares related to redemption value
Dividends of preferred shares (Note 15)
Exercise of warrants, net of fees
Redemptions of preferred shares (Note 15)
BALANCE, December 31, 2022
* Adjusted to reflect the reverse stock split effected in September 2023 (see Note 1)
CONSOLIDATED STATEMENTS OFCASH FLOWS
(Expressed in thousands of U.S. Dollars)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Vessel depreciation
Other fixed assets depreciation
Equity (gains)/losses in unconsolidated joint ventures
Dividends from cumulative earnings of joint venture
Amortization and write off of deferred financing costs and debt discounts
Stock-based compensation expense
Change in fair value of derivative financial instruments
Impairment on vessels
(Increase)/Decrease in:
Increase/(Decrease) in:
Due to related parties
Net Cash provided by Operating Activities
Cash Flows used in Investing Activities:
Advances for vessels under construction and capitalized expenses
Returns of investments in unconsolidated joint ventures (2020 Joint Venture – see Note 16)
Net proceeds from vessel sales
Cash Flows from Financing Activities:
Proceeds from debt
Principal payments and prepayments of debt
Proceeds from issuance of common stock
Equity offering issuance costs
Payment of financing costs
Net Cash provided by/(used in) Financing Activities
Net (decrease)/increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of the year
Cash breakdown
Restricted cash, current
Restricted cash, non-current
SUPPLEMENTAL CASH FLOW INFORMATION
Capital expenditures included in Accounts payable/Accrued liabilities/Due to related parties
Interest paid, net of capitalized interest
Finance fees included in Accounts payable/Accrued liabilities/Due to related parties
Unpaid Excess of consideration over carrying value of acquired assets included in Due to Related Parties (Note 1)
Beneficial conversion feature of Series E perpetual convertible preferred stock
Dividends payable included in Due to related parties
Carrying value of net assets of companies acquired (Note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022 AND 2023
AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023
(Expressed in thousands of United States Dollars – except share, per share earnings and rate per day, unless otherwise stated)
1.
Basis of Presentation and General Information:
The consolidated financial statements include the accounts of Top Ships Inc. (formerly Top Tankers Inc. and Ocean Holdings Inc.) and its wholly owned subsidiaries (collectively the “Company”). Ocean Holdings Inc. was formed on January 10, 2000, under the laws of Marshall Islands and was renamed to Top Tankers Inc. and Top Ships Inc. in May 2004 and December 2007, respectively. The Company is an international provider of worldwide oil, petroleum products and chemicals transportation services.
As of December 31, 2023, the Company was the sole owner of all outstanding shares of the following subsidiary companies. The following list is not exhaustive as the Company has other subsidiaries relating to vessels that have been sold and that remain dormant for the periods presented in these consolidated financial statements as well as intermediary companies that own shipowning companies that are 100% subsidiaries of the Company.
Companies
Date of
Incorporation
Country of
Activity
Top Tanker Management Inc.
May 2004
Marshall Islands
Management company
Wholly owned Shipowning Companies (“SPC”) with vessels in operation during years ended December 31, 2021, 2022 and 2023
Vessel
Delivery Date
1
Monte Carlo Lax Shipping Company Limited
May 2013
M/T Nord Valiant
August 2016 (sold in 2021)
2
PCH Dreaming Inc.
January 2018
M/T Eco Marina Del Rey
March 2019
3
Roman Empire Inc.
February 2020
Eco West Coast
March 2021
4
Athenean Empire Inc.
Eco Malibu
May 2021
As of December 31, 2021, 2022 and 2023, the Company was the owner of 50% of outstanding shares of the following companies.
SPC
Built Date
California 19 Inc.
May 2019
M/T Eco Yosemite Park
March 2020
California 20 Inc.
M/T Eco Joshua Park
On January 6, 2021 the Company sold to a related party affiliated with the Company’s Chief Executive Officer, President and director, Mr. Evangelos J. Pistiolis (the “Buyer”) the three shipowning companies that owned the newbuilding vessels M/T Eco Van Nuys (Hull No 2789), M/T Eco Santa Monica (Hull No 2790) and M/T Eco Venice Beach (Hull No 2791) in exchange for:
●
$10,000 in cash.
100% ownership in a Marshall Islands company that was party to a shipbuilding contract for a high specification scrubber fitted Suezmax Tanker at the time under construction at Hyundai Samho shipyard, delivered in March 2022 (M/T Eco Oceano CA - Hull No 871). The shipowning company is party to a time charter, starting from the vessel’s delivery, with Central Tankers Chartering, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, for a firm duration of five years at a gross daily rate of $32,450, with a charterer’s option to extend for two additional years at $33,950 and $35,450 (also see Note 5).
35% ownership in one Marshall Islands company that was a party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker at the time under construction at Hyundai Heavy Industries shipyard, delivered in January 2022 (Julius Caesar - Hull No. 3213). The shipowning company is party to a time charter, starting from the vessel’s delivery, with Trafigura Maritime Logistics Pte Ltd (“Trafigura”), for a firm duration of three years at a gross daily rate of $36,000, with a charterer’s option to extend for twoadditional years at $39,000 and $41,500.
35% ownership in one Marshall Islands company that is party to a shipbuilding contract for a high specification scrubber fitted VLCC tanker at the time under construction at Hyundai Heavy Industries shipyard, delivered in March 2022(Legio X Equestris - Hull No. 3214). The shipowning company is party to a time charter, starting from the vessel’s delivery, with Trafigura, for a firm duration of three years at a gross daily rate of $35,750, with a charterer’s option to extend for two additional years at $39,000 and $41,500.
A settlement of $1,150 in related party payables to the Buyer.
The Buyer remained the guarantor on the shipbuilding contracts towards the shipyard and in addition, the Buyer provided the Company with an option for a credit line up to 10% of the total shipbuilding cost at market terms, to be negotiated when the option was to be exercised, amounting to $23,815.
On September 8, 2021 the Company purchased from the Buyer for a consideration of $29,750 an additional 65% ownership interest in Julius Caesar Inc. - Hull No. 3213 and Legio X Inc. - Hull No. 3214 (the “VLCC Companies”). Following this transaction, the Company is the 100% owner of the VLCC Companies. The Buyer remained the guarantor on the shipbuilding contracts towards the shipyard and in addition the Buyer provided a financing option to the Company by remaining responsible to the shipyard for up to 20% of the shipbuilding cost per vessel (increased from 10%, as previously agreed on January 6, 2021), at the option of the Company, to be exercised until each vessel’s delivery date.
Due to the abovementioned purchase of the remaining 65% of the VLCC Companies, which were initially accounted for as Investments in affiliates, the Company consolidates the VLCC Companies.
Each of the abovementioned transactions were approved by a special committee of the Company’s board of directors (the “Special Committee”), of which all of the directors were independent and for each transaction the Special Committee obtained a fairness opinion relating to the consideration of each transaction from an independent financial advisor. The Company accounted for the abovementioned acquisitions as a transfer of assets between entities under common control and has recognized the vessels at their historical carrying amounts at the date of transfer.
The amount of the consideration given in excess of the historical carrying value of the net assets acquired is recognized as a reduction to the Company’s additional paid in capital and presented as Excess of consideration over the carrying value of acquired assets in the Company’s consolidated statement of stockholders’ equity for the twelve months ended December 31, 2021, 2022 and 2023 respectively. An analysis of the consideration paid is presented in the table below:
As of December 31,
Consideration
Carrying value of net assets of companies sold
Less: Carrying value of net assets of companies acquired
Less: Consideration received in cash
Less: Settlement of related party payables
Excess of consideration over acquired assets
On September 29, 2023 the Company effected a 1-for-12 reverse stock split of its common stock. There was no change in the number of authorized common shares of the Company, or the floor price of the Company’s Series E Shares, or the number of votes of the Company’s Series D, E and F Shares. All numbers of common share and earnings per share amounts, as well as warrant shares eligible for purchase under the Company’s warrants, exercise price of said warrants and conversion prices of the Company’s Series E Shares, in these consolidated financial statements have been retroactively adjusted to reflect this 1-for-12 reverse stock split.
2.
Significant Accounting Policies:
(a)
Principles of Consolidation: The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts and operating results of Top Ships Inc. and its subsidiaries referred to in Note 1. Intercompany balances and transactions have been eliminated on consolidation. Non-controlling interests are stated at the non-controlling interest’s proportion of the net assets of the subsidiaries where the Company has less than 100% interest. Subsequent to initial recognition the carrying amount of non-controlling interest is increased or decreased by the non-controlling interest’s share of subsequent changes in the equity of such subsidiaries. Total comprehensive income is attributed to a non-controlling interest even if this results in a deficit balance. Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions and the carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect these changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
Description
Useful Life (years)
Cars
Office equipment
Furniture and fittings
Computer equipment
Operating lease- The Company as a lessee: The Company recognizes right-of-use assets (“ROU”) and corresponding lease liabilities for its operating leases. ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made to the lessor prior to lease commencement, less any lease incentives, and initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
3.
Going Concern:
At December 31, 2023, the Company had a working capital deficit of $2,639 which included an amount of $6,615 relating to pre-collected revenue and is included in Unearned revenue in the accompanying consolidated balance sheets. This amount represents a current liability that does not require future cash settlement. For the year ended December 31, 2023 realized a net income of $6,066 and generated cash flow from operations of $28,933.
4.
Vessels, net:
The amounts in the consolidated balance sheets are analyzed as follows:
Cost
Accumulated
Depreciation
Net
Book Value
Balance, December 31, 2021
— Transferred from advances for vessels under construction
— Depreciation
Balance, December 31, 2022
Balance, December 31, 2023
In 2022, the Company took delivery of the following vessels and hence advances paid and capitalized expenses relating to these vessels were transferred from Advances for vessels under construction to Vessels, net:
Vessel Name
Yard
Installments
Capitalized Expenses
Final
M/T Julius Caesar
M/T Legio X Equestris
Total 2022
As of December 31, 2023 all the titles of ownership of our vessels are held by the respecting vessel lenders to secure the relevant sale and lease back financing transactions (see Note 7).
5.
Transactions with Related Parties:
As of December 31, 2022 and 2023 there are no outstanding amounts due to Central Mare.
The fees charged by and expenses relating to Central Mare for the years ended December 31, 2021, 2022 and 2023 are as follows:
Year Ended December 31,
Presented in:
Executive officers and other personnel expenses
General and administrative expenses – Statement of comprehensive income
Amortization of awarded shares*
Management fees – related parties – Statement of comprehensive income
(b) Central Shipping Inc (“CSI”) – Letter Agreement and Management Agreements: On January 1, 2019, the Company entered into a letter agreement with CSI (“CSI Letter Agreement”), a related party affiliated with the family of Evangelos J. Pistiolis and between January 1, 2019 and September 8, 2021 the Company entered into management agreements, or Management Agreements, between CSI and the Company’s vessel-owning subsidiaries. The CSI Letter Agreement can only be terminated subject to an eighteen-month advance notice, subject to a termination fee equal to twelve months of fees payable under the CSI Letter Agreement.
Pursuant to the CSI Letter Agreement, as well as the Management Agreements concluded between CSI and the Company’s vessel-owning subsidiaries, the Company pays a management fee of $630per day per vessel for the provision of technical, commercial, operation, insurance, bunkering and crew management, commencing three monthsbefore the vessel is scheduled to be delivered by the shipyard. In addition, the Management Agreements provide for payment to CSI of: (i) $573per day for superintendent visits plus actual expenses; (ii) a chartering commission of 1.25% on all freight, hire and demurrage revenues; (iii) a commission of 1.00% on all gross vessel sale proceeds or the purchase price paid for vessels and (iv) a financing fee of 0.2% on derivative agreements and loan financing or refinancing. CSI also performs supervision services for all of the Company’s newbuilding vessels while the vessels are under construction, for which the Company pays CSI the actual cost of the supervision services plus a fee of 7% of such supervision services.
CSI provides, at cost, all accounting, reporting and administrative services. Finally, the CSI Letter Agreement provides for a performance incentive fee for the provision of management services to be determined at the discretion of the Company’s Board of Directors. The management agreements have an initial term of five years, after which they will continue to be in effect until terminated by either party subject to an eighteen-month advance notice of termination. Pursuant to the terms of the management agreements, all fees payable to CSI are adjusted annually according to the US Consumer Price Inflation (“CPI”) of the previous year. If CPI is less than 2% then a 2% increase is effected and if CPI is more than 5% than a 5% increase is effected. On September 15, 2021 the Company entered into an amendment to the CSI Letter Agreement, whereby the payment for the already agreed commission for sale and purchase of vessels in the case of the purchase of a vessel under construction is denoted as “Newbuilding vessels monitoring fee” and is payable as follows: 25% of the commission on the purchase of the newbuilding construction contract, 25% of the commission on the steel cutting of the newbuilding vessel, 25% of the commission on launching of the newbuilding vessel and 25% of the commission on the delivery of the newbuilding vessel to the Company (“steel cutting” and “launching” are newbuilding vessel construction milestones, evidenced by notices received by the shipyard).
As of December 31, 2022 and 2023, the amounts due to/(from) CSI were $237 and $(352) respectively and are presented in Due to related parties, on the consolidated balance sheets.
The fees charged by and expenses relating to CSI for the years ended December 31, 2021, 2022 and 2023 are as follows:
Management fees
Capitalized in Vessels, net – Balance sheet
Management fees – related parties –Statement of comprehensive income
Supervision services fees
Superintendent fees
Vessel operating expenses –Statement of comprehensive income
Accounting and reporting cost
Commission for sale and purchase of vessels
Gain from vessel sales –Statement of comprehensive income
Impairment on vessels – Statement of comprehensive income
Newbuilding vessels monitoring fee
Financing fees
Net in Current and Non-current portions of long-term debt – Balance sheet
Commission on charter hire agreements
Voyage expenses - Statement of comprehensive income
For the years ended December 31, 2021, 2022 and 2023 CSI charged the Company newbuilding supervision related pass-through costs amounting to $1,207, $236 and $0 respectively, which are not included in the table above and are presented within Vessels, net / Advances for vessels acquisitions / under construction in the Company’s consolidated balance sheet.
(c) Issuance and conversion of Series E Shares: On March 29, 2019 the Company entered into a stock purchase agreement with Family Trading Inc (“Family Trading”), a related party owned by the Lax Trust, an irrevocable trust established for the benefit of certain family members of Mr. Evangelos J. Pistiolis, pursuant to which the Company exchanged the outstanding principal, fees and interest of the Further Amended Family Trading Credit Facility with 27,129 Series E Shares (defined below, also see Note 15). For the years ended December 31, 2022 and 2023 the Company declared dividends of $2,046 and $1,001 respectively and accrued interest on unpaid dividends amounted to $30 and $0 for the same periods. As of December 31, 2022 and 2023, there were no dividends due to Family Trading. On December 6, 2023 the Company received a conversion notice for the conversion of all the outstanding Series E Shares (13,452 shares) into 2,930,718 of the Company’s common shares (see Note 15).
(d) Vessel Acquisitions from affiliated entities: From January 6, 2021 to September 8, 2021 the Company entered into a series of transactions with a number of entities affiliated with Mr. Evangelos J. Pistiolis (see Note 1). As of December 31, 2021, there were no amounts due to the previous owners of the newbuilding vessels pursuant to these transactions.
(e) Charter Party with Central Tankers Chartering Inc (“CTC”): On January 6, 2021 the Company acquired a shipowning company from an entity affiliated with Mr. Evangelos J. Pistiolis that owned M/T Eco Oceano CA which was party to a time charter, with CTC, for a firm duration of five years at a gross daily rate of $32,450, with two optional years at $33,950 and $35,450 at CTC’s option. On February 22, 2022 the Company amended the previously agreed time charter with CTC and increased its firm period from 5 years to 15 years and reduced the daily rate from $32,450to $24,500. This amendment was approved by a committee of the Company’s board of directors, of which all of the directors were independent, after obtaining a fairness opinion from an independent financial advisor. The time charter commenced on the date of delivery. For the years ended December 31, 2021, 2022 and 2023 the CTC charter generated $0, $7,294 and $8,943 of revenue presented in Time charter revenues in the accompanying consolidated statements of comprehensive income. As of December 31, 2022 and 2023, there are no amounts due from CTC.
(f) Personal Guarantees by Mr. Evangelos J. Pistiolis and Related Amendments to the Series D Preferred Shares: As a prerequisite for the Navigare Lease (defined below, see Note 6), Mr. Evangelos J. Pistiolis personally guaranteed the performance of the bareboat charters connected to the lease and in exchange, the Company agreed to indemnify him for any losses suffered as a result of the guarantee provided, and the Company amended the Certificate of Designations governing the terms of the Series D Preferred Shares (see Note 9), to adjust the voting rights per share of Series D Preferred Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of the Company’s total voting power, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. This personal guarantee comes into effect in the case 120 days have passed and the Company is still unable to pay down all amounts due under the Navigare lease, with the exception of amounts due to Navigare due to a total loss, where in this case the personal guarantee will cover an amount equal to all unpaid charter hire and a further amount equivalent to all future charter hire that would have accrued from the date of the total loss up to the end of the charter period and is callable 200 days after the date of the total loss. Due to the related party nature of the transactions involving Mr. Evangelos J. Pistiolis, such transactions were unanimously approved by our Board of Directors, including all three independent directors.
(g) Issuance of Series F Shares: On January 17, 2022, the Company entered into a stock purchase agreement with Africanus Inc., an affiliate of Evangelos J. Pistiolis for the sale of up to 7,560,759 newly-issued Series F Non-Convertible Perpetual Preferred Shares (“Series F Shares”, see Note 15). The issuance of the Series F Shares was approved by a committee of the Company’s board of directors, of which all of the directors were independent. In December 2022, 100% of Africanus Inc shares were transferred to 3 Sororibus Trust, which is an irrevocable trust established for the benefit of certain family members of Mr. Pistiolis. For the year ended December 31, 2022 and 2023 the Company declared dividends of $10,344 and $5,009 respectively and accrued interest on unpaid dividends amounted to $8 and $0 for the same periods. As of December 31, 2022 and 2023 there were nodividends due to Africanus Inc.
(h) Short-term loan from Central Mare (“Central Mare Bridge Loan”): On January 5, 2022 the Company entered into an unsecured credit facility for up to $20,000 with Central Mare in order to finance part of the cost of its newbuilding program (see Note 7). Related party interest expense, commitment fees and arrangement fees for the year ended December 31, 2022 incurred in connection with this credit facility, amounted to $169, $18 and $400 respectively and are included in interest and finance costs in the accompanying consolidated statements of comprehensive income. The Central Mare Bridge Loan was terminated on March 4, 2022 and as of December 31, 2022, there are no interest, arrangement fees nor commitment fees due to Central Mare.
(i) Executive bonus: On December 10, 2023 the Company’s compensation committee comprising of independent directors suggested and the board of directors granted to Mr. Evangelos J. Pistiolis a bonus of $5,000 which is included in “General and administrative expenses” in the accompanying consolidated statements of comprehensive income. As of December 31, 2023, there are $5,000 due to Mr. Evangelos J. Pistiolis and such amount is included in due to related parties in the accompanying consolidated balance sheets.
6.
Leases
A. Lease arrangements, under which the Company acts as the lessee
Bareboat Chartered-in Vessels:
The Company has treated the Navigare lease as an operating lease. An operating lease ROU asset amounting to $45,765 was recognized at the inception of the lease together with a lease liability of $43,759 based on the present value of lease payments over the lease term. The operating lease ROU asset also includes initial direct costs of $1,666 and deferred losses from the sale of the vessels of $340. The discount rate used to calculate the present value of lease payments was calculated by taking into account the original lease term and lease payments and was estimated to be 6.72% (same as the weighted average), which was the Company’s estimated incremental borrowing rate, that reflects the interest the Company would have to pay to borrow funds on a collateralized basis over a similar term and similar economic environment. Losses from the sale of these two vessels and initial direct costs which were included in the respective ROU assets are amortized on a straight-line basis over the duration of the lease and are included in operating lease expense in the statement of consolidated income. The cash paid for operating leases with original terms greater than 12 months was $12,083 and $10,220 for the years ended December 31, 2022 and 2023 respectively. The revenue generated from vessels under operating leases with original terms greater than 12 months was $17,625 and $ 17,520 for the years ended December 31, 2022 and 2023 respectively.
The Company’s future minimum operating lease payments required to be made after December 31, 2023, relating to the bareboat chartered-in vessels M/T Eco Beverly Hills and M/T Eco Bel Air are as follows:
Year ending December 31,
Bareboat charter lease payments
2024
2025
Less imputed interest
Total Lease Liability
Presented as follows:
Short-term lease liability
Long-term lease liability
The average remaining lease term on our bareboat chartered-in contracts greater than 12 months is 23.2 months.
B. Lease arrangements, under which the Company acts as the lessor
Charter agreements:
During the year ended December 31, 2023, the Company operated one vessel (M/T Marina Del Rey) under a time charter with Cargill International SA, another vessel (M/T Eco Oceano CA) with CTC, two vessels (M/T Eco West Coast and M/T Eco Malibu) with Clearlake Shipping Pte Ltd and four vessels (M/T Eco Bel Air, M/T Eco Beverly Hills, M/T Julius Caesar and M/T Legio X Equestris) under time charters with Trafigura.
Future minimum time-charter receipts of the Company’s vessels in operation as of December 31, 2023, based on commitments relating to non-cancellable time charter contracts as of December 31, 2023, are as follows :
Time Charter receipts
2026
In arriving at the minimum future charter revenues, an estimated 20 days off-hire time to perform scheduled dry-docking in the year the dry-docking is expected on each vessel has been deducted, and it has been assumed that no additional off-hire time is incurred, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
7.
Debt:
The amounts in the consolidated balance sheets are analyzed as follows (facility names defined below):
Bank / Vessel(s)
Total long-term debt:
ABN Facility (M/T Eco West Coast)
Alpha Bank Facility (M/T Eco Malibu)
Cargill Facility (M/T Eco Marina Del Rey)
Total long-term debt
Less: Deferred finance fees
Total long-term debt net of deferred finance fees and debt discounts
Presented:
Current portion of long-term debt
Long-term debt
ABN Facility
On March 18, 2021, the Company entered into a credit facility with ABN Amro for $36,800 for the financing of the vessel M/T Eco West Coast. This facility was drawn down in full. The credit facility was repayable in 24 consecutive quarterly installments of $615 commencing in June 2021, plus a balloon installment of $22,040 payable together with the last installment.
The facility contained various covenants, including (i) an asset cover ratio of 125%, (ii) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of no more than 75% (iii) minimum free liquidity of $500 per delivered vessel owned/operated by the Company and (iv) market adjusted total assets of the Company minus total liabilities to be at least $60,000. Additionally, the facility contained restrictions on the shipowning company incurring further indebtedness or guarantees and change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the Company). It also restricted the Company and the shipowning company from paying dividends if such a payment would result in an event of default or in a breach of covenants under the loan agreement.
The facility was secured as follows:
First priority mortgage over M/T Eco West Coast;
Assignment of insurance and earnings of the mortgaged vessel;
Corporate guarantee of the Company;
Pledge of the shares of the shipowning subsidiary;
Pledge over the earnings account of the vessel.
The facility bore interest at LIBOR plus a margin of 2.50%. From June 23, 2023 ABN Amro bank switched the facility’s variable rate from LIBOR to Compounded SOFR. On December 14, 2023 the facility was fully prepaid using part of the proceeds from the 3rd AVIC facility (see below) and the Company accelerated the amortization of $264 of deferred finance fees outstanding relating to the facility.
Alpha Bank Facility
On May 6, 2021, the Company entered into a credit facility with Alpha Bank for $38,000 for the financing of the vessel M/T Eco Malibu. This facility was drawn down in full. The credit facility was repayable in 12 consecutive quarterly installments of $750 and 12 consecutive quarterly installments of $625, commencing three months from draw down, and a balloon payment of $21,500 payable together with the last installment.
The facility contained various covenants, including (i) an asset cover ratio of 125%, (ii) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of no more than 75% and minimum free liquidity of $500 per delivered vessel owned/operated by the Company. Additionally, the facility contained restrictions on the shipowning company incurring further indebtedness or guarantees and change of control provisions (whereby Mr. Evangelos J. Pistiolis may not control less than 50.1% of the voting rights of the Company). It also restricted the Company and the shipowning company from paying dividends if such a payment would result in an event of default or in a breach of covenants under the loan agreement.
First priority mortgage over M/T Eco Malibu;
Specific assignment of any time charters with duration of more than 12 months;
The facility bore interest at LIBOR plus a margin of 3.00%. On June 9, 2023 Alpha Bank switched the facility’s variable rate from LIBOR to Term SOFR. On December 21, 2023 the facility was fully prepaid using part of the proceeds from the Huarong facility (see below) and the Company accelerated the amortization of $225 of deferred finance fees outstanding relating to the facility.
FINANCINGS COMMITTED UNDER SALE AND LEASEBACK AGREEMENTS
The majority of the below sale and leaseback agreements (“SLB”s) contain, customary covenants and event of default clauses, including cross-default provisions and restrictive covenants and performance requirements including (i) a ratio of total net debt to the aggregate market value of the Company’s fleet, current or future, of no more than 75% and (ii) minimum free liquidity of $500 per vessel at the guarantors level.
Additionally, all the SLBs contain restrictions on the relative shipowning company incurring further indebtedness or guarantees and paying dividends when in default or if such dividend payment would result in an event of default or termination event under the SLB agreements. The same dividend restrictions apply to the Company as well. All the SLBs except the Cargill Facility have change of control provisions whereby there may not be a change of control of the Company, save with the prior written consent of the financier.
All the below SLBs are secured mainly by the following:
Ownership of the vessel financed;
Assignment of insurances and earnings of the vessel financed;
Specific assignment of any time charters of the vessel financed with duration of more than 12 months;
Corporate guarantee of Top Ships Inc.;
Pledge of the shares of the relative shipowning subsidiary;
Pledge over the earnings account of the vessel financed.
On June 29, 2018 the Company entered into an SLB and a five-year time charter with Cargill, a non-affiliated party, for its newbuilding vessel M/T Eco Marina Del Rey delivered in March 2019. Consummation of the SLB took place on the vessel’s delivery date. Following the sale, the Company has bareboat chartered back the vessel at a bareboat hire rate of $8,600 per day and simultaneously the vessel commenced its five-yeartime charter with Cargill. As part of this transaction, the Company has the obligation to buy back the vessel at the end of the five-yearperiod for $22,680. The gross proceeds from the sale were $32,387.
The Company had also entered into a fair value appreciation sharing agreement with Cargill whereby it would share with the latter 25% of the excess of the fair market value of the vessel over a predetermined amount amortized on a daily basis to the facility’s maturity when the vessel was sold or when the loan matured. As a result of Cargill’s entitlement to participate in the appreciation of the market value of the vessel and the significant increase in tankers’ fair values as of December 31, 2022 compared to December 31, 2021, the Company recognized a participation liability of $3,271 as of December 31, 2022, presented in “Vessel fair value participation liability” in the consolidated balance sheets, with a corresponding debit to a debt discount account, presented contra to the loan balance, broken down to current and non-current long-term debt accordingly. Due to the fact that tanker values continued to increase throughout 2023 values the Company increased that participation liability by $1,729 to $5,000during the year ended December 31, 2023 and since the facility matures in the first quarter of 2024, such participation liability was presented under current liabilities. During the year ended December 31, 2023 the Company amortized $3,537 of that Debt discount, such amortization presented in Interest and finance costs in the consolidated statements of comprehensive income.
The SLB with Cargill is accounted for as a financing transaction, as control remains with the Company and the M/T Eco Marina Del Rey will continue to be recorded as an asset on the Company’s balance sheet. In addition, the Company has an obligation to repurchase the vessel.
CMBFL Facility
On November 23, 2021 the Company entered into an SLB with CMBFL, for its newbuilding vessels M/T Julius Caesar and M/T Legio X Equestris. Consummation of the SLB took place on January 17 and March 2 2022, respectively. Following the sale, the Company has bareboat chartered back the vessels for a period of eight years at bareboat hire rates comprising of 32 consecutive quarterly installments of $675 and a balloon payment of $32,403payable together with the last installment, plus interest based on the three months LIBOR plus 2.60%.
As part of this transaction, the Company has continuous options to buy back the vessels at purchase prices stipulated in the bareboat agreements depending on when the option will be exercised and at the end of the eight-year period it has an option to buy back the vessels at a cost represented by the balloon payment. The gross proceeds from the sale of the two vessels were $54,005 and $53,997 for M/T Julius Caesar and M/T Legio X Equestris respectively.
The CMBFL facility was accounted for as a financing transaction, as control will remain with the Company and the two vessels will continue to be recorded as assets on the Company’s balance sheet. In addition, the Company has continuous options to repurchase the vessels below fair value.
Scheduled Principal Repayments: The Company’s annual principal payments required to be made after December 31, 2023 on its loan obligations, are as follows (including the financings under sale and leaseback agreements):
Years
December 31, 2024
December 31, 2025
December 31, 2026
December 31, 2027
December 31, 2028 and thereafter
As of December 31, 2022 and 2023, the Company was in compliance with all debt covenants with respect to its loans and credit facilities. The fair value of debt outstanding on December 31, 2023, after excluding unamortized financing fees and debt discounts, approximates its carrying amount.
Financing Costs: The net additions in deferred financing costs amounted to $3,417and $1,958 during the years ended December 31, 2022 and 2023 respectively.
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. As part of the normal course of operations, the Company’s customers may disagree on amounts due to the Company under the provision of the contracts which are normally settled through negotiations with the customer. Disputed amounts are normally reflected in revenues at such time as the Company reaches agreement with the customer on the amounts due.
Other than the cases mentioned above, the Company is not a party to any material litigation where claims or counterclaims have been filed against the Company other than routine legal proceedings incidental to its business.
On December 10, 2020, the Company entered into a corporate guarantee agreement with Alpha Bank of Greece (which was amended on February 2, 2022) in respect of the obligations of its 50% subsidiary California 19 Inc. and California 20 Inc. under the Loan Agreement dated March 12, 2020 for a secured loan facility of $37,660 ($18,830 for each vessel at inception and $18,500 as of December 31, 2023) for the financing of M/T Eco Yosemite Park and M/T Eco Joshua Park (the “Alpha Corporate Guarantee”). The Company assigns zero probability of default to said loan agreements and hence has not established any provisions for losses relating to this matter.
Environmental Liabilities:
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the consolidated financial statements.
9.
Common and Preferred Stock, Additional Paid-In Capital and Dividends:
Reverse stock split:On September 29, 2023 the Company effected a 1-for-12 reverse stock split of its common stock. There was no change in the number of authorized common shares of the Company, or the floor price of the Company’s Series E Shares, or the number of votes of the Company’s Series D, E and F Shares. All numbers of common share and earnings per share amounts, as well as warrant shares eligible for purchase under the Company’s warrants, exercise price of said warrants and conversion prices of the Company’s Series E Shares, in these consolidated financial statements have been retroactively adjusted to reflect this 1-for-12 reverse stock split.
Series D preferred shares: On May 8, 2017, the Company issued 100,000 shares of Series D preferred shares (the “Series D shares”) to Tankers Family Inc., a company controlled by Lax Trust for one thousand dollars ($1,000) pursuant to a stock purchase agreement. The Series D shares are not convertible into common shares and each Series D share has the voting power of 1,000 common shares. The Series D shares have no dividend or distribution rights and shall expire and all outstanding Series D shares shall be redeemed by the Company for par value on the date that any financing facility with any financial institution, which contain covenants that require that any member of the family of Mr. Evangelos J. Pistiolis maintain a specific minimum ownership or voting interest (either directly and/or indirectly through companies or other entities beneficially owned by any member of the Pistiolis family and/or trusts or foundations of which any member of the Pistiolis family are beneficiaries) of the Company’s issued and outstanding common shares, respectively, are fully repaid or reach their maturity date. The Series D shares shall not be otherwise redeemable and upon any liquidation, dissolution or winding up of the Company, the Series D shares shall have a liquidation preference of $0.01 per share. Currently the SLBs with CMBFL, AVIC Leasing and Huarong as well as the Alpha Corporate Guarantee and the Navigare Lease have similar provisions that are satisfied via the existence of the Series D Shares. As a prerequisite for the Navigare Lease, Mr. Evangelos J. Pistiolis guaranteed the performance of the bareboat charters, under certain circumstances, and in exchange, the Company agreed to indemnify him for any losses suffered as a result of the guarantee provided and in addition, the Company has amended the Certificate of Designation governing the terms of the Series D Shares, to adjust the voting rights per share of Series D Shares such that during the term of the Navigare Lease, the combined voting power controlled by Mr. Evangelos J. Pistiolis and the Lax Trust does not fall below a majority of the total voting power of the Company, irrespective of any new common or preferred stock issuances, and thereby complying with a relevant covenant of the bareboat charters entered in connection with the Navigare Lease. Due to the related party nature of the transactions involving Mr. Evangelos J. Pistiolis, such transactions were unanimously approved by the Company’s Board of Directors, including all three independent directors.
Equity distribution agreement: On April 15, 2022, the Company, entered into an equity distribution agreement, or as they are commonly known, at-the-market offering (“ATM”), with Maxim Group LLC (“Maxim”). Under the ATM the Company could sell up to $19,700 of its common stock with Maxim acting as a sales agent. Since Maxim was acting solely as a sales agent, it had no right to require any common stock sales. No warrants, derivatives, or other share classes were associated with this ATM. The Company terminated the ATM on October 6, 2022. The Company has received proceeds from the ATM (net of 2% fees), amounting to $2,025, issued 10,786 common shares and incurred $81 of expenses related to this equity distribution agreement.
10.
Earnings/(Loss) Per Common Share:
All shares issued are included in the Company’s common stock and have equal rights to vote and participate in dividends and in undistributed earnings.
The components of the calculation of basic and diluted earnings/(loss) per share for the years ended December 2021, 2022 and 2023 are as follows:
Less: Deemed dividend for beneficial conversion feature of Series E Shares
Less: Deemed dividend equivalents on preferred shares related to redemption value
Less: Dividends of preferred shares
Net Income / (Loss) attributable to common shareholders
Earnings / (Loss) per share:
Weighted average common shares outstanding, basic and dilutive
Earnings / (Loss) per share, basic and diluted
For the years ended December 31, 2021, 2022 and 2023, 52,984, 81,231 and 1,177,547 dilutive shares on an as-if converted basis relating to Series E Shares were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the period presented.
11.
Voyage and Vessel Operating Expenses:
The amounts in the consolidated statements of comprehensive income are as follows:
Voyage Expenses
Bunkers
Commissions (including $705, $1,008 and $1,037 respectively, to related party)
Vessel Operating Expenses
Crew wages and related costs
Insurance
Repairs and maintenance (including $17, $37 and $42 respectively, to related party)
Spares and consumable stores
Registration and taxes (Note 13)
12.
Interest and Finance Costs:
The amounts in the consolidated statements of comprehensive income are analyzed as follows:
Interest and Finance Costs
Interest on debt (including $-, $207 and $- respectively, to related party)
Bank charges
Amortization and write-off of financing fees
Less interest capitalized
13.
Income Taxes:
Marshall Islands and Greece does not impose a tax on international shipping income. Under the laws of Marshall Islands and Greece the countries of the companies’ incorporation and vessels’ registration, the companies are subject to registration and tonnage taxes, which have been included in Vessel operating expenses in the consolidated statements of comprehensive income.
Under the United States Internal Revenue Code of 1986, as amended (the “Code”), the U.S. source gross transportation income of a ship-owning or chartering corporation, such as the Company, is subject to a 4% U.S. Federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
Under Section 883 of the Code and the regulations thereunder, the Company will be exempt from U.S. federal income tax on our U.S.-source shipping income if:
(1) the Company is organized in a foreign country, or its country of organization, grants an “equivalent exemption” to corporations organized in the United States; and
(2) either
A. more than 50% of the value of the Company’s stock is owned, directly or indirectly, by individuals who are “residents” of the Company’s country of organization or of another foreign country that grants an “equivalent exemption” to corporations organized in the United States (each such individual a “qualified shareholder” and such individuals collectively, “qualified shareholders”), which the Company refers to as the “50% Ownership Test,” or
B. the Company’s stock is “primarily and regularly traded on an established securities market” in the Company’s country of organization, in another country that grants an “equivalent exemption” to U.S. corporations, or in the United States, which the Company refers to as the “Publicly-Traded Test.”
The Marshall Islands, the jurisdiction where the Company and the Company’s ship-owning subsidiaries are incorporated, grants an “equivalent exemption” to U.S. corporations. Therefore, the Company will be exempt from U.S. federal income tax with respect to the Company’s U.S.-source shipping income if either the 50%Ownership Test or the Publicly-Traded Test is met.
Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be “primarily traded” on an established securities market if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. The Company’s common shares, which is the Company’s sole class of issued and outstanding stock that is traded, is and the Company anticipates will continue to be “primarily traded” on the Nasdaq Capital Market.
The Treasury Regulations also require that the Company’s stock be “regularly traded” on an established securities market. Under the Treasury Regulations, the Company’s stock will be considered to be “regularly traded” if one or more classes of the Company’s stock representing more than 50% of the Company’s outstanding shares, by total combined voting power of all classes of stock entitled to vote and by total combined value of all classes of stock, are listed on one or more established securities markets, which the Company refers to as the “listing threshold.” The Company’s common stock, which is listed on the Nasdaq Capital Market and is the Company’s only class of publicly-traded stock, did not constitute more than 50% of the Company’s outstanding shares by value for the 2021 taxable year, and accordingly, the Company didn’t satisfy the 50% Ownership Test for the 2021 taxable year and consequently the Company didn’t qualify for exemption from tax under Section 883 for the 2021 taxable year.
The Company for the 2021 taxable year was subject to an effective 2% United States federal tax on the U.S. source shipping income that is attributable to the transport of cargoes to or from the United States which is not considered an income tax. The amount of this tax for the year ended December 31, 2021 was $152 and it was recorded within “Vessel operating expenses” in the consolidated statements of comprehensive income. For 2022 and for 2023 the Company qualified for the exemption from tax under Section 883.
14.
Financial Instruments:
The principal financial assets of the Company consist of cash on hand and at banks, restricted cash, prepaid expenses and other receivables and long term deposits. The principal financial liabilities of the Company consist of long-term loans, accounts payable due to suppliers, amounts due to related parties and accrued liabilities.
a)
Interest rate risk: The Company as of December 31, 2023is subject to market risks relating to changes in interest rates, since all of its debt except the Cargill Facility is subject to floating interest rates.
b)
Credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash. The Company places its temporary cash investments, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions with which it places its temporary cash investments.
c)
Fair value:
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short term maturities. The Company considers its creditworthiness when determining the fair value of its liquid assets.
The Company follows the accounting guidance for Fair Value Measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
15.
Mezzanine Equity
On March 29, 2019, the Company entered into a Stock Purchase Agreement with Family Trading for the sale of 27,129 newly issued perpetual convertible preferred shares (the “Series E Shares”) at a price of one thousand dollars ($1,000) per share. The proceeds of the sale were used for the full and final settlement of all amounts due under the Further Amended Family Trading Credit Facility. The issuance of the Series E Shares was approved by a committee of the Company’s board of directors, of which all of the directors were independent.
Each holder of Series E Shares, at any time, had the right, subject to certain conditions, to convert all or any portion of the Series E Shares then held by such holder into the Company’s common shares at the conversion rate then in effect. Each Series E Share was convertible into the number of the Company’s common shares equal to the quotient of one thousand dollars ($1,000) plus any accrued and unpaid dividends divided by the lesser of the following four prices (the “Series E Conversion Price”): (i) $120,000.00, (ii) 80% of the lowest daily VWAP of the Company’s common shares over the twenty consecutive trading days expiring on the trading day immediately prior to the date of delivery of a conversion notice, (iii) the conversion price or exercise price per share of any of the Company’s then outstanding convertible shares or warrants, (iv) the lowest issuance price of the Company’s common shares in any transaction from the date of the issuance the Series E Shares onwards, but in no event could the Series E Conversion Price be less than the floor price ($0.60). The floor price was adjusted (decreased) in case of splits or subdivisions of the Company’s outstanding shares and was not adjusted in case of reverse stock splits or combinations of the Company’s outstanding shares. The holders of each Series E Share were entitled to the voting power of one thousand (1,000) common shares of the Company. Upon any liquidation, dissolution or winding up of the Company, the holders of Series E Shares would have been entitled to receive the net assets of the Company pari-passu with the common shareholders. Furthermore, the Company at its option had the right to redeem a portion or all of the outstanding Series E Shares. The Company could pay an amount equal to one thousanddollars ($1,000) per each Series E Share (the “Liquidation Amount”), plus a redemption premium equal to fifteen percent (15%) of the Liquidation Amount being redeemed if that redemption took place up to and including March 29, 2020 and twenty percent (20%) of the Liquidation Amount being redeemed if that redemption took place after March 29, 2020, plus an amount equal to any accrued and unpaid dividends on such Series E Shares (collectively referred to as the “Redemption Amount”).
The Series E Shares were not subject to redemption in cash at the option of the holders thereof under any circumstance. Finally, the holders of outstanding Series E Shares were entitled to receive, semi-annual dividends payable in cash on the last day of June and December of each year (each such date being referred to herein as a “Semi Annual Dividend Payment Date”), commencing on the first Semi Annual Dividend Payment Date, being June 30, 2019 in an amount per share (rounded to the nearest cent) equal to fifteen percent (15%) per year of the liquidation amount of the then outstanding Series E Shares computed on the basis of a 365-day year and the actual days elapsed. Accrued but unpaid dividends shall bore interest at fifteen percent (15%). Dividends would not have been payable in cash, if such payment violated any provision of any senior secured facility of the Company or any senior secured facility for which the Company had provided a guarantee, for as long as such provisions, remained in effect.
The Company determined that the Series E shares were more akin to equity than debt and that the above identified conversion feature, subject to adjustments, was clearly and closely related to the host instrument, and accordingly bifurcation and classification of the conversion feature as a derivative liability was not required. Given that the Series D and Series E preferred stock’s holder (Lax Trust) controlled a majority of the Company votes, the preferred equity was in essence redeemable at the option of the holder and hence was classified in Mezzanine equity as per ASC 480-10-S99 “Distinguishing liabilities from Equity – SEC Materials”.
On February 17, 2020 the Company issued 16,004 Series E Shares to Family Trading, as settlement of $14,350 of consideration then outstanding for the purchase of the M/T Eco City of Angels and M/T Eco Los Angeles from Mr. Evangelos J. Pistiolis, $1,621 of Series E Share dividends of the second half of 2019 and $32 of accrued interest on unpaid dividends from 2019. On September 8, 2021 the Company issued 2,188Series E Shares to Family Trading, as partial settlement for $2,188 of the consideration payable for the VLCC Transaction (see Note 1).
At each issuance of Series E Shares, the Company recognized the beneficial conversion feature by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of the Company’s common stock per share on the commitment date, to additional paid-in capital. As the Company was in an accumulated deficit position, the offsetting amount was amortized as a deemed dividend recorded against additional paid-in-capital. During the year ended December 31, 2021, pursuant to issuances of Series E Shares, the Company recognized the beneficial conversion feature to additional paid-in capital, resulting in a discount of $900 respectively on the Series E Shares which has been recognized as a deemed dividend. In the years ended December 31, 2022 and 2023 the Company didn't issue any Series E Shares.
During the years ended December 31, 2021, 2022 and 2023 the Company didn’t redeem any Series E Shares.
After March 29, 2020 as per the original Series E Shares Statement of Designations all redemptions of Series E Shares would incur a redemption premium equal to twenty percent (20%) of the Liquidation Amount being redeemed instead of fifteen percent (15%). As a result, as of December 31, 2021, the Company adjusted the carrying value of the Series E Shares to the maximum redemption amount, resulting in an increase of $437, which has been accounted as deemed dividend. No such adjustment took place in the year ended December 31, 2022 and 2023 as no Series E Shares were issued during 2022 and 2023.
During the years ended December 31, 2021, 2022 and 2023 the Company declared $1,883, $2,046 and $1,001 of dividends to the Series E Shares holder.
On December 6, 2023 the Company received a conversion notice for the conversion of all the outstanding Series E Shares (13,452 shares) into 2,930,718 of the Company’s common shares. The Series E Shares were converted on the same date of the receipt of the conversion notice with a conversion price of $4.59, which represented 80% of the lowest daily volume weighted average price of the Company’s common stock over the 20 consecutive trading days expiring on the trading day immediately prior to the date of delivery of the conversion notice.
The Company, based on ASC 470-20-40-5, determined that the Series E Shares conversion feature is in essence a redemption, since such conversion was settled by a delivery of a variable number of shares of common stock with a fixed monetary amount and by applying ASC 260-10-S99-2 has recognized the difference between the carrying amount of the Series E Shares at the date of conversion and the fair value of the common stock delivered on the same date as a deemed dividend.
SERIES F PREFERRED SHARESOn January 17, 2022, the Company entered into a stock purchase agreement with Africanus Inc., an affiliate of Evangelos J. Pistiolis for the sale of up to 7,560,759newly-issued Series F Non-Convertible Perpetual Preferred Shares (“Series F Shares”), in exchange for (i) the assumption by Africanus Inc. of an amount of $47,630 of shipbuilding costs for its newbuilding vessels M/T Eco Oceano CA (Hull No. 871), M/T Julius Caesar (Hull No. 3213) and M/T Legio X Equestris (Hull No. 3214), and (ii) settlement of the Company’s remaining payment obligations relating to the VLCC Transaction, in an amount of up to $27,978. From January 17 to March 16, 2022 a total of 7,200,000 Series F Shares have been issued, to cover $47,630 of shipbuilding costs in connection with the deliveries of M/T Julius Caesar, M/T Legio X Equestris and M/T Eco Oceano CA and as a consideration for the settlement of $24,370 of Due to related parties. During the years ended December 31, 2022 and 2023 the Company redeemed a total of 1,349,252 and 2,191,121 Series F Shares for $16,191 and $26,293.
16.
Investments in Unconsolidated Joint Ventures
New 2020 Joint Venture
On April 24, 2020 the Company acquired from a company affiliated with Mr. Evangelos J. Pistiolis, or the MR Seller, a 50% interest in two vessel owning companies (California 19 Inc. and California 20 Inc.) that owned two scrubber-fitted 50,000 dwt eco MR product tankers, M/T Eco Yosemite Park and M/T Eco Joshua Park respectively for $27,000, representing the Company’s share of interest in the fair value of the net assets acquired. Both vessels were delivered in March 2020 to the MR Seller from Hyundai Mipo shipyard of South Korea. The MR Seller had already entered into two joint venture agreements, for the two vessels, each with an equal ownership interest of 50%, with Just-C Limited, a wholly owned subsidiary of Gunvor Group Ltd (the other 50% owner). The abovementioned acquisition was approved by a special committee of the Company’s board of directors (the “JV Special Committee”), of which all of the directors were independent and for which the JV Special Committee obtained a fairness opinion relating to the consideration of the transaction from an independent financial advisor. Sale and purchase commissions due to CSI related to these investments amounting to $454 were accounted for as part of the investment.
Out of the purchase price of $27,000, $1,646and $1,654 were recognized as excess of the purchase price over the underlying net book value (“Basis Differences”) for California 19 Inc. and California 20 Inc. respectively, attributed to the value assigned to the attached time charter. These Basis Differences are amortized over the duration of the firm period of the charter (5 years) and their amortization is included as a reduction in Equity gain/(loss) in unconsolidated joint ventures. Furthermore $1,963 and $1,963 were also recognized as Basis Differences for California 19 Inc. and California 20 Inc. respectively, attributed to the fair market value over the carrying value of the vessels. These Basis Differences are amortized over the useful life of the vessels (25 years) and their amortization is also included as a reduction in Equity gain/(loss) in unconsolidated joint ventures.
On March 12, 2020, California 19 Inc. together with California 20 Inc. entered into a loan agreement with Alpha Bank for a senior debt facility of $37,660($18,830 for each vessel). The loan has a term of five years and is payable on maturity via a balloon payment of $18,830 per vessel. The credit facility bears interest at LIBOR plus a margin of 3.00%. The facility carries customary covenants and restrictions, including the covenant that during the life of the facility, the market value of the vessels should be at least 200% of the facility outstanding and any shortfall should be covered by partial prepayments. Vessels are to be valued three times per year, every March, July and December. Provided that there is no breach of the above-mentioned covenant and no event of default has occurred and is continuing or would occur if such dividend distribution would take place, California 19 Inc. and California 20 Inc. may distribute dividends, without any consent from Alpha Bank. The loans are guaranteed by the Company in their entirety and this guarantee is not limited to the Company’s share of the net assets of California 19 Inc. and California 20 Inc (see Note 8). On April 22, 2021 California 19 Inc. and California 20 Inc. prepaid $330 each to reduce each of the outstanding loans to $18,500.
Each of the two product tankers are on time charters that commenced in March 2020 with Clearlake Shipping Pte Ltd, a subsidiary of Gunvor Group Ltd for a firm term of five years plus two additional optional years.
The Company’s exposure is limited to its share of the net assets of California 19 Inc. and California 20 Inc., proportionate to its 50% equity interest in these companies. Generally, the Company will share the profits and losses, cash flows and other matters relating to its investments in California 19 Inc. and California 20 Inc. in accordance with its ownership percentage. The vessels are managed by CSI, pursuant to management agreements. The Company accounts for investments in joint ventures using the equity method since it has joint control over the investment.
California 19 Inc. and California 20 Inc. made the following disbursements to the Company in 2021, 2022 and 2023:
December 31, 2021
December 31, 2022
California 19
Inc.
California
20 Inc.
Total disbursements
Recognition of Equity gain/(loss) in unconsolidated joint ventures of the 2020 Joint Venture for the years ended December 31, 2021, 2022 and 2023 are summarized below:
California 20
Net profit attributable to the Company
Amortization of Basis Differences
Equity gains in unconsolidated joint ventures (attributed to the 2020 Joint Venture)
17.
Revenues
Revenues are comprised of the following:
Time charter revenues
Time charter revenues from related party (Note 5)
The Company typically enters into time charters for periods ranging between three to fifteen years and includes a charterer’s option to renew for a further twoone-year periods at predetermined daily rates. Due to the volatility of the charter rates, the Company only accounts for the options when the charterer gives notice that the option will be exercised. In a time charter contract, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. The charterer has the full discretion over the ports visited, shipping routes and vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance of the vessel. The charter party generally has some owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws, and carry only lawful or non-hazardous cargo. In a time charter contract, the Company is responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges and canal tolls during the hire period. The charterer generally pays the charter hire in advance of the upcoming contract period.
As of December 31, 2023, all of the Company’s vessels are employed under time charters.
18.
Subsequent Events